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"Project Omega" - Why HFTs Never Lose Money: The Criminal Fraud Explained

Tyler Durden's picture




 

Two weeks ago, without knowing the details of the most recent market-rigging and frontrunning scandal involving "alternative" market veteran ITG's dark pool POSIT, which issued a vague 8-K it would settle with the SEC for "irregularities", we explained what we thought had happened:

ITG had an in house prop trading group, or "pilot", which operated for nearly two years, whose only signal was client order flow, which it would frontrun, and make millions in profits. In other words, once again precisely what we have claimed since 2009. But oh yes, not everyone is guilty of such manipulation. Only Liquidnet... and Pipeline... and ITG... and countless other ATS and HFT firms for whom clients are better known as either "easy money" or muppets.

 

And yes, we get the "trading experiment" narrative: calling it "criminal market manipulation and order frontrunning scheme" just does not sound like something the Modern Markets Initiative would spend millions of dollars to get Congressmen to agree on.

It turns out we were spot on, the only thing we missed was the name of this market manipulation exercise. Now, thanks to the SEC, we know: "Project Omega" (or as it was also correctly dubbed here the "criminal frontrunning scheme") is how ITG dubbed its secretive prop-trading desk whose only purpose was to frontrun clients.

Here are the details for all you suckers who still read the HFT apologists and believe the bullshit that all these algos do is provide liquidity, when in reality all the really do is frontrun your orders, assuring them of 6 years of trading without a single day's loss (or in the case of Virtu, one trading day loss). From the SEC:

Between approximately April 2010 and July 2011, ITG violated the federal securities laws and regulations in multiple ways as a result of its operation of an undisclosed proprietary trading desk known within ITG as “Project Omega” (“Project Omega” or “Omega”). During the period of April to December 2010, Project Omega accessed live feeds of ITG customer and POSIT subscriber order and execution information and traded algorithmically based on that information in POSIT and in other market centers. In connection with one of its trading strategies, Project Omega identified and traded with sell-side subscribers in POSIT and ensured that those subscribers’ orders were configured in POSIT to trade  “aggressively,” or in a manner that benefitted Omega by enabling it to earn the full “bid-ask spread” when taking the other side of their orders.

 

Project Omega, which operated as part of AlterNet, traded a total of approximately 1.3 billion shares, including approximately 262 million shares with subscribers in POSIT. ITG’s proprietary trading gross revenues resulting from Project Omega totaled approximately $2,081,304.

A quick point here: since ITG was quick to settle at a cost of $20 million, one can be absolutely certain that the true damages to clients, aka Project Omega revenues, were orders of magnitude higher, however since it wasn't the SEC's intention to disclose just how criminal HFTs are in general but just to put a black eye on ITG's dark pool (as Goldman flexes its muscles and prepares for world algo domination by taking down its competition one by one), and since it is difficult to capture all the "externalities" and dollar benefit from rigging, the SEC was happy to only point out the absolutely bare minimum of damages which were probably the explicit documented loss by those traders who brough this case to the SEC's attention in the first place. Everyone else will have to wait in line for the class action lawsuits to begin when laying out their damages.

But back to the SEC's big picture "explanation" of what we have said for years:

While Project Omega was engaging in proprietary trading, including with ITG’s own customers, ITG was simultaneously promoting itself, and POSIT, as an independent “agency only” broker that did not have conflicts of interest with its customers and that protected the confidentiality of its customers’ trade information.

 

Project Omega was managed and overseen by an ITG senior executive who at the time served as the firm’s Head of Liquidity Management (the “Liquidity Executive”). The Liquidity Executive designed and directed Omega’s trading strategies even though they violated written policies set by ITG’s compliance department restricting Omega’s access to customer information.

 

ITG Inc. and AlterNet violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by engaging in a course of business that operated as a fraud and by failing to disclose to ITG customers and POSIT subscribers, among other things, that: (i) ITG was operating a proprietary trading desk while at the same time promoting its brokerage services and POSIT by describing ITG as an independent “agency-only” broker; (ii) the proprietary trading desk, until December 2010, accessed live feeds of highly confidential order and execution information and used this information to inform its own trading decisions; and (iii) one of the proprietary trading desk’s strategies involved identifying sell-side subscribers with which the desk wanted to trade in POSIT, and ensuring that those subscribers’ orders were configured to trade “aggressively” in POSIT.

 

ITG Inc. violated Rule 301(b)(2) of Regulation ATS by failing to file an amendment on Form ATS at least 20 days before it launched Project Omega disclosing the commencement of its proprietary trading activities and that one of its primary trading strategies would involve accessing confidential information regarding subscribers’ identities and orders and trading algorithmically based on a live feed of highly confidential information regarding open orders bound for the POSIT dark pool.

And here are the details of Project Omega, ör as we called it in July for what it really was "the criminal market manipulation and order frontrunning scheme":

During the period of late 2009 to early 2010, ITG explored initiatives to increase diversification and revenues for the firm, including launching a proprietary trading operation that would engage in algorithmic high frequency trading. Thereafter, on the recommendation of senior management, Group’s Board of Directors approved a proprietary trading desk that was limited in scope to inform whether ITG should launch a fully-scaled and disclosed proprietary trading operation. This initiative at ITG, which was managed by the Liquidity Executive, became known as Project Omega.

 

When he began managing Project Omega, the Liquidity Executive had overall product management responsibility for all of ITG’s electronic brokerage products, including its entire suite of trading algorithms, its smart order routers, and for the POSIT dark pool.  Prior to becoming Head of Liquidity Management in 2009, for several years the Liquidity Executive had been the Head of Product Management for ITG’s algorithmic trading group. In that role, he was responsible for designing and building ITG’s entire suite of trading algorithms and managing a team of software developers who wrote the computer code for the algorithms.

As a reminder, it was Zero Hedge who broke, and subsequently BBG and WSJ confirmed, that the "Liquidity Executive", aka criminal frontrunning mastermind, was none other than Hitesh Mittal, the same person who left ITG in 2011 and went on to become the head trader of the world's 4th largest hedge fund, Cliff Asness' (formerly of Goldman Sachs) mega quant fund, AQR Capital. It was this same "liquidity executive" who, after making hundreds of millions in HFT profits for AQR, was unceremoniously fired early this month. Per the WSJ:

Hitesh Mittal was terminated from his position as head of trading at AQR Capital Management LLC in a move related to an enforcement action the Securities and Exchange Commission brought against a former employer.

 

Mr. Mittal was head of trading at the $136 billion hedge fund since 2012. Brian Hurst, AQR’s former head of trading, resumed his role on July 31, AQR said in a statement. Mr. Mittal wasn’t formally named in the action, but his role in the project was reported by The Wall Street Journal and Bloomberg News in recent weeks.

 

“AQR has ended its employment relationship with Hitesh Mittal,” the company said in a statement. “Mr. Mittal has been referenced in reports about an SEC investigation of ITG. This investigation reportedly relates to misconduct that occurred in 2010 and 2011 while he was employed at ITG.”

 

Mr. Mittal didn't respond to attempts to reach him Wednesday.

His boss, Mr. Asness, did not respond to twitter inquiries if the reason he "loves High-Speed Trading", as he admitted in a 2014 Bloomberg Op-Ed, is because of the criminal frontrunning profit it may have afforded him courtesy of the hiring of the "liquidity executive."

And just so there is no confusion, ITG's "prop trading" group was all HFT and algo-based.

None of the Omega team members had experience with proprietary trading. Instead, the Omega team consisted almost entirely of ITG employees with significant experience in ITG’s algorithmic trading group designing, building and/or writing computer code for ITG’s trading algorithms. Based on that experience, the Omega team had detailed knowledge regarding how ITG’s algorithms operated.

Not surprisingly, the whole criminal scheme was shrouded in secrecy:

From the start, and during the entire time it was in operation, Project Omega’s existence and trading activities were kept confidential and were not disclosed to ITG customers or POSIT subscribers or to the Commission.

 

Proprietary trading represented a significant departure from ITG’s core “agency-only” business model and public profile, and ITG had concerns that Project Omega or proprietary trading at ITG could result in reputational risk for the firm. If ITG decided to increase the scale of Omega’s proprietary trading activities, ITG planned to disclose its existence publicly and to customers at that time. However, before reaching that point, ITG decided that Project Omega and its proprietary trading activities were to be kept confidential.

 

Even within ITG, Project Omega was only to be discussed on a “need-to-know” basis, and even the customer-facing side of ITG was not informed of Omega’s existence.

The company was smart: it would only rip off sell siders, not the buyside, because as everyone knows the biggest idiots on Wall Street are on the sellside; buysiders tend to be at least modestly smarter on average.

Project Omega was subject to the limitation that its total open positions could not exceed $500,000 at any time. In addition, it was designed to trade only against the orders of sellside subscribers in POSIT, and not against buy-side subscribers. Based on these limitations, and that ITG initiated Project Omega to determine whether it could profitably engage in proprietary trading and/or market making on a larger scale, ITG considered Project Omega to be an “experiment.”

In short, Project Omega was this:

 

That's right: dark pools, HFTs, and so on, are nothing more than the Office Space scam: steal a little, millions of times, just don't get caught.

However, just like in Office Space, they eventually got caught.

And here's why:

For the period of approximately April to December 2010, Omega’s Facilitation Strategy, which was designed by the Liquidity Executive, involved trading based on a live feed of information (the “Aleri Feed”) relating to open orders routed by sell-side subscribers to ITG’s trading algorithms for handling. 8 The Omega team accessed the feed by connecting to a software utility called “Aleri” that was used by ITG’s sales and support teams. The feed contained various categories of real-time information regarding “parent” orders routed through virtually all of ITG’s algorithms, including: (a) client identifier, (b) symbol, (c) side, (d) quantity of shares, (e) filled shares, (d) target price, (e) the ITG algorithm in which the order was located, and (f) time parameters.

 

The Facilitation Strategy was designed to detect open orders of sell-side subscribers being handled by ITG via the Aleri Feed and, based on that information, open positions in displayed markets on the same side as the detected orders, and close its positions in POSIT by taking the other side of the detected orders. The Facilitation Strategy was designed to earn the full “bid-ask spread” by opening and then closing positions.

 

* * *

 

For the entire time that ITG’s proprietary trading desk was in operation, the Omega team had access to the identities of POSIT subscribers and used this information to identify the full range of potential sell-side subscribers for Omega to trade with in POSIT. In addition, the Omega team used the information to which it had access to analyze the Facilitation Strategy’s profits and losses by contra party. Based on these ongoing profit and loss analyses, and without POSIT subscribers’ knowledge or consent, the Omega team made decisions about whether to stop trading with a small number of subscribers and to continue trading with others.

 

The Facilitation Strategy was designed to trade only with the sell-side subscribers identified by Omega. In order to effectuate this aspect of the strategy, the Omega team needed assistance from the POSIT development team – a group that also reported up to the Liquidity Executive. At the direction of the Omega team, ITG’s POSIT team implemented the required configurations in the dark pool to “enable” sell-side subscribers to trade, or interact, with Omega in POSIT.

 

* * *

 

Despite the strategy’s goal of earning the full “bid-ask spread,” there were times when Omega executed trades in POSIT at “midpoint” and did not obtain the “full spread.” In certain instances when this happened, the Liquidity Executive directed his team to investigate by coordinating with the POSIT development team to determine why the trades executed at midpoint, instead of at the bid or the offer, as the Liquidity Executive thought they should have.

 

No market participant other than Project Omega had access to the information provided in the Heatmap Feed.

 

From approximately April to December 2010, Omega’s Heatmap Feed included live trade execution information for all of ITG’s customers, including both sell-side and buy-side customers.

In December 2010, ITG’s Senior Management and Compliance Department Learned that Project Omega was Improperly Accessing Subscriber Order Information.

In the late fall of 2010, ITG’s CEO directed two other ITG executives to speak with the Liquidity Executive to gather information concerning the operation of Project Omega for the CEO’s information and to assist the CEO in making a presentation to Group’s Board of Directors in February 2011.

 

In early to mid-December 2010, ITG’s compliance department and senior management learned – based on the Liquidity Executive’s admissions – that Project Omega was trading based on a live feed of information regarding sell-side customers’ orders that had been sent to ITG’s algorithms. As a result, ITG immediately suspended Project Omega’s trading. Shortly thereafter, the compliance department and ITG’s senior management learned additional detail regarding the Facilitation Strategy and Omega’s use of the Aleri Feed, as well as certain information about Project Omega’s use of the customer execution feed in connection with its Heatmap Strategy.

 

The Liquidity Executive had not previously disclosed to ITG’s compliance department or senior management that Project Omega’s strategies involved accessing and trading based on the Aleri Feed and the Heatmap Feed. Instead, prior to December 2010, the Liquidity Executive had misrepresented to ITG’s compliance department the manner in which Project Omega’s trading strategies were operating.

 

On approximately December 20, 2010, a meeting among ITG’s senior management and compliance department was held to address Project Omega. During this meeting, the CEO reprimanded the Liquidity Executive for violating ITG policy and placing the firm at risk. Thereafter, Project Omega made certain changes to its trading strategies and was permitted to restart live trading.

As a reminder, this same liquidity executive went on shortly thereafter to become head of trading at Cliff Asness' AQR hedge fund.

But wait, despite being "reprimanded" Hitseh Mittal continued to defraud clients:

On or around December 21, 2010, Project Omega restarted a modified Facilitation Strategy that did not involve access to the Aleri Feed. In addition, Project Omega restarted a modified Heatmap Strategy on or around January 24, 2011, without direct access to the Heatmap Feed.

When Project Omega resumed trading, no changes were made to its organizational structure. As before the temporary suspension, the Liquidity Executive continued to manage Project Omega and direct its trading strategies while also continuing his overall product management responsibilities for ITG’s trading algorithms, smart order routers and POSIT, which included access to confidential customer order and trade information. The other members of the team also continued in the same roles they had before the temporary suspension.

 

Despite the removal of the improper direct feeds, in connection with the Facilitation Strategy, Project Omega continued to have improper access to information identifying POSIT subscribers. In addition, the Omega team continued to coordinate with ITG’s POSIT development team to identify the sell-side subscribers for Omega to trade with in POSIT and to ensure that such subscribers were configured to trade “aggressively” in POSIT.

 

After resuming trading in late 2010, Project Omega continued to engage in live trading until on or around July 11, 2011, when ITG terminated the Liquidity Executive as an employee and discontinued Project Omega’s operations.

 

During and after the temporary suspension of Project Omega’s trading activities in December 2010, ITG continued to keep Project Omega and its trading activities confidential and made no disclosure of it publicly, to subscribers, or to the Commission via an amendment to the POSIT Form ATS.

That's ironic: at the time Traders Magazine reported that Mittal had been fired in what was a "cost-cutting measure." That was incorrect. He was caught rigging markets. At this point he wasted no time to move to AQR where he was welcomed with open arms, and make his boss Cliff Asness millions in profits which in turn gave Cliff the green light to write pandering op-eds about why he loves HFT.

* * *

The fraud was so blatant not even the staunchest supporters of the HFT lobby could come up with anything even remotely relevant to justify this fraud:

... one thing to say about this is: Hahahaha, that's really bad! Like, paranoid-fantasy bad. The deep worry of modern equity market structure is that high-frequency traders, brokers, exchanges and dark pools are conspiring in some combination to front-run unsuspecting customers: The bad guys know, somehow, that the customers are trying to buy a particular stock, and can, somehow, race ahead of those customers to buy the stock and re-sell it to them at a higher price. And that's exactly what happened here! So, terrible. ITG will pay the SEC $20.3 million, a record dark-pool fine. "'The conduct here was egregious,' Andrew Ceresney, director of the SEC’s enforcement division, said during a conference call Wednesday," and it is hard to argue with that.

The "analysis" could have just ended there, and spared itself the footnoted embarrassment.

* * *

But none of the above is really shocking: after all the only business model of HFT is criminal order frontrunning, pure and simple, which is why it allows multi-millionaires to become billionaires even as they profess their love of said crime, under the guise of "high-speed trading."

What is shocking is the following, from the filing:

... on the recommendation of senior management, Group’s Board of Directors approved a proprietary trading desk that was limited in scope to inform whether ITG should launch a fully-scaled and disclosed proprietary trading operation. This initiative at ITG, which was managed by the Liquidity Executive, became known as Project Omega.

So the company's board was ultimately responsible for Project Omega, a board among whose members was the following :

Mr. O’Hara worked in the Division of Enforcement of the U.S. Securities and Exchange Commission and as Special Assistant United States Attorney at the U.S. Department of Justice
 

 

As we reported before, O'Hara - realizing what was coming - quit just a few days before ITG announced the SEC settlement, on July 23: after all it wouldn't look very good  to have a former SEC enforcer oversee a market rigginal, and criminal client defrauding prop trading group which was busted by, well, the SEC... but by then it was too little, too late.

And there you have it: open, outright, market rigging and criminal fraud, and best of all, with the explicit blessing of former SEC enforcers. As in, the fox is not only not guarding the hen house, but telling the hens to come right in: the water is warm.

And that's why the US equity market is a farce, broken beyond repair and will never be fixed until everything comes crashing down to be rebult from scratch.

Source: SEC Charges ITG With Operating Secret Trading Desk and Misusing Dark Pool Subscriber Trading Information

 

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Thu, 08/13/2015 - 11:58 | 6422365 AlaricBalth
AlaricBalth's picture

Richard Pryor hacks Webscoe Industries accounting department. The hack channels all employee half cents into his paycheck. Pryor, a comedy genius, preceeded the hacks at Office Space long before many of the cast and writers were born.

https://www.youtube.com/watch?v=iLw9OBV7HYA

Thu, 08/13/2015 - 11:59 | 6422382 Mr Pink
Mr Pink's picture

Damn it must feel good to ba a bankster

Thu, 08/13/2015 - 12:21 | 6422466 Stackers
Stackers's picture

And the sheeple have no idea how they are robbed each and every day through their pensions, mutual funds and 401k's in this exact fashion.

Maybe we should start sticking people up on the sidewalk but only taking pocket change. How much do you think you could make on a NYC sidewalk stealing everyone's pocket change that walked by day in and day out ?

Thu, 08/13/2015 - 13:07 | 6422661 Herd Redirectio...
Herd Redirection Committee's picture

HOME RUN!  Way to go Tyler(s).

Thu, 08/13/2015 - 13:25 | 6422726 saints51
saints51's picture

Agree. These are the articles I expect when I read ZH.

Thu, 08/13/2015 - 13:29 | 6422751 dontgoforit
dontgoforit's picture

Money for nuthin', your chicks for free.

Thu, 08/13/2015 - 15:03 | 6423179 Say What Again
Say What Again's picture

I still have a stapler that I borrowed from a job 20 years ago.

Thu, 08/13/2015 - 13:40 | 6422791 Skateboarder
Skateboarder's picture

I swear there's one oldskool Tyler who delivers the good punches, and there's a bunch of the newskool tabloid ones. Keep on kickin ass, oldskool Tyler!

Thu, 08/13/2015 - 14:56 | 6423153 Grinder74
Grinder74's picture

The newskool probably consists of Noah Rothman (formerly of HotAir) and all his ghey lovers.

Thu, 08/13/2015 - 12:24 | 6422484 Soul Glow
Soul Glow's picture

Banksters have no souls so they don't feel.  They dulled their cares long ago at the Grove.

Thu, 08/13/2015 - 12:31 | 6422523 General Decline
General Decline's picture

I believe you are correct about the no souls part.  (and maybe the grove too)  I find it interesting how in Matthew 23 Jesus never invited the Scribes &  Paharisees to repent.  Could it be that they also had no souls to save?  Are mondern day bankers decendant of those people.  Or as Jesus called then a "den of vipers" 

Thu, 08/13/2015 - 12:37 | 6422546 neuronius
neuronius's picture

Could it be that they also had no souls to save?  Are mondern day bankers decendant of those people.  Or as Jesus called then a "den of vipers" 

The money changers were the only ones to get far enough under Jesus' skin that he got violent.  I see a continuity here.

Same as it ever was.  

Thu, 08/13/2015 - 13:08 | 6422664 Herd Redirectio...
Herd Redirection Committee's picture

Cremation of Care seems awfully similar to Kol Nidre ('prayer').

Thu, 08/13/2015 - 12:00 | 6422389 HonkyShogun
HonkyShogun's picture

There are neither markets not economies. There are only methods for the parasites to continue bleeding the productive.

Thu, 08/13/2015 - 13:39 | 6422785 Moustache Rides
Moustache Rides's picture

"Richard Pryor hacks Webscoe Industries accounting department. The hack channels all employee half cents into his paycheck. Pryor, a comedy genius, preceeded the hacks at Office Space long before many of the cast and writers were born."

Which they acknowledged in the movie Office Space.

Thu, 08/13/2015 - 11:55 | 6422370 OilCaptain
OilCaptain's picture

And that's why no criminal indictments will ever be issued.

Thu, 08/13/2015 - 12:37 | 6422547 Handful of Dust
Handful of Dust's picture

The DOJ is too busy investigaing police departments and indicting soccer officals to be botheredwith these wealthy powerful white collar criminals ripping off Americans by the Billions.

Thu, 08/13/2015 - 14:25 | 6422987 Son of Loki
Son of Loki's picture

... or handing guns to Mesican drug lords.

Thu, 08/13/2015 - 11:57 | 6422376 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

Eric Hunsader will have a field day with this.

Thu, 08/13/2015 - 12:21 | 6422470 DavidC
DavidC's picture

One can only hope, Eric's a hero as far as I'm concerned.

DavidC

Thu, 08/13/2015 - 12:46 | 6422580 Lumberjack
Lumberjack's picture

Did you see his HFT vs SIP visual? That blew my mind. 

Thu, 08/13/2015 - 12:00 | 6422385 KnuckleDragger-X
KnuckleDragger-X's picture

One Snowden type could screw up their Nirvana, but I'm betting on hackers eventually worming their way into the system and wouldn't THAT be fun.....

Thu, 08/13/2015 - 12:11 | 6422424 Latitude25
Latitude25's picture

Cue the Russians or Chinese.  One can only hope.

Thu, 08/13/2015 - 13:48 | 6422832 Mr. Bones
Mr. Bones's picture

They were prepping that narrative in January.  If you dig, you might find the ZH article.

http://www.cnn.com/2015/01/26/politics/russian-spy-in-new-york-city/

Thu, 08/13/2015 - 12:24 | 6422481 jmcwala
jmcwala's picture

USA network has a great show called Mr. Robot, about a hacker who brings down the 1%. Compelling viewing!

Thu, 08/13/2015 - 13:10 | 6422673 Herd Redirectio...
Herd Redirection Committee's picture

And butseks?

Thu, 08/13/2015 - 14:12 | 6422928 Herd Redirectio...
Herd Redirection Committee's picture

No, seriously, is there man on man butseks in the show?

Just tell us upfront.

Thu, 08/13/2015 - 12:00 | 6422388 Grandad Grumps
Grandad Grumps's picture

My guess is that if they peel back the onion they will find Goldman Sachs and the other international banks involved in a RICO style conspiracy to defraud.

Would they ever look beyond these front companies to find the banks that give them power? Probably not.

However, if their intent is to time a market fixing creative destruction, then giving up the front companies at the appropriate time is the thing to do.

Sorry, you guys have to go out of business now, but it is a good thing you all became gazillionaires while the taking was good. There will only be token criminal complaints against people you don't like anyway.

Thu, 08/13/2015 - 13:33 | 6422763 dontgoforit
dontgoforit's picture

D.C. feels like they own GS, but methinks the reverse is true.

Thu, 08/13/2015 - 14:03 | 6422894 Mr. Bones
Mr. Bones's picture

Grandma Bones tells Mrs. Bones that she's most effective when I believe it was my idea.

Thu, 08/13/2015 - 12:03 | 6422394 JustObserving
JustObserving's picture

And that's why the US equity market is a farce, broken beyond repair and will never be fixed until everything comes crashing down to be rebult from scratch.

Wall Street, the Military Industrial Complex and the spooks who spy on everyone form the troika that runs the land of the free.  Nothing will ever be done to bring the criminals to justice.

Keep singing land of the free - that's the closest you'll come to freedom.

Thu, 08/13/2015 - 12:05 | 6422400 Dr. Engali
Dr. Engali's picture

To quote another great American at this point "what difference does it make?". The rule of law was chucked out long ago. Well, for the 1% that is, but for the rest of us proles the law still applies.

Thu, 08/13/2015 - 12:54 | 6422615 chunga
chunga's picture

Brooksley Born/Bill Black 2016

If "candidates" A-Z were presented with Tyler's expose(s), what would they do about this? The answer is nothing.

Maybe a demagogue sound bite or two, other than that absolutely nothing.

Thu, 08/13/2015 - 12:05 | 6422402 Raoul_Luke
Raoul_Luke's picture

That's a hell of a lot of words when only one is needed - CRIMINAL!  Why is this not already agaisnt the currrent laws?  Who are the fiduciaries on the trades being front run and how are they related to the outfits doing the front running?

Thu, 08/13/2015 - 13:00 | 6422634 deadelephant
deadelephant's picture

Multiple people conspiring to commit fraud.  Definitely a RICO violation.  Do way the DOJ will ever investigate though because it is a political enforcement arm and not there to punish political donors.  (If you doubt this, ask yourself why Hillary is being investigated faster and deeper than the IRS.  She's not an out and out Obama tool.)  Best shot is to get a class action suit on behalf of traders.  Even then, the banks can keep that tied up in civil courts for years.  No chance this is ever punished.

Sad to say, but the best shot at addressing this is a Bernie Sanders presidency.  But then we would have much bigger problems.

Thu, 08/13/2015 - 12:06 | 6422403 LawsofPhysics
LawsofPhysics's picture

LOL, define "money"...

in a fiat world turn that shit into real productive assets ASAP...

"Full faith and credit"...

tick tock motherfuckers...

Thu, 08/13/2015 - 12:06 | 6422405 Tortuga
Tortuga's picture

 

RICO all banksters, their political whores, bureaucrats, and lamestream enablers. oh, and

100,000 lawyers.

Thu, 08/13/2015 - 12:08 | 6422408 chomu
chomu's picture

And as long as the big quant hedgies continue teasing regulators with fat paychecks to join the criminal empire, not much will happen...

Thu, 08/13/2015 - 13:35 | 6422776 dontgoforit
dontgoforit's picture

The modern day mafia.  Anyone in the know ain't telling.  They don't want to be suicided.

Thu, 08/13/2015 - 12:08 | 6422409 nakki
nakki's picture

The stock market always has and always will be a front running ponzi scam. Its all legal for the truly connected. Congress can trade on insider information. They get "paid" by the people that give them "the laws" those people want to see enacted. Banks or groups get caught pay small fines and then its back to "business" as usual.

 

Thu, 08/13/2015 - 12:08 | 6422410 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

FED : Den of Vipers

HFT : Black Mamba

Thu, 08/13/2015 - 12:43 | 6422564 Dickweed Wang
Dickweed Wang's picture

FED : Den of Vipers

HFT : Black Mamba

GMS: Sea Snake (one of the most poisonous on the planet)

Thu, 08/13/2015 - 12:08 | 6422411 Manipulism
Manipulism's picture

If an agency would try to investigate, they will be Pentagoned or Twin Towered.

Problem solved.

Thu, 08/13/2015 - 12:14 | 6422437 mastersnark
mastersnark's picture

 

 

 

Extortion = "Taxes"

Gang = "Government"

Frontrunning = "Experiment"

Thu, 08/13/2015 - 12:16 | 6422448 vq1
vq1's picture

I enjoy how we as a culture have redefined what words mean. 

 

-theft

-legal

-regulation

-truth

-criminal

 

I no longer understand the definitions. 

 

Thu, 08/13/2015 - 12:19 | 6422451 oddjob
oddjob's picture

They never got caught in Office Space, the evidence was destroyed in a convenient building fire.

Thu, 08/13/2015 - 12:23 | 6422476 GMadScientist
GMadScientist's picture

Agit Prop Trading.

Thu, 08/13/2015 - 12:23 | 6422477 Dragon HAwk
Dragon HAwk's picture

I guess Fucking Bastards.. is a Bit to Mild.?

Thu, 08/13/2015 - 12:24 | 6422489 VWAndy
VWAndy's picture

You didnt build that.

Thu, 08/13/2015 - 12:28 | 6422509 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The guys in Office Space did not get caught because 'Milton' burned the offices down before their scheme was discovered, and he took the cheque for $300k, and went to that island getaway where he asked for 'no salt' on his Martini.

Thu, 08/13/2015 - 12:28 | 6422510 Solio
Solio's picture

HFT and all fraud are the syphylis of the economy.

Thu, 08/13/2015 - 12:29 | 6422515 Joebloinvestor
Joebloinvestor's picture

This has insider trading beat to shit.

Thu, 08/13/2015 - 12:33 | 6422530 larz
larz's picture


 


Just a drop in the ocean Getco and ilk have been stealing for over a decade destroying many legit jobs along with the market Leavi 


 


ng us with the shit show we have today. All this crime under the watchful eye of our government officials and agencies funded with our tax dollars designated to serve and protect. Beautiful

 

 

 

 

 

Thu, 08/13/2015 - 12:33 | 6422533 neuronius
neuronius's picture

anytime you read about the successful mobsters, they were always really good at getting the cops to take out their competition.  I see that is no different in the financial mafia; e.g., Goldman vis-a-vis financial regulators.

Thu, 08/13/2015 - 12:41 | 6422554 Son of Captain Nemo
Son of Captain Nemo's picture

I only wish Van Gogh were still alive to put it to "brush"...  Surreal doesn't begin to capture it.

Fucking incredible that the pox ridden filth still spews forth more bile and the vast majority just sit there contemplating their navel and chew their own cud ignoring the enormity of what it represents and after all of the evidence that they've been confronted with still believing in BTFD!

Thu, 08/13/2015 - 12:40 | 6422555 GRDguy
GRDguy's picture

I'm certain the manipulations of gold and silver prices will be simply explained, just like the HFTs.

In order to steal without confrontation, one must lie.  

Thu, 08/13/2015 - 12:43 | 6422563 Lumberjack
Lumberjack's picture

Nanex has a great GIF of how the feeds work. 

 

Thu, 08/13/2015 - 12:44 | 6422572 Bear
Bear's picture

This illegality is so in your face that one has to close the eyes not to see it. And we pay six figure incomes to SEC employees to get the 'best and brightest' to watch over the investment landscape.

Google SEC employees and you get an eyeful.

FUSEC

Thu, 08/13/2015 - 13:32 | 6422758 Amish Hacker
Amish Hacker's picture

 ITG will pay the SEC $20.3 million, a record dark-pool fine. 

That's all? And that fine is a record? This can't be even 1% of what they stole. The LIBOR crooks paid more than that. "Enforcement" like this is not going to change anyone's behavior.

And another thing: naming your front-running HFT racket Omega (the last letter in the Greek alphabet) is probably an inside joke. Get it? The customers' orders will always execute last. What a riot.

Thu, 08/13/2015 - 12:49 | 6422575 Atomizer
Atomizer's picture

All is grand until a computer virus attaches itself to HFT code. Then they'll be crying to mommy. Be forewarned. 

News headlines: Darkpool trading manipulators get hacked! 

Call it poetic justice. ;-)

Thu, 08/13/2015 - 12:52 | 6422579 Bear
Bear's picture

We have so much to be pissed off about ... where do we start ... http://www.sec.gov/ethics

Thu, 08/13/2015 - 12:48 | 6422585 scaleindependent
scaleindependent's picture

The name O'Hara does not sound Jewish. 

Vikram Pandit does not sound Jewish, unless he is one of the lost tribes of Israel that diffused to India. LOL.

Nor does the countless of other shitbag banksters that rip us off, like the Irish prick from BOA, or the other jerks from HSBC, The City of London, Douche bank, etc.

Sure, the tribe are over represented in banking, medicine, , gov, entertainment... but "don't hate them because they're beautiful" or succesful. No one forces you to see their movies or vote for them.

Sure, Zionism and their land grab mania sucks and the way they treat Palestinians suck, but we do the same thing. Humans do the same thing. We as a species suck. 

 

 

Thu, 08/13/2015 - 13:02 | 6422641 VWAndy
VWAndy's picture

Dickheads are just that and they come in every type.

 So, um, Whats in this system worth saving?

Thu, 08/13/2015 - 13:44 | 6422809 r00t61
r00t61's picture

Sociopaths come in every color, religion, and creed.

They are maybe 1-2% of the total population, yet they have ruined human civilization for the rest of us.

Thu, 08/13/2015 - 17:03 | 6423633 Tall Tom
Tall Tom's picture

And they will be amongst the first to point out that you allowed it.

 

It is YOUR FAULT...not theirs. See how that works?

 

Why it is that most avoid personal responsibility is beyond me.

Thu, 08/13/2015 - 12:48 | 6422589 Keltner Channel Surf
Keltner Channel Surf's picture

Cute, now the sellside understands why their search for 'alpha' falls victim to a Project Omega, as cold wars morph into speed wars.

Thu, 08/13/2015 - 12:49 | 6422597 Thisisbullishright
Thisisbullishright's picture

So who goes to jail and for how long?

Of course I'm kidding!

So should Hitseh Mittal be dragged from whatever penthouse he lives in and be beaten senseless by an angry mob??  That would be AWESOME!

Thu, 08/13/2015 - 13:15 | 6422691 Kickaha
Kickaha's picture

So should Hitseh Mittal be dragged from whatever penthouse he lives in and be beaten into an unrecognizable bloody glob by an angry mob??  That would be AWESOME!

 

There, fixed it for ya.

Thu, 08/13/2015 - 17:19 | 6423710 Tall Tom
Tall Tom's picture

I'd be satisfied with his head, with all of his offsprings heads, detached from their bodies by guillotine.

 

Where does he live? Nobody here answers those types of questions. 

 

Does he have children? They need to be headless.

 

It is not that he will actually care about his children. But their minds have also been poisoned. They will repeat the behavior.

 

It is like a cancer. If you do not get the entire tumor then the chances for recovery are nilch and it is wasteful just getting most of it removed. Yes some healthy cells will die as a result. But the organism dies without getting the entire cancer removed.

 

The children are the metastasizing element of the malady.

 

Do you want the Human Race to survive? Yes or No?

 

They intend to kill you in order to survive. You do know that, right?

 

It is self defense at this point.

 

Punishment and imprisonment does not work for these types of monsters.

Thu, 08/13/2015 - 12:54 | 6422613 Double.Eagle.Gold
Double.Eagle.Gold's picture

Outstanding post Tylers, this is why i come here.

Thu, 08/13/2015 - 12:59 | 6422631 Angelo Misterioso
Angelo Misterioso's picture

Renaissance Technologies - 80 percent annually since 1988

 

nothing to look at - they are just brilliant - move along -

Thu, 08/13/2015 - 14:52 | 6423123 Blankenstein
Blankenstein's picture

Or Virtu

"it has become the most laughed at chart in finance: every time anyone who has spent even a few days trading, looks at Virtu's public track record shown on the chart below and which represents one trading day loss in 6 years of flawless profitability, riotous laughter ensues as it confirms what everyone knows: the market has become a regulator-endorsed cesspool of HFT fraud"

http://www.zerohedge.com/news/2015-04-16/virtu-explains-why-it-lost-mone...

Vincent "Vinnie" Viola co-founder

"We's just really smart, capisce?"

 

 

Thu, 08/13/2015 - 13:04 | 6422651 Spectre
Spectre's picture

One of the first things I will do as President is to dismantle the Corrupt SEC organization and start over from scratch.  There will be financial penalties and jail time for most.

The first rule of the new SEC will be to make it law that all stock, bond & derivative trades will have to be held 5 business days before trading(Goodbye you Algo/HFT Fucknutz).  Same with the CFTC band of corrupt pixies.

Thu, 08/13/2015 - 13:08 | 6422665 PhiBetaZappa
PhiBetaZappa's picture

Move along, nothing to see here, just lots of folks getting Corzined every minute of every day.

Thu, 08/13/2015 - 13:15 | 6422694 Bear
Bear's picture

I have been following Hunsader (Nanex) on the this pond scum and his reports have been fantastic

Thu, 08/13/2015 - 13:19 | 6422708 SweetDoug
SweetDoug's picture

'

'

'

Once again, only on ZH.

 

Bravo guys!

 

•?•
V-V

Thu, 08/13/2015 - 13:24 | 6422717 Shibumi2
Shibumi2's picture

It always amazes me that zerohedge can figure all this out, but not the federal prosecutors and NSA that have unlimited resources and PAID to do this kind of market protecting shit.

 

Zerohedge is the new TRUMP baby

Thu, 08/13/2015 - 16:05 | 6423432 crazybob369
crazybob369's picture

You're making the assumption that federal prosecutors give a fuck about this.

Thu, 08/13/2015 - 13:28 | 6422745 Redart
Redart's picture

dunno about HFT crimes but the market IS GOING TO SNAP

Thu, 08/13/2015 - 13:29 | 6422747 Chippewa Partners
Chippewa Partners's picture

May the Tylers live long and large.    Great coverage on the crime scene formerly known as the stock market. 

Thu, 08/13/2015 - 13:32 | 6422757 maplepeg
maplepeg's picture

This is ZH at its best, and what it does so well over and over again. Keep it up!

Now, will you please stop with all the racist bullshit you put on this site that drags your reputations low?

And while you divert your attention to denigrating "socialism" (whatever your definition might be) - I guess you are fully in support of regulated markets and enforcement of criminal law against white collar criminals and fair and equal treatment for all investors - is that a form of socialism or a form of capitalism or just good governance? Is it good governance if you like it and socialism if you don't like it? Personally, i do not think the word socialism has any useful or generally agreed definition, no matter what Bernie Sanders might say.

Thu, 08/13/2015 - 13:43 | 6422806 Clowns on Acid
Clowns on Acid's picture

STFU... and just keep reading.....Bernie.

Thu, 08/13/2015 - 14:10 | 6422922 NorthernPike
NorthernPike's picture

Maplepeg said "I guess you are fully in support of regulated markets and enforcement of criminal law against white collar criminals and fair and equal treatment for all investors"

Markets are over regulated in my opinion, Just as Weed is being decriminalized so is white collar crime. The alignment with Law to reality shall continue, what was once a crime is now a virtue or at the minimum not prosocuted.

Thu, 08/13/2015 - 13:48 | 6422828 GMadScientist
GMadScientist's picture

Haven't seen this little piece of shit legislation mentioned here yet:

 

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201...

 

California wants to force businesses to be licensed in order to accept BitCoin.

Thu, 08/13/2015 - 14:57 | 6423154 monad
monad's picture

Arrgh matey, an' we'll keel haul ye if ye don't give us our cut. Arrrgh

Thu, 08/13/2015 - 13:53 | 6422855 JenkinsLane
JenkinsLane's picture

HFT firms are organized crime.

Thu, 08/13/2015 - 14:00 | 6422884 gregga777
gregga777's picture

That's why it's called the Wall Street CON Market!

Thu, 08/13/2015 - 14:01 | 6422887 Bay Area Guy
Bay Area Guy's picture

A serious question here. Would the victims of this scam be able to file a class action lawsuit against the fund?

Thu, 08/13/2015 - 14:02 | 6422892 atomicwasted
atomicwasted's picture

PC Load Letter?  What the fuck does that even mean?

Thu, 08/13/2015 - 14:32 | 6422941 fxpmtrader
fxpmtrader's picture

Just retail idiots are trading these "markets".

Thu, 08/13/2015 - 14:16 | 6422950 SillyWabbits
SillyWabbits's picture

Even one of the worst got it!

 

“A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men.... Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the U.S., in the field of commerce and manufacturing, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.” –
Woodrow Wilson - In The New Freedom (1913)

Thu, 08/13/2015 - 14:18 | 6422962 Redart
Redart's picture

organized crime is everywhere. HFT is not the problem, the more there is, the better. because they may paint the tape but if you know how to read a DOM. I have no problem with quote stuffing, I just know that beyond that, executions have to be made and the pattern how thay are made. lobbies and poisoned food and water worries me more.

Thu, 08/13/2015 - 14:27 | 6422969 Chuck Knoblauch
Chuck Knoblauch's picture

Where do these guys live?

Look for the $2 million condos.

Thu, 08/13/2015 - 14:46 | 6423089 Blankenstein
Blankenstein's picture

Try $114 million.  (co-founder of Virtu)

 

"(or in the case of Virtu, one trading day loss)"

http://bustedcoverage.com/2013/12/15/vincent-viola-nyc-house/

 

Thu, 08/13/2015 - 14:58 | 6423159 Chuck Knoblauch
Chuck Knoblauch's picture

Lower tier don't have body guards.

Thu, 08/13/2015 - 14:42 | 6423070 ptoemmes
ptoemmes's picture

I don't care if firms like this only pay $20.00 in fines.  I want to see the C-level execs in Bubba's Slammer.

Thu, 08/13/2015 - 16:13 | 6423459 crazybob369
crazybob369's picture

Project Omega sounds very prophetic. One of these days some very talented hacker is going to infect one of these evil outfits and bring the whole system to its knees.

 

Great series on USA called Mr. Robot. Hope there's some guy like him out there just waiting for the right time to pull the plug. The whole financial system need a reset.

Thu, 08/13/2015 - 16:26 | 6423501 Brokenarrow
Brokenarrow's picture

the sec does not discover these cases. they learn of them through disgruntled employees, rats, whistleblowers. citadel is sure to piss someone off by now or soon. id love to see the shit really hit the fan. no one. no one likes a cheter or crooked game. the game is a total scam now.

Thu, 08/13/2015 - 17:52 | 6423859 Fuku Ben
Fuku Ben's picture

"And that's why the US equity market is a farce, broken beyond repair and will never be fixed until everything comes crashing down to be rebuilt from scratch."

This course actually isn't necessary as I've previously pointed out. But it certainly is the current intent. And the final result of that intent will be planned global violence that will impact everyone.

So unless you stand up and dedicate all your efforts to change course now it will only get worse for you later. And it won't matter who you are, where you are or how well prepared you think you are right now.

http://www.zerohedge.com/news/2015-07-31/head-trader-worlds-4th-largest-...

Thu, 08/13/2015 - 18:06 | 6423902 VW Nerd
VW Nerd's picture

Goldman, JP Morgan. BOA and the other big players need to send a thank you to the SEC for their efforts in getting these small competitors out of the way.

Thu, 08/13/2015 - 18:06 | 6423903 VW Nerd
VW Nerd's picture

Accidental double post.  Sorry....

Thu, 08/13/2015 - 19:53 | 6424270 Barney08
Barney08's picture

This is the one we know about. What about the Countless ones we do not know about.?

Thu, 08/13/2015 - 21:30 | 6424601 NoYouAreAnAsshole
NoYouAreAnAsshole's picture

While the above article makes for sensational headlines and I am sure that ITG are dasterdly and the epitome of evil, who really cares?  What is it - 80% of the investing public doesn't buy invidual stockt, but mutual funds.  They have no idea how a trade happens and could care less. HFT was developed out of selling order flow that has gone on for decades at retail brokerage houses.  It still does.  HFT is just the natural extension of this system. 

Meanwhile, when I made my first trade some 40 years ago it was through Merrill Lynch.  It cost $60 each way to trade a 100 shares or $120 friggin bucks.  Today, I can make that same trade and pay $1 each way.  So, if HFTs "whet their beak" have at it.  I am still making money in the very segment of the retail investing public that should give a flying f*ck and that is day traders. 

Just today, I was in an out of GOOGL a couple of times long and short and paid all of $6!  Think about that, I traded about $400k ($68k x 6= $408k) for less than the cost a latte at Starbucks.  Did the HFTs make a couple of cents per share on my trades?  I have no idea.  All I know is I made money.  Nevertheless, each trade was set up to buy/sell the mid-point betwen bid and ask and sent to an ECN. 

In comparison to the costs above, if I had sold a house for $408k my cost just to the broker would have been over $24k!  So tell me how excited I should be about HFT, again? 

Pffft . . .

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