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The ICE Just Banned Market Manipulative "Momentum Ignition" Trading
Back on September 8, we reported some bad news and some good news:
- The good news: starting September 15, 2014 the CME said it would no longer tolerate what is affectionately calls "Disruptive market practices." This is what we unaffectionately called HFT-market rigging practices including frontrunning, quote stuffing, churning, subpennying and so on.
- The bad news: the CME effectively admitted that it was not only tolerating and turning a blind eye toward such disruptive market practices until this point, in many cases it was compensating the "liquidity providing" perpetrators.
Today we can share the same pair of good and bad news: overnight the ICE Exchange (proud recent owner of the NYSE) decided to join the CME and reported, that "Effective January 14, 2015, subject to conclusion of the applicable regulatory review period, the Exchange will implement amendments to Rule 4.02 which consolidate the rules prohibiting disruptive trading into new subparagraph (l) and add language to provide additional clarification as to the types of practices that are prohibited."
As the bulletin below shows, the ICE is now merely the latest futures exchange where the most glaring forms of HFT market abuse will no longer be tolerated. From the just released notice:
Rule 4.02 - Trade Practice Violations
In connection with the placement of any order or execution of any Transaction, it shall be a violation of the Rules for any Person to:
(l) Engage in any other manipulative or disruptive trading practices prohibited by the Act or by the Commission pursuant to Commission regulation, including, but not limited to:
(1) Entering an order or market message, or cause an order or market message to be entered, with:
(A) The intent to cancel the order before execution, or modify the order to avoid execution;
(B) The intent to overload, delay, or disrupt the systems of the Exchange or other market participants;
(C) The intent to disrupt the orderly conduct of trading, the fair execution of transactions or mislead other market participants, or
(D) Reckless disregard for the adverse impact of the order or market message.
(2) Knowingly entering any bid or offer for the purpose of making a market price which does not reflect the true state of the market, or knowingly entering, or causing to be entered, bids or offers other than in good faith for the purpose of executing bona fide Transactions.
The Q&A provides some further color and confirms that this latest regulation is aimed quarely at HFTs:
Q: What does “mislead” mean in the context of the Rules?
A2: The language is intended to be a more specific statement of the general requirement that market participants are not permitted to act in violation of just and equitable principles of trade. This section of the Rule prohibits a market participant from entering orders or messages with the intent of creating the false impression of market depth or market interest. The Regulatory Division generally will find the requisite intent where the purpose of the participant’s conduct was, for example, to induce another market participant to engage in market activity.
Q: What factors will Market Regulation consider in determining if an act was done with the prohibited intent or reckless disregard of the consequences?
A11: Proof of intent is not limited to instances in which a market participant admits its state of mind. Where the conduct was such that it more likely than not was intended to produce a prohibited disruptive consequence, intent may be found. Claims of ignorance, or lack of knowledge, are not acceptable defenses to intentional or reckless conduct. Recklessness has been commonly defined as conduct that “departs so far from the standards of ordinary care that it is very difficult to believe the actor was not aware of what he or she was doing.” See Drexel Burnham Lambert, Inc. v. CFTC, 850 F.2d 742, 748 (D.C. Cir. 1988).
Q: Does Market Regulation consider cancelling an order via ICE’s Self Trade Prevention Functionality (“STPF”) or other self-match prevention technology indicative of an order being in violation of the Rules?
A14: The means by which an order is cancelled, in and of itself, is not an indicator of whether an order violates the Rules. The use of STPF in a manner that causes a disruption to the market may constitute a violation of the Rules. Further, if the resting order that was cancelled was non-bona fide ab initio, it would be considered to have been entered in violation of the Rules.
As for the punchline: momentum ignition will soon be banned!
As a reminder, momentum ignition is perhaps the primary strategy that has enabled in practice what the Fed has been trying to accomplish in theory (and through printing), namely sending risk assets to all time record highs, using a highly leveraged product such as the USDJPY, which is ramped and has its momentum ignited, with the subseqent avalanche of momentum hitting all other risk assets, most notably the E-mini.
Q: Are orders entered for the purpose of igniting momentum in the market prohibited by The Rules?
A12: A “momentum ignition” strategy occurs when a market participant initiates a series of orders or trades in an attempt to ignite a price movement in that market or a related market.
This conduct may be deemed to violate the Rules if it is determined the intent was to disrupt the orderly conduct of trading or the fair execution of transactions, if the conduct was reckless, or if the conduct distorted the integrity of the determination of settlement prices. Further, this activity may violate the Rules. if the momentum igniting orders were intended to be canceled before execution, or if the orders were intended to mislead others. If the conduct was intended to create artificially high or low prices, this may also constitute a violation of the Rules
It turns out Zero Hedge was again about 2 years ahead of the curve with our December 2012 article: "Momentum Ignition" - The Market's Parasitic 'Stop Hunt' Phenomenon Explained.
Again as in the case of the CME, perhaps more troubling is that these overt market manipulation "practices" will have been permitted until January 14 on what is one of the largest - if not the largest - futures exchanges in the world.
Sadly, like before, we have no idea just how the ICE (or the CME) will enforce these new regulations which go against the best interests of some of their most lucrative clients, and whether they will be enforced at all unless someone is exposed to be a violator by a third party, formerly having been called, you guessed it, a tinfoil hat conspiracy theorist.
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"market" -- LMFAO!!! Shit, I see evidence of greater price discovery when we go to the farmer's market on the weekends. the harder these ivy league fucks try and pick the winners (their friends) and losers (everybody else), the greater the chaos.
Bring it!
good luck with enforcement. this and shovel ready projects are about as convincing.
I jsut read down the comments and you all got it wrong. These rules WILL be enforced and they WILL be effective. But you all read this like it's supposed to stop UPWARD moves. WRONG! This is designed to stop DOWNWARD moves. It's a THREAT against people who would dare to think about selling.
Gold up $22. ???
The key word in all those regulations is "intent". Proving "intent" is about impossible to do in a court of law without a smoking gun document and/or evidence of them explicitly stating said "intent".
Couldn't they simply make each order have to remain open for 4 seconds before you cancel it? I mean a human can't really move any faster than that. It forces you to "put your money where your mouth is"
Just throw random, variable 100 to 500 millisecond delays into the trading updates along with mandatory 10 second times on all buy and sell orders. This would provide endless entertainment.
Was thinking the same thing. If the TPTB are fearful of a major collapse what better way to mitigate the collapse then to stand tall and say "But look what we did to prevent it"
disclaimer: This subject is one in which I have no expertise.
However...where I hear of rules and rule makers, I immediately think of the other parasitic underling class in our society - the lawyers. And with ICE making this "rule" will it create an opportunity for the clash of the parasites big money vs. big law.
When, how and with whom this rule is applied will have an effect. I figure the rule is only there to prevent any investigation of abuse.
Hey! The government enforcers worked closely with Bernie Madoff for years until, and even after, his ponzi scheme collapsed. And you dare to question the competence of government?!?!? </s>
Right, changing the rules is a PR stunt, they won't enforce shit.
Exactly, believe it when someone is arrested for violating it
Arrested? HA! They will receive one demerit for each occurrence, 1,000 demerits gets you a hunnerd dollar fine.
The proceeds will be used to redecorate the coffee bar.
Good point. For 14 years now I bet every Wall St firm has had an inter-connected office pool gambling on the date of the first arrest of one of their brethren.The 2014's are now in the books, no more 2014 bets.
There is not one word in the announcement about what the "penalites" might be. Violators should be banished from the markets for 6 months for first offense, permanently for a second violation.
Like that would ever happen. HaHa, never mind. What was I thinking?
The enforcement will be selective.
They will prevent any downward momentum.
'Market' = animal farm control mechanism.
Some markets are more equal than others.
and some wag the dog. I mean, the world
There is no market manipulation, but we're gonna ban manipulation anyway.
Right, got it.
Rules are for serfs! Want local "proof"? Take a look at "foreign LLCs" under your Secretary of State's website under "corporations". Tell me that wasn't written by banksters!
that's patently false, in my eyes, this "Rules are for serfs!" without any qualifications. it rhymes with "no rules, no regulations, no laws"
one example: student debt. I don't know if it was ever forbidden in the US, but I know that in most of the world this kind of lending is completely against the law
for moral reason. yes, in order to forbid the twenty-year old student to commit a possible financial mistake that the same person might regret ten, twenty or thirty years later
in order to forbid the sale of your future self. in the same way that principle of freedom, taken too far, would permit someone to sell himself as a slave, an organ harvest victim or, as in the case of US student debt, a debt serf. so yes, some rules are good for people, while others are not, for example this thing about US student debt not being defaultable
it spoils the narrative of more freedom being always better, eh? more, pardon me, moar of it! often does
(I would not have hacked on you if you had not taken that foreign tag about the LLCs. fact is that it has to do with too many lawyers and tax avoidance schemes for American funds and trusts)
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to come back to the article: this financial mess needs smart regulation. the very fact that it defines well what is forbidden is very good. the fact that it does not yet specify how it's going to be monitored is, as I agree with Tyler, the real bitch
Good luck trying to legislate the stupidity out of people.
You'll run out of paper first.
What a wonderful world it will be when a faceless, unknown Govt. bureaucrat decides that this kid can get a loan, but the other kid can't because their guidelines show there's too many hairdressers in the market.
A much better solution would be if the lender made the risk assessment because he would actually hold the risk on non-performance rather than a govt. backstop.
A novel approach. Lenders living with their loans without a net.
I made my point in haste, and so I forgot to put the real issue: eligible collateral
if a person is allowed to use it's own body or it's future income (without being able to default) as collateral, then the end result is serfdom or slavery
it's that simple, and the real reason why debt jubilees were made, in ancient Mesopotamia and Greece: eventually, you run out of free people
and this kind of stupidity is legislated out of people, elsewhere. btw, without student loans... could university be so damn expensive? again, compared to the rest of the world? no
humans aren't eligible collateral. that's the path to serfdom, paved with bricks of good intentions and badly defined freedoms
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there is smart regulation. actually, a lot of what has been scrapped around 1999-2000 was smart. and short. Glass-Steagall, for example, was something like 100 times shorter then some crap that has been done afterwards. compared to some other legislation, 1'000 times shorter
No they didn't. Don't hold your breath wating for it to stop.
Exactly. There are gaping loopholes in this regulation around the word "intent." Try proving that. It's why fraud cases are so hard to prove.
"Yes yer honor, I did it, but I didn't mean to. Sorry. My bad."
"Case dismissed."
It was a programming glitch.
I am sure that the word change after Lobbyists money was transferred was just a coincidence.
I get it, it's just like spraying a little ether into a cold carburetor, except in this scenario the car is driving over a cliff
More toothless rules to ignore unless you are the little people.
"Sadly, like before, we have no idea just how the ICE (or the CME) will enforce these new regulations which go against the best interests of some of their most lucrative clients, and whether they will be enforced at all unless someone is exposed to be a violator by a third party, formerly having been called, you guessed it, a tinfoil hat conspiracy theorist."
kudos to ZH for having been at the very front of the exposure of those practices, at the price of the of being slurred a tinfoil hat conspiracy theorist blog
A famous ( or infamous perhaps ) trader who was way ahead of the curve of the electronic trading era , and had his share of scrapes with DOJ and SEC was rumored to have said " when they come to arrest me , they can arrest the computer. " What does that say about the trading culture created by the wholesale embrace of computerized trading? I don't call what is happening in U.S. markets progress , nor do I call it innovation. Our markets are broken , with a tip of the hat to Saluzzi and Arnok for pointing it out.
This will fix it. I am sure of it.
Just like the penalties for forgery bitchslapped all the mortgage shysters.
pods
LIEING SACHS OF SHIT !
don't worry about sprecher, he got plenty
Rules, shmules. Rules are meant to be broken. Show some hutzpah.
When you can blow a billion on fines and another billion on lawyers, rules don't mean jack shit.
YOU NEED JAIL TIME OR LAMPPOSTS AND REUSEABLE ROPES, reuseable is necessary because we are going to be very busy.
Enforcement? Yeah, that's what I thought.
"Sadly, like before, we have no idea just how the ICE (or the CME) will enforce these new regulations which go against the best interests of some of their most lucrative clients"
Rules aren't meant for whales, they are meant to keep the little fish in line so the whales can eat them later.
What, no more quote stuffing, churning, subpennying, and front running? Jeez, what next, mark-to-market? The sky is falling.
It’s such a bother for Wall Street firms to have to “refuse to admit any wrong doing”. We’re just supposed to assume that’s their position from now on.
It's a sensible housekeeper measure.
It keeps those Federal Courts clear of all those nuisance lawsuits.
Q: What does “mislead” mean in the context of the Rules?
A2: The language is intended to be a more specific statement of the general requirement that market participants are not permitted to act in violation of just and equitable principles of trade.
Making something impossible is a much greater deterrent than ruling it illegal. Adding a random delay to all transactions makes HFT trading abuse (misleading) impossible.
They got a better chance of herding cats than they do enforcing this blah-blah-blah.
I can't believe these new "rules" were not already in place.
Yes you can.
You're just not trying hard enough.
According to Eric Holder, enforcing these rules against the main perps will cause a financial crisis.
Banned, except for the following exempt groups:
http://calc.taxpolicycenter.org/ACACalculator/GroupsExempt.htm
Fuking incredible they have to create rules that go against the federal reserve practices. That tells you something about the legitimacy of the fed. Well Citadel and others like the limewire founder Mark Gorton will have to find some other way to rip companies and people off with ill gotten gains.
I'm curious, the word "Person" shows up in those rules, could those duchebags throw out the argument that a "Person" did not violate the rule, it was a computer so therefore the rule doesn't apply?
Until Skynet becomes self-aware, it can be argued that all computers are controlled by either their users or programmers.
the breadth of the traded market has grown exponentially
protecting a few "key" clients will become less important over time
individuals are trading with similar tools as institutions and don't have the same "institutional constraints"
God bless technology and God bless the internet
Free the Honorable Jon Corzine!