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Fed/Treasury Worried High-Frequency-Trading "Hurts Market Function"
Just days after China bans Citadel (and its high frequency trading) from trading Chinese markets, US Treasury and Federal Reserve officials have been forced to admit they "need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning." As WSJ reports, Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. markets in light of recent events. They are growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading. As Weiss concludes, "the constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic."
As we previously noted, Citadel gets busted in China (and banned)... after "The firm has recently expanded its quantitative hedge funds there, and its securities trading business traded options this year in a trial program on the China Financial Futures Exchange."
Chinese media reported over the weekend that one of the restricted accounts was co-owned by Citadel and major Chinese brokerage firm Citic Securities. Citic Securities said Sunday it invested in the account in 2010, but it sold off its stake in November 2014 and no longer owns stock in the account, according to China’s official Xinhua News Agency. Citic Securities didn’t immediately reply to a request for comment.
And while a Citadel spokesman didn’t respond to a request for comment on which side of the firm’s business was affected by the suspension, it appears that Citadel's infatuation with market rigging via algos and "automated trading" is what set China off. Or rather the "selling" via automated trading.
Moments ago Bloomberg confirmed as much when it reported that an official Chinese regulator urges further algorithm trading regulation, adding that China should be prudent on developing algorithm trading, Shanghai Securities News cites an unidentified official with China Securities Regulatory Commission as saying.
Market stability were “seriously damaged” by algorithm trading combined with some abnormal trading activities, the official was cited as saying. Algorithm trading may lead to systematic risks and result would be catastrophic when algorithm trading was used to manipulate market, the official was cited as saying.
Why are none of these risks ever brought up vis-a-vis Citadel's market manipulation in the US?
The answer is glaringly simple: because in the US, unlike China, Citadel always manipulates the market higher.
And now, as The Wall Street Journal reports, regulators in the US are less excited about the impact of HFT as perhaps they fear the same about to happen here...
Senior officials at the Treasury Department and Federal Reserve questioned the benefits of high-frequency trading in U.S. Treasury markets, suggesting market overseers are building the case for new rules targeting the firms.
Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. Treasury markets in light of recent events that suggest they are more prone to swings.
The remarks, made at an event hosted by the Brookings Institution think tank, were the latest evidence that Washington is growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading. Officials have lately focused on a huge 12-minute swing in the yield of a key U.S. Treasury bond on Oct. 15—the Treasury market’s version of the 2010 stock price dive known as the “Flash Crash.”
...
Mr. Powell, who has an influential voice as a member of a Fed board that sets rules for large banks, didn’t endorse any specific rule changes, but said the current market structure, which encourages superfast trading, could be less resilient than in the past. “One can certainly question how socially useful it is to build optic fiber or microwave networks just to trade at microseconds or nanoseconds rather than milliseconds,” he said.
"If trading is at nanoseconds, there won't be a lot of 'fundamental' news to trade on or much time to formulate views about the long-run value of an asset; instead, trading at these speeds can become a game played against order books and the market rules," Powell said
Of course - it's easy - as Volcker did recently, to fob blame off on HFTs alone...
But some on Wall Street say new regulations are to blame for more fragile markets because they have made it harder for big banks to act as middlemen between buyers and sellers.
U.S. officials don’t appear convinced their rules are the problem. Mr. Powell said regulations “may be one factor driving recent changes in market making,” but added “these same regulations have also materially lowered banks’ probabilities of default and the chances of another financial crisis.”
Another significant change in Treasury markets: The Federal Reserve now is holding far more Treasury bonds as part of its programs to stimulate the economy.
And, as Reuters adds, Antonio Weiss, counselor to the U.S. Treasury secretary, was blunter.
“We need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning,” Mr. Weiss said.
"The constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic," he said in a speech prepared for deliver to the panel.
* * *
Which leads to an even more interesting, follow up question: if Citadel's HFT algos were indeed caught red-handed selling in China, then someone in the US must have given the local Citadel brokerage the green light to spoof Chinese stocks lower. And since by definition Citadel does not do anything market-moving without the Fed's preapproval, one wonders if China's paranoia that foreigners are eager to crush its market is not at least partially grounded in reality?
* * *
In other words - all the time HFT manipulation presses prices higher, everything is fine and ignored... but when bonds are aggressively bid or stocks aggressively sold by the flash-crashing vicious-cycling HFTs then something has to be done about it!!
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LOL.......thatz a funny one......next thing ya know they'll be sayin' gold market is rigged
From the days of 6 people meeting in a dark room to decide the price of gold....then the LIBOR...then Madoff...then the hedge funds....nowadays the HFT...ANYTHING THAT IS OPAQUE IS RIGGED!
HEY SEC, GOT IT?
You don't need to be a ROCKET SCIENTIST to figure this out!
But that Corzine is awesome! He actually made a billion dollars disappear and is still outside the 4 walls of a prison! Go figure!
That's like saying guns kill people.
Citadel is now a US defense contractor.
In the USA private companies bid on secret tenders to build warplanes.
Seems the US has moved on from pursuing two generation air supremacy to pursuing orderbook supremacy.
In the USA private companies bid on secret tenders to build warplanes.
Seems the US has moved on from air supremacy to orderbook supremacy.
Jacob Lew - the invisible man.
DavidC
So is Bernaeke banned?
The crooks weren't worried about it for the past 6 years when the market was going up every day. Now that the market is about to tank, it's a problem.
Fucking seven years too late. Maybe because Citadel was caught fucking Chinese markets so the Fed announces concerns to distance themselves from their unofficial proxy.
Hope the Chinese fine Citadel at least $10 billion
They are sharp as a marble and on the anal edge of technology......
Liquidity is only good if your constipated
"In other words - all the time HFT manipulation presses prices higher, everything is fine and ignored... but when bonds are aggressively bid or stocks aggressively sold by the flash-crashing vicious-cycling HFTs then something has to be done about it!!
That's all it boils to down to. No reason to say anything else.
Just outlaw short selling and large block sales.
On the other hand who gives a shit... the un-fed can just buy it all! Over and over again.
That's why they pulled the plug on wall street last month, to stop the algos from tanking the market. I cant believe how many people dont get this. Of course, not a lot of people get how computers and networks work.
You mean, when the trend turns down after all the money and liquidity dries up, we'll get flash crashes from computers that realize shit's gone bad that want to stay out for a while? Jeez that would be too "transparent" I suppose.
But, but, but, all HFT does is add liquidity. And I've been told over and over for almost a decade that liquidity is GOOOOOOOD! All the poeple at CNBC and the WSJ have told me so over and over and over.
China may just be shifting the blame externally. It's possible that it was citadel, but it's equally possible that it wasn't.
This is so awesome, I'm so glad the FED can see HFT for what it is.
Thank God for the FED!
the whole dept-money-system is a big lie! It will break a part! If the SHTF situaltion is there, you may need a Bug-Out-Bag:
Long Term Wilderness Bug Out Bag https://www.youtube.com/watch?v=1bEC6Ve1HOoSounds like we got a formal complaint from China.
That is good.
They don't believe it is being done by one single guy.
Yeah right, raise rates AND unplug HFT for a really fun ride.
"need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning."
"does re-engineering agent orange for agriculture and consumption hurt humans?"
"do unlimited campaign contributions and lobbying hurt the democratic process?"
Maybe the market is just reflecting society in general.
"C.R.E.A.M."
-Wu Tang Clan
Duh!
One of these days I am going to land one of those high paying jobs 'stating the obvious many years late'
"Officials have lately focused on a huge 12-minute swing in the yield of a key U.S. Treasury bond on Oct. 15—the Treasury market’s version of the 2010 stock price dive known as the “Flash Crash.”
A 'key U.S. Treasury bond' indeed... Panic (and action like you ain't never seen before) may not be that far off in the confidence arena, because after all, confidence is all that's left.
Sounds to me the Fed knows its in a corner from allowing HFT firms to spoof prices higher, and higher. They see that they cannot entice retail back in and now the firms are just playing 'pass the flaming shit bag' until the music stops. We saw how much fundamentals are supporting these price levels (well they were like 50% less price wise) on May 6, 2010. Now that we have doubled the price levels with the same non-existant support, the fall is going to be that much harder to control. Good luck doing a slow unwinding of spoofed orders.
There are just a few good hfj's(high frequency jugglers)standing in a foot of gasoline playing musical shit bags with a hundred thousand shit bags all singin 'The night they burned old Dixie down' after midnight at the broken karaoke Shanghai saloon so nothing too serious, should be a nice youtube video though, could go viral.
We use kerosene around here cause it's less volital.
Did this just start? lol!!
VXX seems like it wants to explode right now. It breaks out quick then some douchebag sells hit hard. I guess kevin henry is worried his mom will have to go back to working the street corner if he gets fired.
Hey fed, live by the sword, die by the sword. Citadel can't hold back the world from shorting when things get real.
Janet, now's your time to shine and I don't think you want things to turn out like Venezuela because the crowds will probably be knocking on you and Ben's door wanting some answers.
I'm about concluded the term "high-frequency trading" is a euphemism. everything I've read leads me to conclude a much more accurate description is "low-latency frontrunning". I'm being completely serious/not sarcastic - if I'm being generous I could accept "high-volume low-latency frontrunning" but the word "frequency" in my mind conjures up images of sine waves & trig equations which I see little (if any) association w/their actual revenue model. when they talk about "the race to 0" they're talking 100% about latency, not frequency.
am I off base here?
I Agree.
High frequency trading amounts to a wealth transfer just do the math, all day trading money has been transfered to the hands of a few. The big pools of cash (pension funds etc) are like icebergs HFT is chipping away but it will take awhile to completely transfer. The Chinese are correct here if anybody is going to get the cash its the gov not some punk HFT
"need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning."
They're gaming ... not trading. The solution is obvious. Just add a small random delay to each transaction but otherwise change nothing. This will make the gaming not work but the trading will continue to work. Problem solved. What do you bet they don't get it.
In addition to the speed limits, a transaction and quotation tax would be useful to slow down abuses.
In addition to the speed limits, a transaction and quotation tax would be useful to slow down abuses.
Speed isn't the problem. Advantage is the problem. Put in a random delay and you don't really affect the speed that much but for sure you eliminate tha advantage. HFT algorithms would be impossible to write. And taxing for discipline is a very very bad idea. We need to quit feeding that monster at every turn. And we need to quit going to them (government) as a solution to anything!
HFT kills price discovery ... as does the specialist/market maker system. There are no free market prices for stocks. But the banks have decided that they would rather have a fraudulent system with infinite liquidity than a fair and honest system with real people and real volume. The banks could not compete in a free and fair market.
...... on top of which the bigger banks, insurance companies and other financial middlemen rightly deserve to be wrapping up their bankruptcy proceedings about now, not exercising unchecked control over the supply of currency in this country - serious trouble - serious serious serious as G. Edward Griffin has said.
and the FED knew exactly what was happening They sanctioned the transfer to their shareholders - the TBTF Bank fraud cabal it is a joke in very bad taste They are wondering out loud if HFT is harmful to market function wtf
Great ! That's some consolation for the trading public. HFT was sold as a "faster, fairer more inclusive" market design. It was and remains H igh F requency T hievery, NOT - REPEAT NOT - High Frequency Trading. For a deep pocketed elite group HFT is RISK FREE, and for the people who still have money to trade, it is RISK FILLED. That The Federal Reserve would say this now smells of something. What that might be remains to be seen - but it won't be helpful for the average American.
Don't tell anyone but the cows have already left the barn....
In a perfect world the sheeple would demand their mutual funds to only direct trades to the IEX exchange!
fuck robot traders...unplug
QE1,2,3 hurt market function.
The FED is worried that they can't get away with blaming something else.
The Fed actually referred to it as a "market." Those guys are hilarious!
DOWN with HFT front running, spoofing, wash trading, quote stuffing.