This page has been archived and commenting is disabled.

CME Sued For Giving "High-Frequency Traders Peek At Market" Since 2007

Tyler Durden's picture




 

Now that both the FBI and the DOJ have woken up from a half-decade slumber realizing there was riggedness, RIGGEDNESS going on in these here stock markets courtesy of Michael Lewis' book, it wasn't long before those most impacted by the frontrunning strategies of HFTs spoke up - anyone who has lost money in the stock market since Reg NMS was conceived.

Of course, said loss could have been the loss of many other factors - such as the market being rigged by the Fed as opposed to vacuum tubes - but since nobody really know much if anything about how HFTs operate, it is rather convenient to scapegoat anything and everything that ever went wrong with one's P&L on algorithms.

Sure enough, in a lawsuit that was just filed by lead plaintiff William Charles Braman, seeking class-action status, and filed on behalf of all users of real-time futures market data and futures contracts listed on the CBOT and CME from 2007 to now, the CME is allegd to have sold order information to high-frequency traders ahead of other market participants.

Specifically, from the lawsuit:

Throughout the Class Period, Defendants not only permitted the HFTs to see price and market data, including open orders, market  orders before all other market participants and trader saw the price and market data, they permitted the HFTs to execute trades using this same non public data and order information before all other traders and market participants. In so doing, the Defendants engaged  in a fraud on the marketplace, deceptive practice and failed to maintain a marketplace that is free from market disruption and market manipulation.

 

Throughout the Class Period, the Defendants concealed the fact that they were not providing a marketplace free of market manipulation because they were allowing the HFTs to trade based upon non-public information, specifically, the non-published and unexecuted orders of all other users of the CME and CBOT. In so doing, the Defendants failed to provide a marketplace that is free from market manipulation and established an unequal and two-tiered marketplace all the while inviting and soliciting the use of its financial trading instruments for profit.

Well, duh. Apparently it took the general public a Michael Lewis book to reread out post from October 2012 in which we showed that an estimated over 30% of CME revenues were made from HFT - in other words from selling proprietary data in direct feeds to high-paying subscribers, that hits collocated servers ahead of the consolidated tape.

But the punchline is that this is not illegal per se. Why? Because the regulators, in all their corrupted and captured brilliance, allowed it!

Bloomberg has more:

The Chicago-based company, owner of the Chicago Mercantile Exchange and the Chicago Board of Trade, offers futures based on interest rates, equity indexes, currencies, energy products and agricultural commodities. The plaintiffs, in their complaint against CME and CBOT, allege “a fraud on the marketplace” and seek class-action status on behalf of exchange users. CME denied their accusations in a statement.

 

Sometime after the start of 2007, the CBOT and CME began letting HFTs peek “at all orders to buy and sell futures contracts before they were reflected” to the rest of the market, according to the complaint filed April 11 in federal court in Chicago. That glimpse occurred “before the person or entity entering the buy or sell order received confirmation that their order was received -- in other words before anyone other than the HFTs were privy to this information.”

 

The lawsuit alleges CME Group gave high-frequency traders early access and that trades from that exclusive advance notice changed prices for everyone else. The plaintiffs had paid for real-time data, according to the complaint.

 

CME Group “invited HFTs to make trades ahead of all other market participants and because the HFTs’ generally entered very large orders, they had the ability through their de facto inside trading to influence the price of financial futures artificially,” according to the complaint.

So does the NY Fed by trading through Citadel. And? One doesn't see either Bill Dudley or Ken Griffin in court. Of course, the CME knows, sees, hears and certainly trades no evil.

“The suit is devoid of any facts supporting the allegations and, even worse, demonstrates a fundamental misunderstanding of how our markets operate,” CME Group said in an e-mailed statement. “It is sad when plaintiffs’ lawyers bring a suit based on a desire for publicity, and in the rush to file a suit fail to undertake even the most basic effort to determine if there is any basis for their allegations. The case is without merit, and we intend to defend ourselves vigorously.”

 

Anita Liskey, a CME Group spokeswoman, said that wasn’t true and that the exchange only offers one data feed with its prices that all investors get at the exact same time.

 

“We have only one data feed, no one can buy it to be faster than anyone else,” she said. “No trader can see any other person’s order until it hits the order book, when it is made public.”

Still, while this particular case will likely be promptly forgotten as rigged as it may be, the market and its HFT parasites operated largely in the confines of the law, we will be following Braman vs CME closely if only for discovery purposes - we eagerly look forward to finally getting a factual glimpse under the skirt of the vacuum tubes.

Full amended complaint below:

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 04/13/2014 - 18:31 | 4655054 Keyser
Keyser's picture

Not a smidgen of corruption... 

 

Sun, 04/13/2014 - 18:57 | 4655095 Looney
Looney's picture

Yeap! Not a smidgen in my briefs too! Just a 'lil bit of shit (all 7 lbs of it)! ;-)

To our non-US ZeroHedgers: 7 pounds of shit is 'bout 4 kilos ;-)

Looney

P.S. Speaking of non-US ZeroHedgers... How come YOUR Merkel never uses any reading aides, such as a... mmm... TELEPROMPTER? ;-)

Sun, 04/13/2014 - 20:28 | 4655315 ndotken
ndotken's picture

CME and the "regulators" will reach a "settlement" ... and CME will pay a "fine" for a tiny fraction of the amount they made in profit ... and CME will admit no guilt ... and there will be no prosecution ... and no jail time for anyone ... and the class-action verdict gets overturned on appeal.  Just like always.

 

Sun, 04/13/2014 - 21:21 | 4655453 willwork4food
willwork4food's picture

This time might be a bit different. If the losers post crash (there were a lot), come forward and begin to sue their brokerage- in conjunction with these findings it could get interesting.

Mon, 04/14/2014 - 00:11 | 4655821 CheapBastard
CheapBastard's picture

"... and a good laugh was had by all...."

Mon, 04/14/2014 - 00:42 | 4655881 Four chan
Four chan's picture

the supreme court just ruled, an hft algo is a person and has rights against all this hate speech.

 

 

Mon, 04/14/2014 - 00:10 | 4655819 Oliver Jones
Oliver Jones's picture

"Ah! He's full of shit!"
-- George Carlin

Sun, 04/13/2014 - 21:17 | 4655443 Silver Bug
Silver Bug's picture

The CME is no stranger to corruption. No surprise here.

 

http://jimrickards.blogspot.ca/

Mon, 04/14/2014 - 06:14 | 4656131 Jumbotron
Jumbotron's picture

And Goldman Sachs front ran this info as well.....which gave them the heads up to shut down their HFT scheme.

Sun, 04/13/2014 - 18:32 | 4655061 navy62802
navy62802's picture

Um, isnta-spike in gold. WTF?

Sun, 04/13/2014 - 18:34 | 4655064 Winston Churchill
Winston Churchill's picture

Ukraine.

Sun, 04/13/2014 - 18:47 | 4655099 knukles
knukles's picture

and Nevada
and gas and oil deals between Roosha and Chinee
and end of the petro-dollah
and Putin will take gold and rubles only (mark my words)
and there is no gold available (shiny)
and Hairy Reed
and the Bundy Ranch, the next Waco/Ruby Ridge by a smidgeon
and solar farms, CHinee solar farms... in Nevada.. on Public Land
and tax time, everybody loves tax time
and Leadership, everybody loves their leadership
and the 8 year economic green shoots everything's coming up smelly self-sustaining economic recovery, which if its so fucking great why are real wages stagnating...
and 50% of the population on welfare, 20% working for the government leaving only 30% to pay for fuckalleverything
and happy, 'cause everybody is happy shits and giggles having fun
and Leadership (oh yeah, I said that)
and credibility
all the politicians and people in positions of power are credible, nice, honest and good
and the little guy getting thrown in jail for $100 crimes and ... Oh fuck me...
not to mention money printing... never tin the history of man has so much fiat been printed in such a short period of time, globally
Never
and grand fiscal policy...

Yeah, and they're a few other things.
Probably forgot a bunch, but no big deal, I'll bet you all get the picture

Sun, 04/13/2014 - 19:02 | 4655134 Keyser
Keyser's picture

TPTB are running out of fingers and toes to stick in the dykes... Sooner than later the SWHTF in more ways than one... 

Sun, 04/13/2014 - 19:15 | 4655171 max2205
max2205's picture

Lots of investor traders should feel used or are in denial

Sun, 04/13/2014 - 23:54 | 4655785 StychoKiller
StychoKiller's picture

Hmm, just the 21st digit left (for guys, that is!) :>D

Sun, 04/13/2014 - 19:22 | 4655185 SandiaMan
SandiaMan's picture

Thrown in Lois Lerner

Sun, 04/13/2014 - 19:27 | 4655191 blindman
blindman's picture

"...Nearly all people reporting on this issue see it as a one-time resource grab involving Senator Harry Reid, his sons, the Clark County Commissioners and the Chinese government. The people reporting this are correct. However, this goes much, much further. Unfortunately, I have the experience to recognize this for what this is. Also, I have come across a Bureau of Land Management Policy Manual which spells out what is happening to Bundy and why."
.
The Bundy Affair Is the Tip of the Iceberg To What’s Coming
April 13, 2014 -
http://thecommonsenseshow.com/2014/04/13/the-bundy-affair-is-the-tip-of-...
.
http://www.blm.gov/pgdata/etc/medialib/blm/wo/blm_library/tech_notes.Par...
.
http://www.nasdaq.com/symbol/cnmxf/institutional-holdings
?

Sun, 04/13/2014 - 19:41 | 4655216 astitchintime
astitchintime's picture

Kudos, knuckles!  One of your greatest rants :)

Think you pretty much covered all that is going on present-tense!

Sun, 04/13/2014 - 21:28 | 4655475 WhackoWarner
WhackoWarner's picture

YUP yes and shall we rant and rave and itemize some more?  Let's all tweak and twitter and comment in order to show how "in clue" we are. How observant we are.

Let's itemize it all.  Then maybe we can analyse it all.  Then we ca pontificate some and posture some.

 

Thing is YOU, ME allow to go on.  USA elected these fools.  USA allows the Supreme Court to be bought. OBJECTIONS?  Yeah well let's look to "up arrows" on the local comment page.

You folks in the USA have absolutely nobody to blame but yourselves. 

Sun, 04/13/2014 - 21:31 | 4655486 WhackoWarner
WhackoWarner's picture

F you.  Give me list of what you are going to do about it.

 

OTHER THAN THAT THIS IS GARBAGE.

Mon, 04/14/2014 - 07:15 | 4656179 Keyser
Keyser's picture

As someone obviously from the EU, you have no room to antagonize US citizens with your bullshit. What have YOU done individually to correct the plight in the EU? I thought so. 

 

Mon, 04/14/2014 - 15:31 | 4657859 kurt
kurt's picture

Don't pick on my pinhead, fucker.

Sun, 04/13/2014 - 20:11 | 4655267 Stoploss
Stoploss's picture

RIGGEDING........

er-

SHOCKING..

Sun, 04/13/2014 - 18:33 | 4655062 SmilinJoeFizzion
SmilinJoeFizzion's picture

Chicago representing

Sun, 04/13/2014 - 18:34 | 4655066 PaperBear
PaperBear's picture

Can the last person out of this crook casino that are the paper markets please turn the lights out.

Sun, 04/13/2014 - 18:35 | 4655068 yogibear
yogibear's picture

There should be hoards of people suing.

Lawyers, can make millions! Plenty of meat on this bone.

 

Sun, 04/13/2014 - 18:35 | 4655069 stormsailor
stormsailor's picture

i lost a shlode in 2009, i thought it was the plunge protection team, and behind the scenes manipulation of the /es,  now i can claim a part of a class action.  wow.  if we win i will probably get back 100.00   lol.

Sun, 04/13/2014 - 18:42 | 4655087 yogibear
yogibear's picture

A least the CNE and others will be sitting in court.

Sun, 04/13/2014 - 18:37 | 4655073 AC_Doctor
AC_Doctor's picture

I am not a huge fan of ambulance chasers, but I hope the lawyers on the plaintiff side, rip these scamming, pieces of shit finanicial institutions a new ass and may the thieves pay back every dime they stole times 1000...

Sun, 04/13/2014 - 20:53 | 4655377 Bangin7GramRocks
Bangin7GramRocks's picture

The gubmint will intervene. Ya know, grandmas stocks could go down. It's all for the greater good if they just sweep this under the rug like the other 50 times that bankers should have been jailed. Cunts!

Sun, 04/13/2014 - 18:39 | 4655079 yogibear
yogibear's picture

The HFT fraudsters are showing a bit of blood from the news splash.

LOL, Soon the sharks (lawyers ) will be in a feeding frenzy.

 More fraud exposed eventually

 

Sun, 04/13/2014 - 18:41 | 4655084 Matt_Master
Matt_Master's picture

Here's hoping all this somehow lands on 100x paper gold to the underlying phyiscal Jeff prat boy Christain...AKA butt boy

Sun, 04/13/2014 - 18:41 | 4655085 Doubleguns
Doubleguns's picture

Should have sent  a couple hundred armed agents to inform the CME,  at gun point, that there is now a lawsuit.

Sun, 04/13/2014 - 18:58 | 4655122 Winston Churchill
Winston Churchill's picture

Maybe the BLM can rustle some algos in Chicago.

Sun, 04/13/2014 - 18:46 | 4655096 yogibear
yogibear's picture

All that paper gold they over-subsribed 1000 to 1,

Oh my. The pissed-off people with all the fraud. 

How about the Federal Reserve's naked shorts?

Sun, 04/13/2014 - 18:50 | 4655097 Wait What
Wait What's picture

when anyone says "it's sad" before they begin their defense, it's pretty much over, right there. Mr. O'Brien showed us that on CNBC. apparently they don't realize that trying to elicit pitty from the people watching, who would effectively be their victims, while they continue to make millions, if not billions, is probably the worst route to take.

Sun, 04/13/2014 - 18:52 | 4655108 TooBearish
TooBearish's picture

After +20 years of successful futures trading I shut my CTA operations down in 2009 - between Corzine and HFT what little edge my operation had was clearly not enough to survive let along prosper....fuk the CFTC and the CME bring back real markets and MAYBE I would reiginite, low probablity outcome at this point....

Sun, 04/13/2014 - 19:07 | 4655147 stormsailor
stormsailor's picture

i got tired of looking stupid, day after day.  everything i knew about the markets, charts, resistance, wave, etc. etc. quit working after march of 2009.

 

not to mention quarterlies and earnings, etc. etc.

 

then the bad news is good new, and the good news is good news and qe etc.etc.

 

then the pm smackdowns as regular as a clock.

 

heads up in a nonrigged market i will stand toe to toe with anybody, but this market is gamed 50 ways from sunday and i am not on the inside of any scheme.

 

so i don't play where i use to make great trades year in and out.

Sun, 04/13/2014 - 19:56 | 4655223 astitchintime
astitchintime's picture

yes and yes, stormsailor.  I was there with you in 2009 as a newbie trader and I got my ass handed to me!

You are absolutely spot-on with your point about getting tired of looking stupid, day after day.

Myself personally, what took me out of the trading market was ... wait for it ....

S L I P P A G E

Really, ADM ??

EDIT  ADM did reimburse me for the cost of the trades, but DAYUM $1500 loss on my part by the stack being seen by whomever ... lesson learned.

Sun, 04/13/2014 - 18:53 | 4655115 Ban KKiller
Ban KKiller's picture

"And...it's gone". Lawsuits! Will go well... 

Sun, 04/13/2014 - 18:59 | 4655124 yogibear
yogibear's picture

If the teams of lawyers subpoena the exchanges and ask for things like the gold trusts and find out it's oversubscribed. Oh my.

It blows up. Then if they look close enough, they'll find the Federal Reserve's naked shorts.

Sun, 04/13/2014 - 19:07 | 4655144 buzzsaw99
buzzsaw99's picture

it is fraud, collusion, and conspiracy in broad daylight. this thing has rico written all over it but nobody is going to jail, not now, not ever. free sergey.

Sun, 04/13/2014 - 19:09 | 4655153 Seasmoke
Seasmoke's picture

Time to come clean on the Gold.  

Sun, 04/13/2014 - 19:32 | 4655200 seek
seek's picture

That will never happen.

The CME will implode and gold will go to 50K/oz and they'll say it's an inexplicable bubble before hopping into jets for Uruguay.

Sun, 04/13/2014 - 20:06 | 4655259 Angus McHugepenis
Angus McHugepenis's picture

Seek: As long as they run to another country we'll sort out the rest. I really believe that banksters are shitting their pants right now. If not, they should be.

Bring it on. We'll soon find out how frail the control grid is.

Mon, 04/14/2014 - 06:14 | 4656130 messymerry
messymerry's picture

Fine, let them go to Uruguay or whereever they like for that matter.  They can run, but they can't hide...  The coming tsunami will sweep over the whole planet.  Remember dear friends, we are not facing an economic collapse.  We are facing a global SOCIO-economic collapse.  Guns and money (PM), fuck the lawyers. 

Consumer is a derogatory term.  Please don't use it... 

Sun, 04/13/2014 - 19:10 | 4655159 stormsailor
stormsailor's picture

daddy want you take me back to mulenberg county beside the green river where paradise lay,

i'm sorry my son but your to late in asking mr peabodys coal train has hauled it away.

Sun, 04/13/2014 - 21:09 | 4655424 Imminent Collapse
Imminent Collapse's picture

+1 for John Prine reference

Sun, 04/13/2014 - 19:12 | 4655162 Unknown Poster
Unknown Poster's picture

Is that a picture from the police lineup? My money is on suspect #6. The perp kept saying "This is EZ".

Sun, 04/13/2014 - 19:14 | 4655165 The Count
The Count's picture

OK take a guess which exchange officials will actually stand trial....wrong, none! I absolutely guarantee you that this will be settled out of court with payment of whatever millions of dollars and no addmittance of any wrongdoing. Move along, nothing to see here, place your oders now...

 

Sun, 04/13/2014 - 19:15 | 4655172 negative rates
negative rates's picture

Rust never sleeps.

Sun, 04/13/2014 - 19:16 | 4655175 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The sad fact is that you would run out of boo lits before you even made a dent.

It always surprises me that no trys, however.

Sun, 04/13/2014 - 19:22 | 4655183 Acidtest Dummy
Acidtest Dummy's picture

HFT is the sub-quantuum kinetics of the USSA's overunity banking system.

Sun, 04/13/2014 - 19:26 | 4655186 naughtius maximus
naughtius maximus's picture

Coronal mass ejections.. is there anytihng they can't do!

Sun, 04/13/2014 - 19:33 | 4655202 Turdy Brown
Turdy Brown's picture

mark my words, NOTHING will happen!

Sun, 04/13/2014 - 21:11 | 4655428 Axenolith
Axenolith's picture

'Zackly.  I think the real crux of HFT is the fact that they enter huge numbers of orders without the intent to execute.  That, in and of itself is illegal, but those numbers pump the volume numbers up phenominally.  What do you think happens when you turn off the HFT machines and the volume of the market drops 50-70% in one day? 

Sun, 04/13/2014 - 19:34 | 4655204 holdbuysell
holdbuysell's picture

So when do the pension-fund-originated lawsuits begin to fly against the stock exchanges? Fiduciary duty obligates them to do something, no?

Sun, 04/13/2014 - 19:35 | 4655208 buzzsaw99
buzzsaw99's picture

exactly. the pension funds are the ones who should be suing.

Sun, 04/13/2014 - 19:47 | 4655224 Barry McBear
Barry McBear's picture

Selling open order information?  Really CME?  Fuck you!!!

 

Let's get the names of those involved in making this possible out in the public.  Sleep well my friends.

 

100% chance Eurex does the same shit too BTW.

Sun, 04/13/2014 - 19:53 | 4655234 yogibear
yogibear's picture

"Let's get the names of those involved in making this possible out in the public.  Sleep well my friends."

 

Sue the CME and go after the indiividuals. Huge amounts of money involved.

Sun, 04/13/2014 - 20:01 | 4655243 Joebloinvestor
Sun, 04/13/2014 - 20:14 | 4655272 ThisIsBob
ThisIsBob's picture

This should have a huge chilling effect on HFT firms themselves, and the other exchanges.  They were all in it together.  Don't get between a plaintiff's lawyer and a deep pocket.

Sun, 04/13/2014 - 20:57 | 4655397 dragoneyes74
dragoneyes74's picture

The indexes are all approaching possible support levels at the same time the Yen and bonds (and notes) are at or approaching resistence levels.  It would make sense if that led to a decent equities bounce soon, possibly up to the ES 50-day at 1840. Not something a swing short wants to hold thru.  I would love to be a position player but I'm just not wired for that.  In order to get long for the bounce I need to see bullish RSI divergence on the 4hr charts and I will be playing small in case it rolls thru all of this.  I'll try to make it to the support levels on only a small portion of my short.  Once I have a profitable trade it's a matter of deciding how I want to be wrong on the exit: take profits too soon and miss out on more; or take profits too late and give some back.  That's why I like doing it half at a time, smoothing that out.  

Support/Resistence level: 

ES at 1785/90 (uptrendline)

NQ at 3400 (horizontal, 200-day EMA)

YM at 15600-15800 (uptrendline/200-day EMA)

10-year Notes at 125'50 (200-day EMA)

30-year Bonds at 135'20 (horizontal)

USD/JPY at 100.78 (200-day EMA)

I still think we are very likely forming a major top for at least a 10-20% correction and possibly the bubble top of the central bank era. Mostly because I think the big money long term players are switching sides.  However, if that's true it will probably form a classic top like a head-and-shoulders, or a double top over months like the gold bottom in Jan.   

I'm most interested in watching how the dollar handles the 79 level.  If it breaks through without any signs of reversing, it may set in motion the checkmate of the Fed.  If the dollar starts trending down and heads toward its all-time lows this fall then the Fed will not only HAVE to end QE it will have to raise rates before it wants because the market will force it to, and that means bubbles pop everywhere.  The only delay mechanism is if this drags Draghi into the QE madhouse. 

Gold and silver are still looking good but they're at resistence too.  I'd like to see a breakout of gold into the $1330s this week.  If silver can break through that downtrend line from $49 currently at around $20.70-ish, this will get very interesting.  If not, I'll be on guard.  The dollar may be key to this.     

Sun, 04/13/2014 - 20:58 | 4655398 williambanzai7
williambanzai7's picture

No, we all understand quite well how our markets "operate" shit heads.

Only a spawn of the Senate Majority Leader would be too fucking stupid to understand.

HFT is just another high speed land grab.

Sun, 04/13/2014 - 21:30 | 4655483 willwork4food
willwork4food's picture

LOL. You have hit the nail on the head. I often wonder how their little teenybopers fair, growing up in luxury and psydo-honor as a child of one of the "leaders" of the free world in DC. Little do they know most Americans loathe them and dream of the day the little brats stare at their daddy swinging on a noose in their front yard.

Sun, 04/13/2014 - 21:30 | 4655485 Lokking4AnEdge
Lokking4AnEdge's picture

It is about time!

Count me in!-any law suit against the CME is a blessing!!!

Sun, 04/13/2014 - 22:11 | 4655583 pndr4495
pndr4495's picture

The floors of the NOT FOR PROFIT exchanges had sueveillance cameras as wll as CFTC/SEC human scrutiny - as well as Compliance Departments - as well as internal peer pressure - as well as their own rulebooks. Yet we were always considered in hushed tones as thieves of the first order. The individual clearinghouses are sourcepoints for even more investigation.

I wasn't the best broker/trader nor was I was the worst. I always understood the fiduciary obligation I had to an order , whether it was 1 lot or 1,000 lots. Beginning in the 2nd half of 2007 it seemed that I had fallen through a trapdoor. My winning trade percentage plummeted. In short order my account reflected my inability to DISCERN what was happening - after all , hadn't the exchange brass argued that now the field would be level for everybody , and there would be more liquidity and more participation so spreads shoud get tighter. Of course all too late I was reminded of the old maxim - IF YOU CANNOT TELL WHO THE SUCKER IS AT THE TABLE THEN IT'S YOU. I believe now that riskless trading for a few and riskfilled trading for everyone not part of the few means to me that my money was stolen.

Mon, 04/14/2014 - 05:17 | 4656111 kurt
kurt's picture

CME Feel Me Touch Me Steal from Me

Mon, 04/14/2014 - 10:17 | 4656649 rtinder
rtinder's picture

Are HFTs able to monitor stops then drop prices on thinly traded stocks to pick up the stops? Sure seems to be possible with order data being sold by the exchanges.

Mon, 04/14/2014 - 11:21 | 4656929 Itchy and Scratchy
Itchy and Scratchy's picture

Who doesn't like to be front-runned?

Do NOT follow this link or you will be banned from the site!