The Mysterious "Massive" Seller Who Flash Crashed Gold In 2014 Has Finally Been Revealed

Tyler Durden's picture

Back in late 2013 and  early 2014, the gold (and silver) market was stunned by a series of massive, unprecedented "stop" or "velocity logic" sales which sent the price of the precious metal crashing so furiously they halted the entire gold futures market anywhere between 10 and 20 seconds.  Some examples:

Some said this was nothing but a fat finger, but we together with Nanex showed this was clearly a premeditated attempt to reprice gold lower, facilitated by that oldest trick in the HFT book: quote stuffing. 

As a reminder, only recently did regulators finally realize just how manipulated the gold market is when in early May, after a Zero Hedge post explicitly showed just how "someone" was spoofing gold, both the CME and the CFTC cracked down on the manipulator. However the moves that had seen regulatory intervention were paltry and largely irrelevant in the grand scheme of gold "price discovery."

Until today.

In Notice of Disciplinary action, COMEX 14-9807-BC, the CME charged Mirus Futures, which one year ago was bought by NinjaTrader with "disruptive and rapid price movement in the February 2014 Gold Futures market" which prompted the abovementioned Velocity Logic event which halted the market for ten seconds.

From the allegation:

Pursuant to an offer of settlement Mirus Futures LLC (“Mirus” or the “Firm”) presented at a hearing on June 16, 2015, in which Mirus neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the COMEX Business Conduct Committee (“BCC”) found that it had jurisdiction over Mirus pursuant to Exchange Rule 418 and that on January 6, 2014, Mirus failed to adequately monitor the operation of its trading platform (Zenfire), and connectivity of its trading system (Zenfire) with Globex. This failure resulted in unusually large and atypical trading activity by several of the Firm’s customers and caused the mass entry of order messages by Zenfire, which resulted in a disruptive and rapid price movement in the February 2014 Gold Futures market and prompted a Velocity Logic event.

 

The Panel found that as a result, Mirus violated Rules 432.Q. (Conduct Detrimental to the Exchange) and 432.W. (Failure to Supervise).

Incidentally, this is precisely the event we described in the January 6, 2014 post, which sent gold plummeting from $1245 to under $1215 in under 100 milliseconds.

This is the "anomalous", market-manipulative event in question, which curiously also promptly dragged down silver even though the CME only alleges gold manipulation. Almost as if correlation algos need no actual reason to buy or sell aside from, well, what the other pair in the correlation does.

 

The volume in this dump was massive:

 

The correlated "safety asset" move even succeeded in pushing bitcoin, which then was trading just over $1000, down into the triple digits.

That this was yet another HFT market-rigging event was also known. This is how Nanex described the millisecond-level landscape back then:

The chart below shows the entire $30 drop in the price of Gold futures that occurred in just under 100 milliseconds (1/10th of a second). When we separated groups of trades by a jump in the exchange sequence number (a technique to determine the size of a larger order) we discovered there were 9 groups where the sum of the trade sizes was exactly 338 contracts! Each group is composed of widely different numbers of trades: the first group of 338 contracts is made up of 211 trades, the second group is made up of 186 trades, and 3rd-9th: 120, 193, 97, 193, 137, 112 and 109 trades respectively. We show these 9 groups in the chart below. What's more, there are other trades occurring between these groups of 338 contracts.

 

This was not the result of a fat finger, but rather the work of a high frequency trading algorithm that paused, and (probably) tested the market before continuing. A fat finger would not have such distinguishing features. What is disturbing about this algorithm, is that it carefully waited so as not to trip the CME's stop logic and halt the stock. The halt was from the more lenient volatility circuit breaker after the price declined $30 in less than a second. This algo appears to have been more concerned about preventing an immediate halt, rather than getting the best prices. Since the value of the trades was close to $500 million, there aren't a lot of suspects. Add to this, the fact they didn't get "special treatment" and have the trades busted, or the price adjusted (which is what happened with the Treasury Futures debacle just 2 short weeks before this event).

 

The futures move promptly spilled over into spot and ETFs:

 

Leading to a ten-second "velocity logic" trading halt:

 

The punishment for the manipulators with the "faulty" trading platform?

  • In accordance with the settlement offer, the Panel ordered Mirus to pay a fine to the Exchange in the amount of $200,000.

So Nav Sarao may spend 380 years in jail for spoofing the S&P lower, but some bucket prop trading shop executing some "unknown" client's orders gets away with $200K. Brilliant.

In any event, with an 18 month delay we finally know precisely who caused the January 6, 2014 gold flash crash: something the CME could have revealed the very next day, and yet it chose to keep quiet.

Here is what we don't know:

  • Who is responsible for the other, gold flash crashes preceding this one, spaced just one month apart, between September and October 2013.
  • Who are the customers referred to in the charge?

Because while the CME accuses Mirus' then trading platform "Zenfire", since made obsolete, for the glitch, it also says that Mirus failure "resulted in unusually large and atypical trading activity by several of the Firm’s customers."

So was the failure in the trading platform or, as the CME also alleges, the failure was the result of "atypical trading activity" whose sole intention was almost certainly to cause a cascading avalanche of sell orders which pushed gold by $30 lower, rebounding just 50% of the way in the other direction once the selling pressure subsided, what is know in the industry as "repricing" an asset, in this case due to fraud which the CME chooses to call a "glitch."

Some "price discovery" - if a "failure" can take an "efficient" price and chop off nearly 2% from it for absolutely no reason.

Alas, we won't find out.

Why?

First Mirus no longer exists: one year ago it was acquired by NinjaTrader, Zenfire was deactivated, and any and all traders complicit in the gold manipulation scheme have long since gone on to bigger and better manipulating venues.

Second, as one furious reader finally blew up and asked then CFTC "regulator" and now HFT lobbyist, Bart Chilton what the hell is going on, only to find out that the US commodity regulator had other more pressing concerns at the time - and every time - than running fair and functioning markets:

From: Chilton, Bart <BChilton@cftc.gov>
Date: Tue, Oct 1, 2013 at 9:32 AM
Subject: Re: Today's Smackdown
To: XXX@XXX
 
No regulators looking at markets due to government shut down.
 
B
 
NOTE: Ponzimonium: How Scam Artists are Ripping Off America, is now available in a FREE EBOOK edition. Go to the link for your copy and a Government Book Talk interview: http://govbooktalk.gpo.gov/2013/09/03/post-ponzimonium-an-interview-from...
* * *
 
From: XXX@XXX
Sent: Tuesday, October 01, 2013 09:16 AM Eastern Standard Time
To: Chilton, Bart
Subject: Today's Smackdown
 
Commissioner Chilton,
 
Any comment on this morning's shenanagins in the gold and silver pits?  Time to reopen an investigation?
Is credibility important to the CFTC?
 
Regards,
 
XXX

In retrospect, Bart Chilton's "book" explaining "How Scam Artists are Ripping Off America" was clearly based on his own personal experience.

As for gold, it will remain manipulated and viciously slammed until such time as the suppressed price can be allowed to recover its fair value, which will only happen once those who are accumulating massive amount of physical have their fill. In the meantime, if you can't beat them may as well join them, as long as physical gold continues to be quite explicitly "on sale."

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janus's picture

a conspiracy is a crime, not a theory.

janus

Kirk2NCC1701's picture

As an 'Merican, I blame Putin.  Or China.

/s

Deathrips's picture

Fuck the Fed!!

 

Fuck Ol Yellen!

FucK Bernyankme!

 

Physical assets...Long.

 

 

RIPS

 

espirit's picture

Long Bankster jumps from the thirteenth floors, nailguns...

Oh, and Guillotines.

caustixoid's picture

Kirk, it's Thursday. Isn't Thursday "Blame Iran" Day?

knukles's picture

There are no Conspiracy Theories.

Theosebes Goodfellow's picture

So what is missing from this little story?

"...with the advent of this news, CME has decided to ban all High-Frequency Trading on the commodities boards as the only sure way it could prevent this from happening again."

 

MonetaryApostate's picture

You can take out the bankers or you can wait for China, Russia, India, and the other third world nations to come and take out you....

TeamDepends's picture

Speaking of conspiracy theories, does anyone else have to login EVERY FREAKIN' TIME they visit ZH? Also, our Iphone won't keep tabs open anymore and to top it off the keyboard plays hide and seek. Is this Net Neuter-Reality kicking in?

Beam Me Up Scotty's picture

"There are no conspiracy theories"....

There is no spoon either...

OC Sure's picture

 

"a conspiracy is a crime, not a theory."

Conspiracy is the plotting of a crime. 

The committment, the action of doing,  of the crime itself is the crime. 

A theory has no evidence of fact. 

janus's picture

https://www.fas.org/sgp/crs/misc/R41223.pdf

the fact that your vote counts the same as janus' is what make 'democracy' an untenable form of government.

and as to theories, they all have facts as evidence.  there is a structure to any theory...wait a minute...why the fuck am i bothering with you?  it's clear you're a lost cause; you couldn't have made that any clearer any quicker.    

back to the salt mines with ya, drone.

janus

 

OC Sure's picture

Ha. A theory is comprised of facts, yes. But the end to which all the comprised facts are just a means is still a theory until it is evidenced by its aim. Otherwise, why call it a "theory" at all? Once the end is evidenced then we no longer refer to it as a theory, but simply say it is a fact. 

Einsteins' Special theory of relativity was comprised of many facts but still only a theory until it could be evidenced that time indeed slowed for the faster moving object relative to the slower object. When atomic clocks became available the theory was proven as fact. Therefore, there is no "theory" of relativiity. It is just matter of fact. 

Occident Mortal's picture

On 11th September 2001, the USA lost its economic supremacy when two dozen Saudi's shut down the 300 million strong US consumer market.

 

In the weeks that followed we had Islamic snipers in Washington and anthrax being posted all over the country.

Americans all over the country stayed away from the mall. GDP, tax revenue and the velocity of money freefalled.

 

There was a real risk (it actually happened) that the dominant dialogue that would dictate the consumer confidence of the worlds superpower had been hijacked by bearded men in caves 8,000 miles from America.

 

Bin Ladens videos became the dominant narrative, he could stop Americans shopping. The man had literally amassed the power to stop Christmas.

 

Rather than allow the country to continue under a climate of consumer fear, Alan Greenspan took the most extraordinary monetary action (at the time) ever conceived. 

 

The Greenspan Fed fixed the Prime Rate to the floor, In little more than 12 months interest rates plunged from 7% to 2%, before dropping further to 1% where they stayed for two years, 2003-2005.

Greenspan gave monkey hormones to consumer confidence and with two wars in Afghanistan and Iraq, US consumer confidence was buoyant that they need not fear terrorists. The economy came roaring back, and so did financial speculation. So much speculation in fact that it spilled out into Main St. The reality market boomed, and boomed again.

Greespan attempted a soft landing with 17 consecutive rate rises hoping to lance the bubble he had deliberately blown, but the system was far too leveraged. Lessez Fair markets enjoyed privatised profits and socialised losses, especially as so many market participants were deploying other peoples money.

When Greenspans hikes finally burst the bubble the implosion wiped out the entire financial industry. Literally all of the investment capital in North America was wiped out, such was the gearing in the system.

By this point Greenspan had already left the crimescene and Bernanke was in the chair. Bernanke now had the opportunity to put his academic theories into real world practice. He duly pulled every lever. Refinancing the financial industry by diluting the purhcasing power of all USD currency holders. This grand grand grand grand grand larceny was only possible because the world had no alternative financial system other than the New York banks, the USD and SWIFT.

Had an alternative financial system been in place the refinancing would have simply destroyed the USD currency under capital flight.

 

Today the story continues.

 

The Fed resides on a huge balance sheet, all markets are buoyed with diluted currency (currency values have crashed rather than asset prices rising), interest rates are at zero to 0.25% and have been stuck there for six long years.

The economy remains anaemic. Corporate debt has ballooned to finance buybacks and displace stockholder capital in the capital structure of corporations driving down WACC and allowing profits to be redistributed, NOT TO EMPLOYEES BUT TO EQUITY HOLDERS.

 

The West is aneamic, has not recharged the monetary levers needed to tackle another crisis and is truly backed into a monetary and fiscal corner.

Meanwhile in the East a Sino-Russian axis is emerging, one which is rapidly erecting an alternative financial system.

 

The stage is set for WWIII, we are out of monetary options, we are out of fiscal options, all we have left in the strategic cupboard is political options and military options.

 

The West has been fighting an economic war since 9/11 and we are losing badly. Soon there will be young people entering the workforce who have never lived under a proper free market economy!! Their entire lives lived under ultra low rates. Money for nothing.

 

Meanwhile in Asia 10 times as many youngsters will be entering the workforce having lived their entire lives under GDP growth rates of 5-10%.

 

 

This is a war we cannot win. We should seek peace and partnerships with all parties, even Moscow.

new game's picture

nice post O M! many thoughts (consp. theor.-ha) came to mind whilst reading your well articulated post, something i said in 2003 ish, the browns are winning because we are losing the game economically. now, comes the theories. 1)intentional 2)morons at the helm. take your pick or a hybred of both...

NoDebt's picture

The CFTC knew who did it probably by the next morning at the latest.  The fact they waited until after that firm was acquired and that platform shut down is awfully convenient timing.

Remember the 3 stages of basic crisis management:

1.  Deny there is a problem.

2.  Admit there is a problem but there is nothing that can be done about it.

3.  Admit there is something that could have been done about it, but it's too late now.

Sound familiar in this situation?

philipat's picture

@ND, I was just about to make exactly the same point myself. The convenience of the timing is uncanny. And wrt the critical matter of on whose behalf the firm was acting you can guarantee that "Unfortunately all historical client records were lost in the transfer to new owners. But at this point in time what difference does it make". Nice one, that CFTC really is a tenacious "Regulator"..

Incidentally, why don't we just disband BOTH SEC and CFTC and appoint Nanex to police the markets. That for sure would be more effective and would save a ton of money in the process.

the kings whore's picture

You ass-bandits have to accept the cold hard facts.  Gold is dead.  The dollar is king.  Them's the breaks.

VinceFostersGhost's picture

 

 

You can't print gold...and we've just printed the dollar to infinity....and beyond.

 

Something we said we wouldn't do...but we did it anyway.

 

The bell tolls for thee bitch.

 

 

Save_America1st's picture

so then who just tried to flash crash the paper PM's an hour ago?????

Creepy Lurker's picture

He should change his name to the cia's whore.

janus's picture

Occident Mortal,

your comments are interesting.  whether or not we agree on the operative motive backing the respective forces, i think your breakdown of the causes and their subsequent effects is pretty solid; and so my question hasn't much to do with your argument per se, it's more that i can't imagine a scenario under which your conclusion is feasible.

it's presupposing those sides want peace without considering what for those sides constitutes an acceptable 'peace'.  so, i'll accept that all men of good will want 'peace', but peace to me and peace to another man may mean two totally different things.  

under the world's present arrangement there are various prerogatives enjoyed by some nations and not by others, there are additionally boundaries that are for some satisfactory and for others a matter of ancient enmity...i could go on, but, suffice it to say, the world's present order is infinitely complex and america is the adhesive that makes it all stick.  rearranging 'peaceful' scenarios with all the world's competing forces, no matter how equitable the arrangement may seem, would initiate a cascade of consequences that would, without question, result in war.

i'm sorry, but to me it seems that war is on the way -- whether we remain fixed or advance with any bias.  

how can we negotiate peace in the far east when all of our allies demand that we keep china in check (while they buddy up to them, pretending that uncle sam's a big ole bully)?

how can we negotiate peace with russia when all our european allies demand that we keep putin in check (while they play footsie with him)?

amorica's been forced into a position where he must play good cop and bad cop at the same time; it's extended itself too far; and very soon one of the major competing powers is going to test its resolve.

when analyzing the pressures applied to pax american, and seeing how they've been systematically positioned to expose strategic weakness and force a realignment one way or another, it's clear to me that the very powers that you'd have us seek peace with are those who've been positioning for war.

i'm not saying i blame russia or china for their military build up and their preparations to challenge amorica; i'm only saying that it's real.  amorica has been sloppy in attempting to provoke these enemies into situations that expose their own weakness.

no, my friend, there are 7+ billion people on planet earth.  the resources upon it are limited.  'peace' is a subjective concept. and that is because it is a human concept.  it ALWAYS means more for me and less for you.  and so long as humans seek 'peace' there will always be war.

https://www.youtube.com/watch?v=qtbOmpTnyOc

but i wish it weren't so.

janus

 

Dr. Everett V. Scott's picture

OC Sure,

Relativity is still a theory. One of the best, but still...

Man-made global warming (MMGW) is a conjecture.

A theory is able to make repeated, accurate predictions.

MMGW has never made accurate predictions.

A theory is based on empirical measurements.

There are no measurements quantifying MMGW.

A conjecture is simply an opinion.

Draw your own conclusions...

ufos8mycow's picture

Those gangsta rappers with giant gold 'grills' aren't looking too stupid now are they?

logicalman's picture

If you choose to pay to carry a tracking device, you deserve all the problems you get.

 

TheEndIsNear's picture

No. You only have to log in if you want to comment or up/down vote comments. Your problem is that you use an iPhone.

 

MASTER OF UNIVERSE's picture

Erase your memory on the CPU, and reboot with the startup software. I just upgraded to a new used Luddite(tm) because my old one was overdosed on bugs. With my new software it lets me know how many entities are attempting to track what is commented on. Z/H is a hotbed of companies that are tracking people on this website. Lots of companies means lots of viruses. The cheap way is to just upgrade when that happens to your CPU.

Bananamerican's picture

fraud which the CME chooses to call a "glitch."

"mistakes were made™"

"nobody saw it coming™"

"I got your 'glitch' right here™"

Fun Facts's picture

The CME and CFTC are complicit in everything that is wrong with the markets, which is everything.

Son of Loki's picture

The culprits are obvious: "Several [pristine] Russian passports were found on the Mirus trading floor...."

 

 

Thirtyseven's picture

I'm not sure if I'm ready for Reptilians yet.

Everything else is either already fact or incredibly plausible.

Al Gophilia's picture

You can see the lack of depth of bids on netdania's site on the overnight silver smash. The series of gaps down on low volume, on thei 1 and 5 minute charts, shows that there are few active independent traders or that someone pulled their bids (of which I don't have access to verification data).

Took Red Pill's picture

 "the Panel ordered Mirus to pay a fine to the Exchange in the amount of $200,000"

What? That's not even a slap on the wrist! And who gets that money? What about the people who lost money because of this?

californiagirl's picture

Mirus is just the mechanism. Who is the "unnamed party" who pulled the strings???

Squid-puppets a-go-go's picture

gold miners class action

not against the 'customers' of mirus - against the CFTfuckingC

Ms No's picture

Yep, two conspiracy theories left now.  You have the Reptilians, an alleged parasitic interdimensional species who occassionally appear in the physical as reptiles.  They are said to possess particular bloodlines and consequently engineer civilization toward their needs of blood sacrifice and suffering.  mmmmkayyyy...

Then there is the theory that Michael Jackson was framed for pedophelia and then subsequently murdered by his physician who was employed by Zionist AEG in retaliation for him coming off life long contract with Sony and AEG and then proclaiming his intent to spend his future earnings and efforts fighting off industry control of all Hollywood artists.

Not even looking into it.

 

Crash Overide's picture

The CIA invented the term "Conspiracy Theory", that should tell you everything you need to know...

Al Gophilia's picture

"Long Bankster jumps from the thirteenth floors, nailguns...

Oh, and Guillotines."

Uh, no.

They are being fined for being sloppy and getting caught; "Pursuant to an offer of settlement (i.e. pay us a bribe to shut this down) ........".

Lorenzo153's picture

Why manipulative? Isn't simply the free market?

joseJimenez's picture

If you cut these fuckers head they will grow two new ones. 

Calmyourself's picture

Kirk, starting to wonder about you, Uhura suck your brain out boy?  It's obviously Bush's fault..

LoneStarHog's picture

Today's Conspiracy Theory Is Tomorrow's News Headline

duo's picture

It's a conspiracy until you're in on it, then it's called a "project".

Thirtyseven's picture

I didn't realize the word Project originated from the Hebrew language.

SoilMyselfRotten's picture

You never heard of Project for a New Amarican Century?