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DOJ Launches Probe Of Treasury Market Manipulation

Tyler Durden's picture




 

Two months before the CFTC and DOJ slammed one solitary trader in a London suburb with "seasonally-adjusted" allegations that it wasn't actually Waddell and Reed who flash crashed the market on May 6, 2010 as the SEC originally claimed but an E-mini spoofer named Nav Sarao (whose only real crime was exposing the rigging by the HFT cartel), we showed in explicit detail how HFTs were rigging the Treasury market with "egregious manipulation" in the futures market through spoofing.

To regular ZH readers who have seen countless intraday examples of Treasury rigging, not to mention the power of HFT demonstrated during the October 15 flash crash, this was nothing new, but what made this particular case unique is that it was brought up in litigation by one HFT firm, HTG Capital Partners, which charged unnamed "John Does" with doing precisely what we had alleged HFTs do in all capital markets, all the time. This is what we said:

... the catalyst that cracked the Libor conspiracy was when the members started to make less and less money, until ultimately the formerly golden goose was bled dry. At that point, their incentive to keep their mouths shut became nil, and in some cases negative. From that point on, it was just a matter of time before the regulators had a case against the conspiracy granted to them on a silver platter.

 

The same is now happening to high frequency trading, because in a market in which volumes are crashing to unprecedented lows, and where there are no longer whale accounts for the HFTs to frontrun, pardon "provide liquidity to", there is no longer a need for as many HFT firms. And those firms which end up on the losing end of the technological arms race, now that there is not enough profits for everyone to go around, are suddenly incentivized to bust the whole criminal ring wide open. Or in the words of Louis XIV, "After me, the flood."

 

Which brings us to a the case of HTG Capital Partners, Plaintiff v John Doe(s), defendants, case 15-cv-02129, Northern District of Illinois. What does HTG allege?

 

From the lawsuit:

This matter involves the egregious manipulation of the U.S. Treasury futures markets trading at the Board of Trade of the City of Chicago (“CBOT”), a designated contract market and a wholly-owned subsidiary of CME Group, Inc. (“CME Group”). Since at least January, 2013, and continuing through at least August, 2014, the Doe Defendant(s) engaged in an illegal form of market manipulation known as “spoofing” in the U.S. Treasury futures markets. The term “spoofing” refers to, among other things, the manipulative practice of entering bid or offer orders with the intent to cancel those orders before execution (these orders are hereinafter referred to as “Deceptive Orders”). Examples of spoofing include entering orders to create the appearance of false market depth or to create artificial price movements upwards or downwards. This practice enabled the Doe Defendants to manipulate the market to their benefit, and to the detriment of HTG and other market participants. This Complaint seeks to recover the financial losses HTG suffered as a result of the Doe Defendant(s)’ illegal activity.

We give the CFTC and the DOJ the customary 6 months to 5 years before they finally catch up to what our readers already knew, but earlier today in confirmation that a crack down on yet another market for gross manipulation is imminent, the Post reported that the Department of Justice fresh from doing all it can do prevent Vladimir Putin from blowing $10 billion in the bottomless hole that is World Cup 2018 infrastructure spending, is probing the Treasury market for possible manipulation.

Make that absolutely certain manipulation, one which will result in another multi-billion round of litigation settlements and furious wristslaps and for which absolutely nobody will go to prison because "technical glitches" and "algorithms" will be blamed; maybe the occasional bank logo will be Point72'ed.

From the NY Post:

Justice lawyers, believed to be in the early stages of a probe, have reached out in recent months to at least three of the 22 banks that act as primary government debt dealers and requested information regarding auctions of Treasury debt, said one person close to one of the banks that received the request.

 

No single bank has become the focus of the probe, it is believed, and no bank has been accused of any wrongdoing. In addition, there is no guarantee that the requests for information will turn up any evidence of manipulating Treasury auctions.

 

A spokesman for the DOJ on Sunday declined comment on the matter.

 

The requests for information came as Justice was set to wrap up a probe into manipulation of foreign currency rates.

 

* * *

 

Last year, the Treasury Department issued some $7 trillion in debt. They are considered the most easily traded and trusted debt in the world. Treasuries are sold through regular auctions, and include bills, notes and bonds with maturities ranging from a few weeks to 30 years.

They are also the easiest to rig not only due to the surge in futures trading as opposed to underlying cash, but because market participants believe the market is one of the few ones which is unrigged, leaving themselves acutely exposed to manipulation.

So with Treasurys about to be exposed as the next big market manipulation scandal, there will be just two left: corporate bonds and equities (by now we assume it is clear to everyone that the price of gold has been manipulated for decades as confirmed by countless bank settlements). After all the DoJ has to show it is not afraid of going after the evil, big banks (even if it seems a tad flustered about actually perp-walking any employee of said banks).

And if there is one thing that will be sure to get retail investors back in the "market" in droves it is the DOJ inevitably confirming that stocks, like Treasurys, like FX, like commodities, like Libor, has been always manipulated, not just by the HFT parasite plague but by the biggest "fiduciaries" of the market.

 

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Mon, 06/08/2015 - 08:05 | 6173644 NoDebt
NoDebt's picture

Time to pick up the carboard box and move the 3 Card Monte game a couple blocks down.

Mon, 06/08/2015 - 08:11 | 6173652 VinceFostersGhost
VinceFostersGhost's picture

 

 

doing all it can do prevent Vladimir Putin from blowing $10 billion in the bottomless hole that is World Cup 2018 infrastructure spending,

 

They have saved soccer. Of course no one in the US really cares.

 

Couldn't we get the UN to do that and maybe stick a couple more guys on the border.

Mon, 06/08/2015 - 08:19 | 6173681 keremetski
keremetski's picture

Who is Quincy Edwards???

Mon, 06/08/2015 - 08:31 | 6173708 Stackers
Stackers's picture

Cue scapegoat stage left.

Mon, 06/08/2015 - 08:49 | 6173738 knukles
knukles's picture

Those peaky alogs again I hear.  Especially that 30 year old Indian one who lives in his parents attic out Chigwell Essex way.  Mohammed Algo Apooh.  Smart ass kid even has a gold shirt he wears to the pub on speed dating nights.  That'll take care the problem.  BTW, I hear for DoJ sources that the charges for spoofing will be leveled against him on October 31.

Boo!

BTW  From HTG Capital Partners Website    "From latency-sensitive algorithms implemented on multiple co-located facilities to lower frequency trades that can be executed on the floor or phone, traders at HTG are enabled to deploy their strategies across a variety of products, which include futures, options, equity indices, interest rates, and FX."

So in this Bizarro world, the algo guys are suing others?!?!?!?  Maybe I'm reading it wrong, but what does it matter anymore?

Mon, 06/08/2015 - 08:59 | 6173804 pods
pods's picture

Would conjuring money out of thin air to buy them to purposefully drive down the interest rate qualify?

pods

Mon, 06/08/2015 - 09:16 | 6173868 BoredRoom
BoredRoom's picture

Obama's JustUs department is only about preserving the victimhood status of kneegrows...everything else is a dog and pony show.

Mon, 06/08/2015 - 09:43 | 6173976 philipat
philipat's picture

Which now means that the Precious Metals "markets" are now the only ones which are not manipulated.........??

Mon, 06/08/2015 - 10:39 | 6174195 Serfs Up
Serfs Up's picture

Another show trial...now that 'spoofing' is no longer a useful tool for manupulation, they are going to throw it under the bus.  Like the NSA stopping the collecting of 'meta data.

Yeah, right.

Like they needed the Utah facility to house the meta data which could fit into a storage rack the size of my small garage.

How abou they go after the ultra-obvious bid slamming, also an obvious practice to manipulate prices...oh...that's right...because that's still a useful tool of the state.

Mon, 06/08/2015 - 08:09 | 6173657 TideFighter
TideFighter's picture

...a hot tub in every home with a nail gun in the garage...

Mon, 06/08/2015 - 08:05 | 6173647 Croesus
Croesus's picture

"Keep moving, nothing to see here"

Mon, 06/08/2015 - 08:06 | 6173648 WTFUD
WTFUD's picture

Probe Me MOAR.

Mon, 06/08/2015 - 08:07 | 6173653 NoDebt
NoDebt's picture

I propose an alternate title for the article:  "Why we all like manipulation as long as it's in the right direction"

Mon, 06/08/2015 - 08:08 | 6173655 Brazen Heist
Brazen Heist's picture

Whaaaat? The cronies themselves are probing themselves? This should work out well.

They'll just find another titty to suck on for cash.

Go long on slaps....on the wrists!

Mon, 06/08/2015 - 08:09 | 6173656 Arnold
Arnold's picture

Present hands for slapping.

Mon, 06/08/2015 - 08:10 | 6173660 ncdirtdigger
ncdirtdigger's picture

The federal reserve manipulates the markets, why can't I?

Mon, 06/08/2015 - 08:15 | 6173674 NoDebt
NoDebt's picture

That seems to be the thinking.

BTW- I read your screen name wrong EVERY SINGLE TIME.

Mon, 06/08/2015 - 08:27 | 6173698 LawsofPhysics
LawsofPhysics's picture

You don't have a printer.

Mon, 06/08/2015 - 08:11 | 6173663 buzzsaw99
buzzsaw99's picture

the doj hahahaha

Mon, 06/08/2015 - 08:21 | 6173685 Brazen Heist
Brazen Heist's picture

DOJY Bastards

Mon, 06/08/2015 - 08:12 | 6173664 sudzee
sudzee's picture

Need to whitewash the ongoing fraud in the market to add credibility to treasurys and continue the con. 

Mon, 06/08/2015 - 08:13 | 6173665 TideFighter
TideFighter's picture

This trade brought to you by the plastisized money of Visa and Mastercard. 

Mon, 06/08/2015 - 08:13 | 6173668 wmbz
wmbz's picture

Absolute bullshit for show! Nothing more.

Mon, 06/08/2015 - 08:18 | 6173676 Hal n back
Hal n back's picture

I guess that if the Fed openly manipulates the market with QE that does not count because it said it was goint to buy treasuries.

Mon, 06/08/2015 - 08:21 | 6173684 buzzsaw99
buzzsaw99's picture

the fed manipulates the entire thing on a daily basis. can the doj spell RICO? didn't think so.

Mon, 06/08/2015 - 08:27 | 6173700 VinceFostersGhost
VinceFostersGhost's picture

 

 

Who runs Bartertown?

Mon, 06/08/2015 - 08:34 | 6173711 Atomizer
Atomizer's picture

Too bad SCOTUS didn't recognize ObamaCare was a RICO violation. RICO is a illegal alien crossing the border for new taxpayer supported goodies. 

Mon, 06/08/2015 - 08:25 | 6173693 Atomizer
Atomizer's picture

Giving Lynch the benefit of the doubt. Too early to judge outcome. I'm going to sit back and watch how this unfolds before speculating my views. 

;)

Mon, 06/08/2015 - 08:26 | 6173695 LawsofPhysics
LawsofPhysics's picture

LOL!!!  What bullshit is this?  The Fed's balance sheet is no secret!!!  The manipulation has been "approved" by the U.S. government you stupid fucks!!!

Mon, 06/08/2015 - 08:26 | 6173696 thinair
thinair's picture

This is another case of the Lord's arranged penance.

http://just-a-thought-from-thinair.blogspot.com/2015/04/no-one-saw-it-co...

read it all : http://just-a-thought-from-thinair.blogspot.com/

What heppens to the tenth and why? Is anyone working on this problem yet?

 

Mon, 06/08/2015 - 08:40 | 6173733 Minburi
Minburi's picture

Just another distraction to keep people's focus off of all of Obama's crimes..

Mon, 06/08/2015 - 08:53 | 6173781 SillySalesmanQu...
SillySalesmanQuestion's picture

Is that Tyler's deer Doe that has been caught manipulating the treaury market...?

Mon, 06/08/2015 - 08:58 | 6173797 lbrecken
lbrecken's picture

Yeh right and my repeated calls on oil price manipulation bg media and others go unanswered here....goto oilprice for my latest piece..

Mon, 06/08/2015 - 09:00 | 6173806 lbrecken
lbrecken's picture

Notice the probs start as yields rise?

Mon, 06/08/2015 - 09:05 | 6173832 Catullus
Catullus's picture

Every bank will be blamed. Low level people will take the fall. Fines galore. Nothing will change.

And yet, the government had observers planted at each bank that took a bailout to monitor them.

 

If you're a shareholder of a bank, this is the government just robbing your equity one fine at a time.

Mon, 06/08/2015 - 09:07 | 6173844 williambanzai7
williambanzai7's picture

This will surely interfere with Jamie's colon therapy. 

Mon, 06/08/2015 - 10:01 | 6174048 negative rates
negative rates's picture

Never had a problem with it in the old days, it's a modern phenomenon of human pollution and filth.

Mon, 06/08/2015 - 09:14 | 6173866 PrimalScream
PrimalScream's picture

At this rate ...

I would actually feel safer if FIFA was running the global banking system!

Mon, 06/08/2015 - 09:19 | 6173886 Fun Facts
Fun Facts's picture

Department of inJustice.

Run by hardened criminals and ZWO sycophants.

Mon, 06/08/2015 - 09:19 | 6173889 rejected
rejected's picture

One parasitic fraud investigating another parasitic fraud.

I can see it now,,, a 10 million dollar fine and a promise never to do it again.

Mon, 06/08/2015 - 09:55 | 6174025 Baldrick
Baldrick's picture

Tyler, i seem to recall a very LONG article that you did in March of 2010 or 2011 on the fed admitting to manipulating market rates. maybe you should forward that to the doj.

Mon, 06/08/2015 - 11:50 | 6174440 Conax
Conax's picture

We spoofed some folks.

 

 

<had to do it>

Mon, 06/08/2015 - 12:51 | 6174758 HughBriss
HughBriss's picture

Who said that our overlords didn't look out for our best interests?  See!  See??  We matter!  lololol

Mon, 06/08/2015 - 12:53 | 6174763 Obamamerica
Obamamerica's picture

If a giant sinkhole opened up under Washington DC and all the politicians. regulatory agency employees, lobbyists, and mainstream media folk were sucked to the 7th level of Hell, would anyone really care? I contend life would go on as usual. 

Mon, 06/08/2015 - 18:20 | 6176208 StychoKiller
StychoKiller's picture

With the exception of a wild, global party!

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