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First HFT, Now ETFs: The SEC Slowly Wakes Up From Its Porn Slumber
A few days ago we learned that the SEC was either objectively going after every single HFT shop by demanding frontrunning blueprints, or it was merely pandering to the requirements of GETCO, which is in dire need of eliminating some of its more profitable competitors. Now, the WSJ informs that the same porn-addicted regulators are going after ETFs: yet another market product that the enforcement regulator, in its multi-year long career-enhancement focused hiatus, has totally forgotten about and is finally starting to realize has more of an impact on the market than virtually anything else currently in the trading domain. The skeptics will say that this is nothing but ETF giant Blackrock stretching its wings and making sure it doesn't have to share the spoils of frontrunning war with anyone. Whether that is the case, we will find out soon enough, in the meantime we learn that the SEC is "looking into whether turbocharged exchange-traded funds amplified August's topsy-turvy swings in the stock market." Apparently years, because it is no longer months, after the flash crash, the SEC has realized that the convexity and gamma brought about by HFTs in the ETF space merely adds leverage upon leverage, sending the market into spasms of unnecessary but inevitable bouts of momentum chasing: "SEC officials are zeroing in on "leveraged" ETFs, which amplify investor bets, often through derivatives. Derivatives are financial contracts with values linked to another asset. The funds typically offer double or even triple the return of an index, such as the Standard & Poor's 500-stock index." Soon enough, we dread to think, the SEC may also realize that it has absolutely no clue about market topology and structure, nor how anything actually works in modern markets. But since the response by the midget porn fanatics will take years if not decades, we doubt anyone is too concerned. After all Keynesianism itself has at best one, maybe two summers left. Max.
ETFs, which typically track market indexes, trade on exchanges like stocks. Exchange-traded funds have surged in popularity and now generate 35% to 40% of exchange trading volume, according to Morningstar Inc. Such funds sometimes are used by high-frequency traders, who buy and sell stocks and other assets at a rapid clip, making money on small moves.
The SEC inquiry into ETFs is part of a broader look by regulators into exotic trading vehicles and high-frequency trading. The SEC voted last week to open up a public dialogue about the use of derivatives by mutual funds and ETFs, among other things.
Some critics have long said the high-octane funds can intensify market volatility, because ETFs often reflect moves in a number of securities through a single trade, in contrast to individual stocks.
Numerous high-speed trading firms posted high profits during the August volatility, according to traders.
While popular with high-frequency traders, leveraged ETFs also are increasingly traded by individual investors. The ETFs can magnify profits, but they also raise the risk of big losses. Leveraged ETFs are primarily intended for short-term day trading and often miss their mark on returns if held for longer periods.
...
If the market makes a big move in overnight trading or during regular trading hours, ETF market makers must buy or sell large chunks of underlying assets during a short period. The moves can be worsened by other investors trading in anticipation of a rebalancing.
"It is not only during the open or close but also during the day," Mr. Peterffy said in an interview. He said he told SEC officials that "many high-frequency traders go with the momentum by [trading ETFs] in the direction the market is moving."
ProShares, a unit of ProFunds Group, which says it is the world's largest manager of leveraged and inverse funds, declined to comment.
More than "half the volume on the exchange is high-frequency trading, and ETFs have become the vehicle of choice for high-frequency trading," said Robert Litan, vice president for research and policy at the Kauffman Foundation. Mr. Litan has written about the risks posed by leveraged ETFs.
Heaven forbid the SEC finally comprehend that ETFs, especially those favored by HFTs, are nothing but the latest iteration of synthetic (squared/cubed) CDOs, whose purpose is simply to wag the dog, courtesy of massive leverage, which makes the underlying impacted by the moves in the synthetic.
Of course, should the SEC actually do something about ETFs, that will make Larry Fink very angry. And the last thing the SEC wants is to anger the guy who runs Wall Street from the shadows.
Which simply means that like with everything else, the best resolution is not an attempt to intervene, which will inevitably fail, but to let Wall Street finally cannibalize itself: a process which will also coincide with the much overdue Great Reset, which we have been since inception, is the only possible resolution to to the dead end Western society finds itself in currently.
h/t Manal
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Porn bitchez.
You nailed it in the last paragraph Tyler. Great reset, bitchez.
Another Tyler sentence: "After all Keynesianism itself has at best one, maybe two summers left."
Yeah - and might I add: "and so does US style bailout-leveraged casino-capitalism... two summers".
Get ready US'ians - your beloved celebrity-crony-capitalism is doomed - by its own satanic hyper-greed.
Pitchforks Bitchez - Occupy Wall Street September 17.
Of your two summers, is Larry Summers one of 'em?
it is about time... been going on for years.. started with the SPY..
algo 'jumping'
http://www.hedgeaccording.ly/2010/02/is-spy-getting-little-jump-at-key.html
keep up the good work tylah
target
GLD
regulators would rather go after gibson for exotic woods than wall street for exotic derivatives
http://azizonomics.com/2011/09/07/gibson-guitars-a-great-american-company/
Agree, as anyone with a brain who reads GLD's 10K will quickly realize that it is ripe for fraud and deception. Of course the SEC prefer Gold passes to porn sites versus actually doing something about the GLD fraud.
Face it folks, the SEC, CFTC, any other regulators, auditors, etc are all just puppets now controlled by the private members who own the Federal Reserve. The word of the day is 'STABILITY' as a priority instead of making sure laws and regulation are followed.
Soft porn or hard core? Does not matter as there was no supervision from IT & Management
Slumber party bitchez
Why all of a sudden are all these agencies starting to wake up?
Where were they 3 years ago? This is all too coordinated. Something is going on that we will find out about.
more fodder for the ignorant masses.
keep the idiot masses at bay, quiet some of the voices by throwing them a bone.. no worries after the investigation is over all records will be shredded.
go back to whatever you were doing before the "Dog and Pony Show" shit out a news release.
Yes! something is going on. The ETF's muddle the sectors by either dragging down good stocks or floating up bad stocks. Also gold and silver ETF's put more pressure on the price of gold.
They banned spot trading of PM's which could be used as a hedge if overnight changes threatened your US market positions in PM futures, ETF puts and calls and or ETF straight stock positions. In some cases it was a no loose propositions since the trend was in one direction.
Maybe they want to shut down ETF's??? will see. The big boys don't want competition.
Solution: Get out of the market buy physical on cost averaging and sleep tight. Let the zomby banks devour each other.
Interesting.
So close down some ETFs blaming something else on why the market isn't worth a pile of $#!T or is seeing unusual volatility to keep the sheeple invested. Yet the real reason might be.... to close down the Gold and Silver ETFs to help hide the fact (to the masses who don't have a clue) the metals are operating at the same fractal levels as the banks and the vaults are empty? Close the metal ETFs, make up an excuse as to why physical can't be delivered - I'm sure global panic and World War III would suffice as good enough exuses. If not, they can call Hank Paulson for some fear quotes to use. Once the word of no physical delivery and cash only redemptions is out, they need not worry about a Comex default - which might wake up the sheeple.
Might this be a way to erase all the JPM shorts on silver?
I know they'd still need to manipulate the metals, I just don't enough to figure out how. Maybe if all the players (Countries/Governments/Dictatorships) are scrambling for physical, it makes no difference nor is there a reason to continue the manipulation????
It's a run up to something big. Possibly a BOA bailout. Possibly austerity. They need to put some heat on the bankers in order to offset the news. Otherwise the models predict civil unrest.
Election erection. Gotta make it look like the incumbant is on the side of the "little people", not the bankers.
This made cdurrentseas go batshit?
Yes, this announcement is a bit odiferous.
Check Six....
The SEC is like a dog in heat - fast, furious, and then back to sleep.
Pointless...the ES trades at a 50 mulitplier to the S&P. Who gives a flying fart about x2 and x3 ETFs by comparison. The ES has been the tail wagging the dog for years now.
ETFs and HFT have one thing in common: they make the spreads look reasonable when they're really a mile wide. Which is/was/will always be the main rigging mechanism in the stock market: because making money arbing the spread all day long is the only risk free trade in stocks.
Bold last line of that post tyler. Youve just made the call that might be heard round the world...just one question...whos max? ;)
Oh it's been heard. That don't mean it will happen. Too much money and power at stake
John Exter’s inverted pyramid of assets. The idea is that things high on the pyramid are derivatives of asset classes further down the pyramid. Compare your assets.
http://lonerangersilver.wordpress.com/2011/04/17/john-exter%E2%80%99s-in...
Haven't been paying close attention to the markets lately but noticed the DOW traded in a nice tight 275 point range today, the SEC folks can put it back on autopilot for a few more years. I didn't see anything suspicious at all in the last 3 minutes before the close when NASDAQ nearly went positive.
Strange thing is when I worked in the industry if I ever lifted an offer near the close chances are I would speaking to a compliance officer before 9:30 the next day to clarify/explain things, yet somebody(s) can blatantly ramp the biggest most important stock market/index in the world and nobody finds it odd?
If they can't investigate something so basic as that they don't have a hope in hell of figuring out what is going on with ETFs and HFTs.
Agreed.
I find myself in search of free (non-manipulated) markets. The search is frustrating.
If people truly grasped the corruption inherent in ETF construction, there would be complete and utter horror...and a further revulsion of the markets. As it is, apparently the Average Joes still in the market prefer ETFs to stocks.
The horror.
I remember thinking that when I first read GLD's prospectus back in 2004.
I thought, "wtf is this pile of crap"?
And now we know why the GOLD/XAU is 8.26. It has taken a lot of money away from the miners. Billions.
SEC has no clue about anything. Tyler, I would like to elaborate on this off of here. Email me
duplicate..sorry
September 17th ought to be interesting if the 20,000 show up
What is this about?
Enjoy your jobs at the SEC, and lots of other worthless agencies, while they last. And good luck in the new world, you'll need it.
The Super Congress is going to be pumping out legislation soon and fast tracking austerity into the US.
Banning PUTS and the taking of short positions?
Paper manipulation losing it's power to protect the naked shorts?
Wish they'd just hurry up and confiscate the public's PM's, nationalize housing and farmland, burn the Constitution, club a baby seal and get it over with.
All this foreplay is giving me blue balls.
OK, OK, but not the baby seal.
Please!
When stock quotes (spreads) went from 1/2, 1/4, 1/8ths over to decimal, that was the great bait and switch: electronic day trading was born. The patsies..err...traders were baited in with the promise that scalping a billion pennies a day would lead to riches beyond their wildest, wettest dreams. Like taking candy from a baby! Plus now you too would be given 'advance knowledge' of orders from greater fools through 'Level2'. Same idea as order flashing. Today, in low volume markets, spreads are huge but algos make them look smaller
I'll just repost what I put up the other day regarding the last SEC "wake up call". Pretty much the same thing. It's only being allowed to happen for a reason....
When the crap about Goldman's code being stolen was noted in the press as code... "That could manipulate the market"... nothing happened. Anybody involved to some degree in the trading market knows the HFT bots act as manipulators. Yes, this includes those useless idiots at the SEC. The article states they've been asking for code for over a year.
A year (at the minimum) of knowing this BS is happening yet nothing is done. To just now state something is "Troubling us in the marketplace" to make this move shows their lack of being any kind of regulatory division which we all know anyway.
Blatant manipulation, illegal quote stuffing, etc.. wasn't enough for them to act until they FELT something troubling them in the market place? To heck with enforcing the regulations, we'll just wait until we feel like something isn't right and then act. What a C.O.S! People are getting FED UP and I'm happy to see some of the sheeple starting to pull their head out of the sand and cashed out of the rigged casino - saying "I'm leaving the table". Now you just need to hide it so they don't come and find another way to steal it from you... and they will try.
So why this decision now? That's the question to be asking. Is it happening only because some people WANT it to happen? If yes, why now? Follow the money. Since the ESF, Treasury, Wall St, The Fed, and our sorry excuse for a Government mainly get ahead by: Not following the law, Lying, Stealing, Re-writing the law to their advantage, Socializing the losses, and F^#*!ng over anyone and everyone....... What scheme (more than likely already in place) takes over this one?
Something stinks in Denmark! This decision isn't for the greater good. It may look like it, but the propaganda machine is running with Bernank's deliberate devaluation of the dollar. While I'm mentioning that.... The Fed is portrayed as the dog that wags the tail, but it is in fact the tail being wagged by our own.
Smoke and mirrors folks. And I agree with many here... Something is brewing and it's gonna be big. It may look like justice served - but that too is part of the plan. It's only served to keep the people from rising and while the people are claiming victory in the streets - unknown to us... they've sneaked up behind us and back doored us once again.
Spot gold just thumped again.
Man, the PPT is relentless in their attacks.
Silver hammered, but bounced right back. Must be millions of shorts stuck in SLV.
Good post. This suports my contention that the source of most of the "out of control" aspect of current world markets is "Concentrated Wealth" exerting their influence over markets in a way that would have been illegal in previous decades.
leveraged etf's should have been shut down a long time ago
Leverage in this market is only for the incredibly talented and the incredibly insane.
The only good levelage is the crowbar you use to prop open the door to the bunker youre lodging your PM's in.
Wake me in 2012 when Mad Max shows up so I can trade my oz.'s for gasoline and non-Fukushima'd H20.
Leveraged ETFs should have never been created - but since they have, and the iShares, Direxion, etc etc subs to big broking firms are raping in tons of cash on these products, all we will see in the future is more and more products created to satisft 'investor' appetite.
The main different in ETF structuring now is that most are swap-based versus physical. The swap based ETFs, while the creators argue are more reliable and less prone to tracking error, on the other hand hold HUGE amounts of counter party risk.
If youre trading an ETF which is from DB and the ETF has absolutely nothing to do with the company or with fin services, and DB blows up - what happens to people trading/holding that ETF?
Having said that, i disagree that market regulation is a panacea as well.
The great reset. I can't wait. And am almost ready. Just a little more physical on the next dump.
Great Reset ... Reboot!
get out of the system the bad blood....
Gold needs to rest. The chart is horrendous. Does not mean it cannot hit 2,000 but a week or two at these levels would be nice. Give me 1760 again and I make that call one more time. And do I care if it goes to 17, 16 or 1500. No way. Never touch my physical and we all know how this will end. Just do not know how long this horror film runs.
This has to be one of the most idiotic things I have ever heard of. Dept. of Homeland Security runs a security drill at Sky Harbor in Pheonix and uses live explosives in a piece of luggage. The 'bomb' is lost or stolen and all this happens during normal operation of the airport putting travelers at risk. Lets just be glad no nail clippers were involved. FCKN IDIOTS...
http://www.youtube.com/watch?v=mkY4Lj4thkU&feature=player_embedded
WTF does this have to do with HFTs? Shouldn't you be hanging out on the yahoo blogs?
Fucking numpty....
Actually, this post, and this article, reminds me of one truth in the universe...that whenever the government gets involved, they screw things up. And usually they do it deliberately to help one group over another. Like the SEC helps Wallstreet traders while making it seem like they're on the side of investors. Hmm.
Why doesn't the SEC investigate the obvious blatant corruption going on with Warren Buffett? I wonder if an internal affairs department even exists? Maybe you could present "Internal Affairs" as the latest and greatest porn and then side swipe them with actual information.
http://www.youtube.com/user/POpatriot?feature=mhee
While I want to be glad that it seems the SEC is finally waking up and doing something about the harmful effects of ETFs and HFT, the fact remains that the SEC has been amply proven to be a corrupt organization with a name worth less than mud (eg, destroying evidence).
As "NotAPundit" points out above, given the minimal probability of the SEC actually trying to do the right thing here and given that anyone with half a brain has been able to clearly explain the problems of ETFs and HFT for several years now, the motivation is therefore likely to be something more nefarious. If the SEC is going after ETFs and HFT now, it's only because doing so benefits the big boys. There's every chance that whatever ends up happening, it doesn't actually cleanse the market of wrong-doing, rather it cleanses the market of selective wrong-doing, the type that's competing against the favored players.
If the SEC was serious, it could eliminate 99% of the harm overnight:
1) deal with HFTs by introducing a minimum quote life of 5 seconds with a fee for cancelling before that time
2) deal with the bucket-shop effect of ETFs by eliminating "tracking" ETFs. In other words, require that an ETF actually invest in the underlying, not derivatives of the underlying. If synthetic ETFs are to be allowed then regulate a maximum size to prevent the tail from wagging the dog. Every gambling ring knows this, if you let bets get too big, fights get rigged.
Dead easy. Is it being done? No. Conclusion, something more complicated / suspicious / corrupted is going on.
oh no dont take away my tna/tza/fas/faz/tvix!
how else will i net 20% daily?!?
SEC doesn't have the balls to look into Buffett and friends!
It would mean that Warren and Becky would have to get out of the bathtub - it must be soft porn........
the sec will do absolutely nothing.
it has a former 29 year old , now 31, torching files while pr issues public press releases about fire and brimstone and justice.
nonsense.
The evil geniusii at Blackrock are gonna show us how Dow 30,000 is done. According to Lemmingstar. BLK is rolling out a bunch of Large and Mid Cap ETFs that are only going to report holdings once per quarter.
I've been tin foil hatting people for a couple years now that these financial innovations will become the backbone of Social Securiity. This means they must and will show sparkling returns for several (7) years after the Terrible Times (tm) before The People will buy it.
What to make of this recent regulatory campaign for great justice? Bear hunting. Well, they're rounding up all the honey pots. You can still be a bear, you'll just be a hungry one.
Only 16 months to go to kinder, gentler (and slower) regulation.
EPA is slowing down now.
More debt does not fix a debt problem and less regulation won't fix a lack of enforcement. Doing less does not fix doing poor work. Eliminating mistakes is not a substitute for building skills.
The fundamental problem with all this HFT and ETF type shit is that no one can see what is going on behind the scenes. No investor can really know what positions are actually being held or what trading practices are being used to manage them. Many of these ETF’s have abysmal records of tracking the stocks or indices they claim. Look at USO. The entire structure is ripe for corruption in the form of commissions and trading margins being handed out to supposedly third party market makers only to be kicked back in other forms that primarily benefit the fund managers over their customers.
Perhaps the SEC is following an enforcement efficiency strategy handed to them by budget limitations and the perverseness of the modern market itself. In the grand theme of centralization, they are going to wait for all misbehavior in the markets to concentrate under one giant ETF controlled by one hedge fund manager banging out a billion trades per second on his laptop in a Brooklyn apartment above Kirschner’s Deli. Then they can just raid the place and prosecute the hell out of the guy.
http://www.cfainstitute.org/about/investor/Documents/leveraged_etf.pdf
SE who?
ETFs? A product that is mathematically designed to trend to zero over the long run, leaving absolutely no risk for the issuer as long as it can sustain any short-term surges in the wrong direction? Why would the SEC go after those? Isn't treasury charged with prosecuting counterfeiters?