Dark Pool Flush: Game Over Pipeline; Next Up Goldman's Sigma X?

Tyler Durden's picture

For years Zero Hedge has been exposing the persistent fraud that goes on behind the trading scenes, not only in High Frequency Trading, but also in various dark trading venues, known better as dark pools where exchanges, typically the banks themselves get to match buyers and sellers without any indication of a trade having occurred, until much later if at all. Recently, and very much as we expected, trading firm Pipeline was smacked down by the SEC for gross violation of customer orders, an offense which can be summed up simply as: frontrunning. We now learn that, as the Wall Street Journal reports, Pipeline is pretty much finished after the Chairman and CEO have both quietly left the sinking ship. The WSJ adds: "The case was the SEC's first enforcement action involving dark pools, and it shocked the trading community, according to traders and other operators of electronic-trading systems. People who know Messrs. Berkeley and Federspiel said they were highly regarded among their peers. Mr. Berkeley was a former president and vice chairman of the Nasdaq Stock Market. Mr. Federspiel once worked at the Los Alamos National Laboratory as a nuclear physicist." Well, we certainly were not shocked, having predicted the demise of dark pools as early as the summer of 2009.  What will shock the trading community, however, even more is if the SEC decides to go after not some tiny unknown firm, but the real dark pool transgressors, the biggest one of which is and has always been Goldman's Sigma X. Of course for that to happen, Mary Schapiro would actually have to do her job. And that, unfortunately, ain't happening.

From the WSJ:

Pipeline Chairman Albert Berkeley and Chief Executive Fred Federspiel agreed to step down earlier this month as the firm struggled to recover from the securities regulator's allegations, which have crippled its trading business, according to a person familiar with the matter. Both men had agreed to pay fines to settle the SEC's complaint. Mr. Berkeley, 67 years old, decided to retire about a week ago, and Mr. Federspiel, 48, resigned Nov. 13, a company spokesman said when contacted Tuesday. Messages left at the listed home numbers for both men weren't returned.


The SEC last month fined a unit of the firm, Pipeline Trading Systems LLC, along with Messrs. Berkeley and Federspiel a combined $1.2 million as part of its settlement, in which the firm didn't admit or deny wrongdoing. The regulator had accused Pipeline Trading, founded in 2004, of profiting ahead of orders clients had placed within the firm's dark pool, a private electronic network that caters to investors who seek to trade anonymously without attracting attention in ways that could move stock prices.


Pipeline advertised itself as a venue that matched investor orders directly, without an intermediary. But according to the SEC, a Pipeline entity called Milstream Strategy Group LLC used streams of information from Pipeline Trading Systems to help predict what shares Pipeline's customers were trying to buy and sell. Milstream in turn made similar trades before filling customer orders in the Pipeline dark pool, the SEC said.


The securities regulator said Mr. Federspiel was directly involved in guiding Milstream to place orders in specific stocks to help inflate volumes within the dark pool, helping to facilitate client orders while also luring new business.


At the same time, he and Mr. Berkeley repeatedly assured current and potential clients in marketing materials and public statements going back at least to 2005 that Pipeline was safeguarding their trades, according to the SEC.

Make no mistake: the regulators know too well just how rigged the game is, and just like back in 2008 Lehman and Bear blew up just so Goldman could take over their fixed income OTC busines, we wouldn't be surprised if this is merely a concerted effort by Goldman, already losing money in all traditional venues, to pick up some point in the dark pool arena, one of the few places where equity flow trading is still profitable, even without inside information.

On the other hand, if this is indeed a crackdown on dark pools by the SEC, and if indeed Sigma X is next, watch out.

And speaking of Sigma X, which revealed clearly and concisely to everyone which country was next domino to fall before Italy was a household contagion name, here are the most actively traded companies in the dark pool as of today.

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greased up deaf guy's picture

"Berkeley and Federspiel said they were highly regarded among their peers."

assuming said peers are investment banker types, this isn't saying a whole helluva lot.

TheFourthStooge-ing's picture

Their stress test results were impeccable.


Vampyroteuthis infernalis's picture

I work for a subsidiary of #16, Finmeccanica. It dropped by 19% today. This insider info lead me to believe I will have a new employer in a few months. F*%king Italians.

max2205's picture

Oh come on Tyler, the only reason they went after them is because "Dark Pool" is one of their favorite Porn Vids.....

ebworthen's picture

Tadpoles killed in a puddle instead of giant vampire squid in the dark depths of the ocean miles down.

Says something about the Captain and Crew, eh?

Future Tense's picture

So much that happens behind the scenes in the dark pools it is incredible.  Just understanding how much goes into an ETF is amazing to think about.  This video provides a great demonstration of how it works:


TheFourthStooge-ing's picture

It's a lot easier if you're running the latest version of BucketShop Pro.


Catflappo's picture

If you feel as though you learnt anything at all when you watch this video, I would suggest that the ZeroHedge website might be a (substantial) step too far for you

surfersd's picture

Just back from Liberty Plaze Park ..... Did I miss anything? Oh just another story how Goldman is squashing someone else.

surfersd's picture

Just back from Liberty Plaze Park ..... Did I miss anything? Oh just another story how Goldman is squashing someone else.

catch edge ghost's picture

Too many crooks spoil the soup?


Iam_Silverman's picture

"Did I miss anything? "

Yes, apparently the part where you clicked on the "Save" button the first time.

lunaticfringe's picture

Nothing but love for the big squid. Fuckers. Hey I got a current news quiz for ya ZH'ers. You can tie but you can't win...http://thecivillibertarian.blogspot.com/2011/11/take-this-online-current...

SheepDog-One's picture

Obviously not big enough to not fail....the Giant Squid enjoys another feast, and no one does jack shit to stop it. Mesmerized by ES futures.

hedgeless_horseman's picture



...which revealed clearly and concisely to everyone which country was next domino to fall before Italy was a household contagion name, here are the most actively traded companies in the dark pool as of today.

Ah yes, Fiat, that financial powerhouse propping up Chrysler.

On June 10, 2009, Chrysler LLC emerged from a Chapter 11 bankruptcy reorganization and substantially all of its operations were sold to a new company, Chrysler Group LLC, organized in alliance with the Italian automaker Fiat.  Initially holding a 20% interest in Chrysler Group, Fiat's stake was increased to 53.5% (fully diluted) following acquisition of the equity interests held by the US Treasury (6% on 3 June 2011) and Canada (1.5% on 21 July 2011)

Ready for another helping of UAW bailout, America, this time slathered in an oily marinara sauce?

hambone's picture

Just watched the video of Evans which drove crude, ES, gold today...I'm truly fucking enraged listening to this fucking thief, traitor, villain.  No one can be so stupid or blind to the reality. 


That some unelected bank president decided to and continues now in the collapse to drive policies to destroy America is absurd...and no recourse.  No fucking recourse.  This lack of representation but sure fucking taxation...I think another generation in another time knew what to fucking do.


SheepDog-One's picture

Unfortunately its going to have to get far worse before anyone actually does anything...sure we see the injustice and the impending disaster, but the masses are still way too comfortable. Free food and money to the broke unemployed peasantry to keep them complacent. For now.

TheLooza's picture

good work SEC.  take the rest of the year off.

hambone's picture

haha - they are way ahead of you...already planning to shudder the place and take next year off as well

Grinder74's picture

It's "shutter"; but I certainly shudder everytime I see the words "SEC" and "midget" on the same page.

TheFourthStooge-ing's picture

"The case was the SEC's first action not involving midget porn, and it shocked the tranny community."


Grinder74's picture

SEC Enforcement Division Produces Record Results in Safeguarding Investors and Markets


JW n FL's picture



#FrontRunning #GoldmanSachs

But, But! BUT!! all those little fish deserve to die! we need consolidation! to many players and not enough control of the market place to make it truly profitable for the big names!

stuffing gone wild with all the little fellows running around!

Goldman NEEDS to squeeze the little players out!

so that JP Morgan can profit even more so! Sheild JP!! Get Goldman!!

The Fonz...before shark jump's picture

shapiro is doing her job....see all the penny promoters they are busting left right and center?  Regulatory capture at its finest....forget the trillion dollar fire in front of you...focus on the double parked vehicle in front of the burning building and issue a ticket....


SEC is a useless bully 

Grinder74's picture

Mr. Perry, here's your third agency: defund the SEC now!!!

blu's picture

The pattern has always been, they go after someone little.

This is just a flesh wound.

Grinder74's picture

Because the little guys can't afford the lawyers or outspend the unlimited resources of the SEC. 

ninja247's picture

This is my first comment

Lord Welligton's picture

Couldn't you think of something else to say?


GeneMarchbanks's picture

Was it worth it? Cherry & all?

HD's picture

You talk too much...

TheMerryPrankster's picture

Didn't you say "this is my first comment." last week?

willien1derland's picture

Mr. Berkeley was a former president and vice chairman of the Nasdaq Stock Market.

I remember another highly regarded individual who once held an executive position at NASDAQ - One Bernard'I will take that Check thank you" Madoff - It is pathetic to consider that the US has devolved into this squalor - I hope Mary Shapiro meets the Karma police straight on & I hope someone is there to capture the High Definition Video & upload it to YouTube - Mary Shapiro --> I hope your pension fund was held by MF Global.


hambone's picture

Fucking pathetic - what this says about the NASDAQ is the real fucking story.  Criminal leadership but we are to believe in the validity and trustworthiness of this organization???  Might as well just say it's run by the Gambino's or straight from Sicily (actually, that would be fairer and straighforward...at least they wouldn't fuck their mothers for a buck).  That this "trading" platform isn't in serious question w/ HFT, blown algos, quote stuffing, blah blah is a serious indictment that we all know it's all about legalized criminality.  Steal what you can and you know they'll look the other way...rotted out to the core.

TwelfthVulture's picture

I am fairly certain that the SEC's Pension Plan is handled by Vehement Capital Partners.

Mercury's picture

Some of the simpler crossing networks do more or less what they say they do (Level ATS isn't bad) but no, you have no idea what SigmaX does or where it goes with your order.

The Deleuzian's picture

These people have no scrupples, or justice in that sense...If you fall back upon legal/illegal...moral/immoral etc...Holding up your rule book or bible or crucifix to a vampire is completely useless...It will get whacked out of your hand... 

Ellesmere's picture

Golly Gee Gosh ..... what a shock .... front running you say?

PaperBear's picture

"the banks themselves get to match buyers and sellers without any indication of a trade having occurred" - wait, what ?!

Indeed flush … down the plughole.

metastar's picture

Could Goldman be using their boys at the the SEC to push out the competition?

karzai_luver's picture

there is life in the ol squid yet!


Sec , like hell, they are placing them in top level gvt all over the world.


Squid Squid Squid!!!!!!!!!!!!!!!!!!!!!



Grinder74's picture

"What will shock the trading community, however, even more is if the SEC decides to go after not some tiny unknown firm, but the real dark pool transgressors, the biggest one of which is and has always been Goldman's Sigma X."


Ha ha ha ha ha ha ha ha ha ha ha ha *gasp* *gasp* ha ha ha ha ha ha ha ha ha ha ha ha ha

BORT's picture
And in similar news:  It appears being head of Nassaq is not something to be counted on: Ex-Nasdaq chairman Bernard Madoff arrested on fraud charge BY NEWS WIRE SERVICES DAILY NEWS STAFF WRITER Thursday, December 11, 2008

The manager of an exclusive hedge fund for the mega-rich and a pioneering force on Wall Street was arrested Thursday and charged with running a $50billion Ponzi scheme in what may rank among the biggest frauds ever.

Bernard Madoff, 70, a former president of the Nasdaq who helped regulators make the rules in the early days of electronic trading, managed a fund for a handful of billionaires.

Now nearly all the money is gone, according to investigators.

"It's all just one big lie," Madoff told the top employees at his hedge fund, according to the U.S. attorney's criminal complaint against him.

Unholy Dalliance's picture

From a Brit.:

In the immortal words of Private Fraser in 'Dad's Army'

"We're all, doomed, Captain Mainwaring, aye, doomed."

Yes, Britain is cooked and ready to serve. Cranberry sauce, anyone? Well… it is Thanksgiving next week, isn't it. Otherwise, serves with HP sauce for that extra-special British taste of failure and misery. And I bank with LLoyds TSB! Help - where's the nearest cash machine. I need to withdraw my savings - all £250 of them.

Gools's picture

Could this story be related?

A Wave of Partner Retirements at Goldman Sachs

An unusually high number of partner retirements have been announced internally at the Wall Street bank in recent weeks, according to people who were briefed on the matter but are not authorized to speak on the record. More than a dozen partners have announced plans to leave recently...

Then again there's new territory left to conquer:

Goldman Sachs to launch stock market in Canada

Another new stock market is set to debut in Canada, this time in the hands of New York investment bank Goldman Sachs.

The Wall Street firm said Thursday that it will bring its stock market system, SIGMA X, to Canada at an unspecified date...

Well gawwwwleee!

I can't wait!


long-shorty's picture

An Effen Cucumber for Mr. Sandusky, please.

sockcutter motorforker's picture

is it safe to assume that every bank on that list is going down in flames?