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Goodbye High Frequency Trading - Regulators Seek Secret HFT Codes

Tyler Durden's picture


The crusade against High Frequency Trading which Zero Hedge started well over two years ago, is now coming to an end. Reuters reports that U.S. securities regulators have "taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes." As everyone knows, the only thing of value within the sub-penny scalping HFT universe are the odd nuances in computer code. Which is why its supreme and undisputed secrecy is sacrosanct. As soon as anyone, especially a regulator, has a whiff of understanding how any given algorithm works, it becomes the equivalent of collapsing the wave function: observing the HFT theft-scalping duality in action eliminates the Schrodinger equation associated with any simplistic algo and collapses its "wave function" to a worthless series of ones and zeros. Said otherwise, this is the end for HFT.

More from Reuters:

The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.


``It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace,'' he said in an interview.


The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.


The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral.

It's all in the code:

Trading code is a high-stakes secret for high-frequency firms that battle each other to earn razor-thin profits on tiny price imbalances in the market. Such firms can make thousands of trades per second and provide much liquidity to the market.


High-frequency trading is estimated to be involved in more than half of all U.S. stock trading. Regulators have said the algos behind such trading were a factor in the flash crash, but that they did not cause it.


Carlo di Florio, who heads the SEC's Office of Compliance, Inspections and Examinations, said the agency started asking firms for proprietary algorithmic trading data over a year ago, and has since more broadly incorporated such requests into its risk-based exams.


Most of the algo-related requests, he said, have been made to hedge funds that use quantitative trading strategies.


Although some lawyers and industry sources have said the SEC has asked for the actual computer code itself, di Florio said such a request is "very rare." Instead, most of the time the SEC has been asking for research papers containing sensitive information about trade reasoning and proprietary formulas.

Luckily once the HFT scourge is over, it will finally return the market to a normal state of liquidity and volume, not the current churn of rebate paying stocks (all 10 of them in a universe of 5000). Yes, some liquidity may be lost. But what remains will set the basis for a return to true efficiency.

After this momentuous victory against the "robots", the only event that could possibly top it, would be extrication (by force or otherwise) of the Chairsatan and his globalistic central planning cohort from capital markets.

At that point the stage for restoration of normalcy will finally be set.

In the meantime we will take it: one day at a time... until the war is finally won.


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Thu, 09/01/2011 - 20:11 | 1624304 speconomist
speconomist's picture

No more Frontrunning Bitchez!

Thu, 09/01/2011 - 20:14 | 1624320 Doña K
Doña K's picture

No frontrunning. But.....

It will be easier for the PPT and Bernanke to manipulate the markets.  

Thu, 09/01/2011 - 21:14 | 1624455 spiral_eyes
spiral_eyes's picture

I really doubt this will be the end for HFT. This technical stuff isn't really my field, but I know that cutting off hands never stopped shoplifters. This will drive the market manipulators underground. But when the manipulators are the Fed's own tentacles — remember, Bernanke is not just a Keynesian but (far more dangerously) an "innovative" post-modern Keynesian who plays Keynesian games in unexpected places — just how underground is underground is the real question.

Fri, 09/02/2011 - 01:51 | 1625285 Fish Gone Bad
Fish Gone Bad's picture

This is how the Obama is planning to win the election.  Throw some bankers in jail after the perp walk, and let the American people know that he has their backs.  After all the screaming, crying, and hand wringing, things will resume their usual course.

Thu, 09/01/2011 - 22:28 | 1624742 Mactheknife
Mactheknife's picture

>It will be easier for the PPT and Bernanke to manipulate the markets.  

So...since they can't raise taxes they'll just have Timmah steal it from the markets...err, frontrun the, provide liquidity. That's the ticket.

Thu, 09/01/2011 - 23:28 | 1625017 Cliff Claven Cheers
Cliff Claven Cheers's picture

For as smart as you Tylers are, I can't believe that this is the end of profitable trading.  Since when, name an example has a Federal Regulator ever stopped a bank from doing shit.  The regulators do what they are told, not the other way around.  We all know regulators are just doing favors until they get that cush bank consulting job.

Zero Hedge analysis: Fail.

Thu, 09/01/2011 - 23:52 | 1625097 rocker
rocker's picture

Yipes, are you a holder of special sauce on a turd trade.  Yes they will figure out to how to manipulate trades.

Even if they need to call each other and execute all at once. 

But maybe, just maybe, some of the shit the HFT elitist do will be curtailed.  One tick at a time.

Maybe they should add a $1.00 tax for ever trade made. Even if they are pulled or cancelled.


Fri, 09/02/2011 - 00:04 | 1625130 Founders Keeper
Founders Keeper's picture

[Maybe they should add a $1.00 tax for ever trade made. Even if they are pulled or cancelled.]---rocker

Great.  Another tax that will be passed on to the likes of us.

Please stop thinking like that.


Fri, 09/02/2011 - 09:14 | 1625951 Arthor Bearing
Arthor Bearing's picture

The thinking we should all try and stop is categorical, inflexible thinking. You get less of what you tax, which is a big reason taxes can do good. It disincentivizes what might otherwise be a profitable but damaging activity. A tax on all trades would incentivize buy-and-hold trading and disincentivize day-trading, which might contribute to stability (for the same reason the HFTs' "liquidity" can create instability). It's certailny worth considering

Fri, 09/02/2011 - 11:17 | 1626611 Founders Keeper
Founders Keeper's picture

Hi Arthor Bearing.  Thank you for your Reply.

I disagree with your premise another tax could be a good thing.  Another tax is not a good thing---categorically speaking.

Taxes, like govt, is a necessary evil.  Should be limited.  Like turning to govt for solutions to problems, taxing should not be our primary go-to solution. 

The incentive one needs is unencumbered freedom, and the confidence that rule of law will prevent the govt and 3rd party risk from stabbing you in the back.

I'm absolutely inflexible about principles.  Unapologetic patriot of our founding principles. 


Thu, 09/01/2011 - 23:34 | 1625049 He_Who Carried ...
He_Who Carried The Sun's picture

Bah, its just windowdressing by the SEC. They will let them run down the alley again as soon as nobody's lookin'.


Thu, 09/01/2011 - 20:20 | 1624344 JoeStocks
JoeStocks's picture

Why? Because they conflict with the secretive codes that Federal Reserve connected hedge funds use to boost the market at opportune times.

Thu, 09/01/2011 - 21:40 | 1624599 LongBalls
LongBalls's picture

JoeStocks is spot on. The Fed and friends hate competition. If they want to juice the market they are going to juice the market. These pole smokers have no problem eating their own.


Thu, 09/01/2011 - 23:00 | 1624903 MachoMan
MachoMan's picture

Exactly, when the capitalist's paradox tells us government intervention is good for nothing but implementing barriers to entry, then why would we expect anything different from this exercise?

The little shops that seek to revolutionize/nail more established players will have no chance when their code is provided to the established players...  An added bonus is that knowing how all the algos interact should make it easier to get more mileage out of PPT shocks.

I realize I'm arguing from induction, but still...

Thu, 09/01/2011 - 23:29 | 1625022 Cliff Claven Cheers
Cliff Claven Cheers's picture

I prefer the term Squirt Stick Suckers versus Pole Smokers.

Thu, 09/01/2011 - 21:48 | 1624616 Pegasus Muse
Pegasus Muse's picture

If HFT robo-trading is impeded or shut down it will be due, in no small measure, to the efforts of ZH and those guys at NANEX.  Good on ya, boyz!

Fri, 09/02/2011 - 05:43 | 1625423 NoClueSneaker
NoClueSneaker's picture

ZHedgers & Nanex sunk HFT battleship before the EU-media even took a notice of the scam.

Congrats and thx ...

( Sink the rest of the Bernank's fleet ).


Thu, 09/01/2011 - 21:22 | 1624546 crazyjsmith
crazyjsmith's picture

But why?? Why would they do this?  This move would just make WAY too much sense.  They haven't done ANYTHING along those lines in a very very long time. 

What's next? An audit of the FED?  Possibly a criminal conviction or two?  Cats and Dogs living together????

Darth Lord Blankfein is even getting all lawyered up for something. 

The mercury level is surely dropping in hell right about now if this is really happening. 


Thu, 09/01/2011 - 22:42 | 1624803 Milestones
Milestones's picture

My son and I had a conversation along these lines tonite. His thesis: Bammy Mammy realizes he is not going to get the banking $$$ like he needs so he is now seeing his options as the people, whom he despises, (he remembers being poor himself one time) GS has been getting beat up some in the last couple of weeks by Bammy--no accident--its a message. Line up and play ball, and the ball is now in my court. What you stole can get unstoled very quickly.      Milestones

Thu, 09/01/2011 - 23:14 | 1624978 Doña K
Doña K's picture

You're talking SOP Chicago politics.

"See boys, I need to have a billion $ by the 2012 start of elections campaining." 

"Place your bets."

Fri, 09/02/2011 - 02:43 | 1625324 V10
V10's picture

Won't someone please think of the poor unemployed robots?

Fri, 09/02/2011 - 04:16 | 1625392 StychoKiller
StychoKiller's picture

"Please sir, can you spare a cup of booze?" -- Tinny Tim, "Futurama" :>D

Thu, 09/01/2011 - 20:11 | 1624305 I think I need ...
I think I need to buy a gun's picture

new system bitchez

Thu, 09/01/2011 - 20:12 | 1624307 DormRoom
DormRoom's picture

open source the HFT code, so everyone can protect against the flash crash virus.

Thu, 09/01/2011 - 20:13 | 1624309 Corn1945
Corn1945's picture

You are losing it Tyler. Do you really think they are going to crack down on the market levitation machine?

Come on man!

Thu, 09/01/2011 - 20:24 | 1624362 PaperBugsBurn
PaperBugsBurn's picture

there are changes afoot


why else would cnbs have a series titled gold rush and have serious discussion of the gold standard?

Thu, 09/01/2011 - 20:29 | 1624380 doomandbloom
doomandbloom's picture


Thu, 09/01/2011 - 20:43 | 1624432 PaperBugsBurn
PaperBugsBurn's picture

I think we are about to learn what Jennins meant by nailing us on a cross of gold.

Thu, 09/01/2011 - 20:54 | 1624468 SWRichmond
SWRichmond's picture

If you can't beat em, join em (and then beat em).

Thu, 09/01/2011 - 20:26 | 1624370 Tyler Durden
Tyler Durden's picture

Funny: when we said the same thing of prop trading in January 2010, the comment board was full of skeptics: Beginning Of The End For Wall Street's Various Prop Trading Desks

...Now you cant find a Wall Street prop desk to save your life.

Thu, 09/01/2011 - 20:35 | 1624404 Josephus
Josephus's picture

Nice! Love to hear this! 

So instead of all the (now unemployed) MIT grads pinching pennies from the market, they will be welcomed by the NSA write stalking algos!!!

Thu, 09/01/2011 - 21:44 | 1624605 spiral_eyes
spiral_eyes's picture

Prop desks gone underground, Tyler

I want to be optimistic that the destructo-juggernauts can be regulated out of business/fashion. I really do. But I think Ron Paul is right — not only is the free market the best regulator, it is the only regulator that can be effective in the long term. While the monopolists are still in business (and with big gov't the vampires will always find a way to leech) they can always at some later date climb up out of the muck and rig the system again.

You want proof?

Gramm-Leach-Bliley, bitchez. 

Thu, 09/01/2011 - 22:06 | 1624668 Payable on Death
Payable on Death's picture

Certainly agree in principal. Still, Glass-Steagall was a good reg. A worthy role for government--of the very few--is antitrust. The oligarchy becomes evident when you realize that most Republicans are pro-business, not pro-market.

Thu, 09/01/2011 - 22:34 | 1624765 Stack Trace
Stack Trace's picture

The crux of all our problems. Well said.

Thu, 09/01/2011 - 22:34 | 1624767 Mactheknife
Mactheknife's picture

You can thank Phill Grahm, republican from Texas for the repeal of Glass-Steagall. Exactly where this mess started.

Thu, 09/01/2011 - 22:50 | 1624852 Coldfire
Coldfire's picture

A variant of the John Wayne Gacy childcare fallacy. The holder of the monopoly on force is just the fellow to police business monopolies unsustainable without the connivance of the holder of the monopoly on force. Cf. Schumpeter. Von Mises. Hayek.

Thu, 09/01/2011 - 21:26 | 1624553 disabledvet
disabledvet's picture

Who? And how would the Fed's know if these are the actual programming? By comparing it with their own at the Fed? I understand the need for an "algo dump"--but what the government would do with this information is anyone's guess. My guess would be it's designed to get to the bottom of the recurrent "flash crash" issue but taking the HFT's away could cause more harm than good.

Fri, 09/02/2011 - 04:22 | 1625394 StychoKiller
StychoKiller's picture

Not only that, but source code by itself, is hard to figure out if the code is NOT commented well, and/or contains cryptic variable names and/or spaghetti constructs.  Without test suites, what're ya gonna do?  Watch the code actually execute in the exchanges?  What's to stop some Govt PC-jockey from claiming the code as his/her own and using it at home?

One giant can of worms here, is all I can say!

Thu, 09/01/2011 - 21:27 | 1624554 crazyjsmith
crazyjsmith's picture

Thank You again Tyler!   This site is the much more illuminating than Wikileaks could ever want to be. 

If I were a digital chic, I would be all over your hot ass right now... just sayin...if I were a digital chic...

Thu, 09/01/2011 - 21:29 | 1624562 Melin
Melin's picture

Surely you can imagine our surprise at your exuberance that the regulators were finally "on the job". 

By the way, it's impossible to donate to your site thru your Paypal link and I'm not sending you gold so. . .

Thu, 09/01/2011 - 21:31 | 1624566 Rick64
Rick64's picture

Don't you think the HFT firms will argue that this is proprietary information? Long drawn out arbitration or legal battle?

Thu, 09/01/2011 - 22:31 | 1624752 indygo55
indygo55's picture

Make them fight for it. Make them come out in the open and fight for their proprietary code. When they are in the open we then will know them. They cannot exist in the open and the regulators cannot relent, not in the open. Make them fight.

Thu, 09/01/2011 - 23:05 | 1624934 Milestones
Milestones's picture

There is a proprietary code on DUI breath tests which you are not able to challenge in courts. How about them apples??     Milestones

Fri, 09/02/2011 - 04:24 | 1625395 StychoKiller
StychoKiller's picture

There's proprietary code in Diebold™ voting machines, how about them oranges?

Thu, 09/01/2011 - 23:17 | 1624988 Rick64
Rick64's picture

Sounds good until you see who is in charge of arbitration for FINRA.  President, FINRA Dispute Resolution and Chief Hearing Officer Linda d. Feinberg, who use to work for the law firm Covington&Burling whose clients were

Major companies that have been represented by attorneys of the firm include: Bank of America, Bunge, Deere & Company, Eastman Kodak Company, Eli Lilly, General Electric Company, Giorgio Armani, IBM Corporation, Harley-Davidson,, Microsoft Corporation, Morgan Stanley, NASCAR, National Basketball Association, National Football League, Procter & Gamble, and Verizon.[5]

Controversial clients of the firm include: OCP,[6] Creekstone Farms Quality Beef,[6] Southern Peru Copper Corporation, Philip Morris, Halliburton, and Xe Services.[7]

Thu, 09/01/2011 - 21:35 | 1624587 Cole Younger
Cole Younger's picture

The only problem I see is that they have been asking for the codes for a year now according to the article. HFT hasn't stopped yet..Are they attempting to figure out the legality of HFT? It appears they know who is doing it.

Thu, 09/01/2011 - 21:43 | 1624606 Banjo
Banjo's picture

I guess the point is, prop desk or HFT the clipping shears are out for the "average" investor somewhere.

Look we ended HFT average Joe comes back to market only to get bent over again by "some other" "financial innovation"

Good luck get ready to dive back into the markets with your cash once HFT is gone!

Thu, 09/01/2011 - 21:50 | 1624621 Stoploss
Stoploss's picture

Nice to have the last laugh isn't it.. Good job, don't let up ..

Thu, 09/01/2011 - 21:53 | 1624629 Goldman Hufs
Goldman Hufs's picture

I hate to piss on everyone's parade but the only reason this is happening is because the big boys want it to happen.  With the average person no longer putting anymore money into the rigged casino and old school prop type firms closing down left and right there just isn't enough "free" money to be stolen by all of these HFTs.  Since Goldman and the like realize that that it's no longer them and the private HFT shops fleecing the general public but instead becoming ever more them VS the private HFT firms they simply want to shut it down before they start losing.  The private HFT firms can pay much more and don't have the public eye mulling over there books to criticize the outlandish salaries that these computer geeks are paid.  Because of this difference the top talent will migrate out of the big banks' control which would put them at a disadvantage, and being the true competitors that they are, will shut the entire practice down before they ever had to actually go toe to toe with legitimate competition.  When it does come to end they can go back to their true proprietary technique which most of us here know as insider trading. 

I applaud Zero Hedge for shedding light on this debauchery but the cynic in me does not believe that this has caused the regulators to find their religion.  However, you allow the rest of us to dig through the BS and protect our wealth from these predators.  Please keep up the good work.  This is the only place where a rational person can begin to understand why these markets are so irrational.  Thanks Tylers.

Thu, 09/01/2011 - 22:13 | 1624690 Atomizer
Atomizer's picture



Did you see this today? I'm neutral because I follow a lot mentioned.


Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy


The daily twists & turns are becoming harder to manage.  bwahahahahaha.


Thu, 09/01/2011 - 22:22 | 1624717 T-Bond
T-Bond's picture

Excellent point Tyler. I hope the same thing happens to these sleazebags too.

Thu, 09/01/2011 - 22:35 | 1624769 rubyruffruff
rubyruffruff's picture

tyler has a valid argument.......knowing the principals at getco (not as bright as u think....thnk god 4 russian programmers) the industry seems vulnerable......the free money market making days of the early 2000's r gone and have def. been replaced with let's say a more darker use of the technology (ref. zh natty and oil fractal algo pieces)......with a closer look coming from govt. eyes it will b interesting 2c how many hft shops SUDDENLY find mkts untenable and choose the take the money run b4 i'm sued approach......hft may soon b a trading strategy of the past but more mkt makers will 4 sure take their place......tyler u mentioned saba.....u know boaz??   old friend

Fri, 09/02/2011 - 08:11 | 1625583 JB
JB's picture


Thu, 09/01/2011 - 23:10 | 1624964 Mec-sick-o
Thu, 09/01/2011 - 20:56 | 1624472 Everyman
Everyman's picture

they have to shut down SKYNET, because it is GREAT to keep a market in UP, but when it reverses you DO NOT WANT SKYNET in control.  The market is reversing and they do not want the machines to "help" with the downturn.

So call the SEC and "turn 'em off".  Simple. 

Thanks Uncle Benny!

Thu, 09/01/2011 - 21:13 | 1624516 Bring the Gold
Bring the Gold's picture

That makes quite a bit of sense actually. I also wouldn't be surprised if certain firms retained their HFT access and others had it taken away i.e. FED buds stay in to levitate etc. Very interesting post regardless. +1

Tyler's post also might explain the bank's taking it in the shorts today. Without HFT they are stuck with all that leverage and far less targets that won't take down the whole system. Backs them into a corner. One has to wonder if some sacrificial lambs aren't about to be offered up with Blankfein hiring that defense attorney, Goldman being investigated at the FED's behest and now HFT called into account.

We will see what tomorrow brings I'm guessing more downside.

Thu, 09/01/2011 - 21:52 | 1624626 tmosley
tmosley's picture

Clear and concise.  This makes a lot of sense.

Thu, 09/01/2011 - 21:30 | 1624567 Whatta
Whatta's picture

they just wanna control WHO gets to WIN in the casino. not just anybody can sit at the winning table.

Elite HFT's only need apply. GoldManSac bitchez.

Thu, 09/01/2011 - 21:34 | 1624582 Rick64
Rick64's picture

We will know if the first one asked to supply their code is not a major player.

Thu, 09/01/2011 - 22:22 | 1624724 rubyruffruff
rubyruffruff's picture

by no means a shut down of hft....tht would b deemed deleterous 2 the thinks a tobin tax along with a min. amount of nano seconds in the mkt will greatly diminish the hft effect of no volume moves

Thu, 09/01/2011 - 23:35 | 1625036 Ident 7777 economy
Ident 7777 economy's picture



Corn1945, I keep asking you, where did you lift that avatar?


See, ya just can't go around stealing ppl's avatars ...


Thu, 09/01/2011 - 20:13 | 1624310 doomandbloom
doomandbloom's picture

Does SEC have the skills to review the Algos?

What prevents the HFL ( high frequency looters) from showing a fake algo to the SEC and using something else?

Thu, 09/01/2011 - 20:33 | 1624398 Iriestx
Iriestx's picture

Anybody with the skill to analyze the code is being paid 8+ figures to write the code.  What the SEC has is a bunch of math-illiterate kids who are too busy fingering their ass while watching tranny porn to learn how to break down the algos.

Thu, 09/01/2011 - 20:48 | 1624409 doomandbloom
doomandbloom's picture

A possible solution is that the programs should be hosted centrally, and SEC should have access to the codes at all times. 

Just asking for codes as a one time thing, will not lead to anything, as codes can be changed next day.


Maybe sacrilege will be able to suggest a few ideas?

Thu, 09/01/2011 - 23:16 | 1624921 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Hire a few Indian contractors to do it and promise them a green card as a bonus.

Thu, 09/01/2011 - 20:51 | 1624454 earnyermoney
earnyermoney's picture

How bout the Russian who was arrested, tried and found guilty of stealing Goldman Sux algorithm's? Bet they can get him to analyze the code for reduced sentance.

Thu, 09/01/2011 - 21:28 | 1624559 disabledvet
disabledvet's picture

already working on that. H/T...Goldman Sax..on.

Thu, 09/01/2011 - 21:00 | 1624488 Willzyx
Willzyx's picture

Ever heard of outsourcing?  Say hello to fat government contracts.  Consulting jobs for Wall Street

Thu, 09/01/2011 - 21:17 | 1624536 DormRoom
DormRoom's picture

they could get NSA consultants to look @ it.

Thu, 09/01/2011 - 21:35 | 1624584 mayhem_korner
mayhem_korner's picture

Does SEC have the skills to review the Algos?

First question that came to mind for me, too.  I think the answer is we don't know.  We don't know who the regulators might have put on the rolls to look through this stuff, but it's at least a possibility they have recruited some players, especially some that were disgruntled or unwilling to continue the game.

Thu, 09/01/2011 - 23:58 | 1625115 be-short
be-short's picture

Believe me, the algo is not as complicated as you expect it. What you really need is a huge amount of capital as margin and ultra high speed connectivity. that's it. Maybe a rented server in the same building of you favourite stock exchange.




Thu, 09/01/2011 - 20:19 | 1624343 cosmictrainwreck
cosmictrainwreck's picture

replaces Andrew "Buddy" Donahue LMAO.... eventually will she be known as Eileen "Yer bitch on board" Rominger?

Thu, 09/01/2011 - 20:31 | 1624357 buzzsaw99
buzzsaw99's picture

can't be worse than mary ;) ;) "she's a good girl" schapiro.


HFTs, you can trust regulators with your secrets. MUA AH AH!

Thu, 09/01/2011 - 20:13 | 1624312 CitizenPete
CitizenPete's picture

Anyone like myself who actually got burned on one of those HFT crashes might ask the question why there are no criminal investigations pending.  Class action suits have been initiated on much less.

Thu, 09/01/2011 - 20:13 | 1624314 Debtless
Debtless's picture

HFT will become a regular tool only in the select US banks arsenal, as a matter of national security of course. Barumph, Barumph.

Thu, 09/01/2011 - 20:13 | 1624315 LeBalance
LeBalance's picture

Negated Levitation?

Wiley Coyote's immediate direction?

Thu, 09/01/2011 - 20:15 | 1624326 Iriestx
Iriestx's picture

End my ass.  This is the result of a powerful HFT firm wanted to put some competitors out of business.  They've bribed the SEC to pull the code from some firms that have been giving them trouble so they can put them out of business.  The SEC is, in turn, window dressing this to make it look like they're working for the regular investors.

Thu, 09/01/2011 - 20:18 | 1624341 Tyler Durden
Tyler Durden's picture

That thesis will be easily tested once someone submits a FOIA for Getco's "secret sauce" and gets a fully redacted flow chart in return. Somehow we doubt even the SEC is that dumb not to see one step ahead.

Furthermore, the same skeptics, who also derided the Volcker rule, now watch with mouths wide open as prop desk after prop desk (yes, even Goldman's) has to shut down on Wall Street.

Thu, 09/01/2011 - 20:27 | 1624371 Iriestx
Iriestx's picture

Color me jaded, but you're right, we'll soon find out.

Thu, 09/01/2011 - 20:54 | 1624402 damage
damage's picture

I actually find this very disturbing.

So the SEC can force people to give up private information without any sort of warrant?

I agree these guys are guilty of fraud, I don't know how you can say "quote stuffing" is anything other than fraud. But I totally disagree with these methods.

It plays credence to your theory Iriestx. Any agency with this kind of power would easily be captured and be used by one competitor against another. Steal their competitor's secrets... etc.

Edit: Actually... I should have said... this is exactly the kind of power that would entice people to try to capture the agency.

Thu, 09/01/2011 - 21:03 | 1624495 Willzyx
Willzyx's picture

Things are different if you work in the securities industry.  do you know what a u4 is?

Thu, 09/01/2011 - 21:22 | 1624545 damage
damage's picture

No. Only in the context of unemployment figures. I'm assuming it is some sort of reporting form you must submit to the SEC or IRS or something? Please explain, thanks.

I don't see why things should be any different for the financial industry. I think giving regulatory agencies such broad power only serves to help the special interest. Actually... pretty much any regulatory agency at all is prone to capture. I think this should be handled by the courts. Just prosecute them for quote stuffing which is ALREADY ILLEGAL.

Fri, 09/02/2011 - 00:06 | 1625084 Founders Keeper
Founders Keeper's picture

[I don't see why things should be any different for the financial industry...]---damage

Hi damage.  I agree.

U4, U5, whatever.  A crime has been commited.  Private property will be confiscated as evidence.  But, where are the charges?  Where are the warrants? 

There won't be any charges.  No warrants.  No perp walk.  The government doesn't want to outlaw HFT; the govt wants to control it.  Across the board.  HFT is threatening the stability of the market. 

Imagine, for example, the market volitility when the Govt confiscates trillions in pensions/401k/IRA stock holdings and transfers them to US Treasuries. 


Anyway.  A BIG CONGRATULATIONS to Tyler and Co.  ZeroHedge can take credit---in no small part---for beaming a digital spotlight on HFT.  And training that beam day after day until someone in a position of authority could no longer ignore the issue. 

Wow.  Thanks ZH!

I'm proud to be here.


Fri, 09/02/2011 - 10:22 | 1626345 Willzyx
Willzyx's picture

Sorry for the late response.  Thursty Thursday night

You are correct, u4 is the disclosure form required by FINRA, and is the equivalent of an ongoing full body cavity search.  One must voluntarily disclose all employment, physical address, criminal and bankruptcy proceedings over the last 10 years.  As well as personal securites holdings, and outside compensation/business activities.  Any missteps, FINRA has the right to revoke your licences, and bar you from the industry for the rest of your life.

FINRA has the right to pull trading data from its member firms.  This is the same principle that requires funds to report their holdings to the public.  This isn't private info that requires a warrent, but public info that ensures an orderly and fair market for all participants.

Don't forget, this is the same FINRA Bernie Madoff had captured for so many years

Thu, 09/01/2011 - 22:39 | 1624647 eureka
eureka's picture

We know SEC used to spend their days on porn and associated activities - and now, presumably, they are going to clean up the evil gambling bankster empire - from the inside out...?

Perhaps the entire US ponzi fascist machine will soon sing "I once was blind, but now I see...".

What an Amazing Christmas it will be.

Real reality... and truth - in the USA...???

Thu, 09/01/2011 - 23:32 | 1625039 Ura Bonehead
Ura Bonehead's picture

Willzyx, that's not a consideration as there's no registration requirement to just sit around and write computer code all day.  Hire a room full of Russian math geeks to write code and none of them needs to even know how to spell 'securities.'

There's just so much wrong with the HFT sector.  Just bring back Glass-Steagall and none of this is an issue.

Fri, 09/02/2011 - 10:10 | 1626277 Willzyx
Willzyx's picture

You are right, the code monkeys probably don't need to be registered, but their bosses (registered principals) and the firms certainly are. FINRA is requesting data from the firms, not individual traders

Thu, 09/01/2011 - 21:32 | 1624573 disabledvet
disabledvet's picture

it's not illegal and though it imparts a major advantage to the longs in the form of price discovery take it away and we all know what type of "discovery" might be found: the government itself has no money.

Thu, 09/01/2011 - 21:35 | 1624586 damage
damage's picture

Pretty sure quote stuffing is illegal. I'm quite sure I read an article dealing with this before. And even if it wasn't specifically... seems like plain old "fraud" fits the bill anyways. Unless you're responding to someone else's comment... can't quite tell...

Thu, 09/01/2011 - 22:55 | 1624874 r101958
r101958's picture

...and the cannibalization begins.....

Thu, 09/01/2011 - 20:19 | 1624334 Dr. Engali
Dr. Engali's picture

Tyler you're making the assumption that the regulators actually do something with the information. Maybe they will front run the high frequency traders.

Thu, 09/01/2011 - 20:28 | 1624376 PC Load Letter
PC Load Letter's picture

TD, you deserve a lot of credit for being out in front of this two years ago. Hopefully this crack down is for real and the HFT fiasco ends

Thu, 09/01/2011 - 20:32 | 1624391 Raymond_K_Hessel
Raymond_K_Hessel's picture

My thoughts exactly.  The CFTC has known about silver manipulation for years and done nothing.  

It would be simple to stop HFT -- impose a 100% tax on super-short-term gains, as defined by any position held for less than ten seconds.  No one but the HFTs should mind this as what normal investor is holding a position for less than ten seconds.

Thu, 09/01/2011 - 20:58 | 1624477 keating
keating's picture

Raymond's solution would be spot on. I would add, make the tax revenue neutral, returning it to the other taxpayers who traded that day. Another solution would be to have trades executed every second, allowing a reasonable line up of buyers and sellers that all can see. No way for cheating then.

Thu, 09/01/2011 - 21:02 | 1624494 Cdad
Cdad's picture

allowing a reasonable line up of buyers and sellers that all can see. No way for cheating then.

That is a lot bigger task, considering the fractured nature of the exchanges.  Just check the roll up quote right after the bell.  You suddenly see 5 million shares of something traded six hours prior.

But...maybe one issue at a time.

Thu, 09/01/2011 - 21:32 | 1624570 Fidel Sarcastro
Fidel Sarcastro's picture

More taxes on these trades are both BS and unneeded. You would put a serious crimp in the HFT games - and perhaps put most out of business - by simply allowing NO orders to be canceled in less than 3 seconds.  

That's all that is needed - a THREE SECOND order time window.  Fuck the extra tax.

Thu, 09/01/2011 - 20:17 | 1624335 navy62802
navy62802's picture

Someone's gonna get fired tomorrow!

Thu, 09/01/2011 - 20:19 | 1624342 chaartist
chaartist's picture

nobody will care when the riots start their rout around the world for their no inflation food. When the system comes to an end, also the HFT will be no longer here.

Thu, 09/01/2011 - 20:20 | 1624346 freethinker4now
freethinker4now's picture

Let it be true,,,,,

Thu, 09/01/2011 - 20:22 | 1624353 carbonmutant
carbonmutant's picture

Now we'll see where the real power lies...

Thu, 09/01/2011 - 20:22 | 1624354 Atomizer
Atomizer's picture

Just feed the U.S. securities regulators more Porn & free Apple phones. Problem goes away.

I hope they really neuter this fucking HFT joke.

Thu, 09/01/2011 - 20:24 | 1624361 nmewn
nmewn's picture

I can't grade an economic speech or a request for information from FINRA.

But I do like the angle the latter is leaning ;-)

Thu, 09/01/2011 - 20:25 | 1624364 jm
jm's picture

"Dig up some old legacy code and let the morons have their games."


Thu, 09/01/2011 - 20:25 | 1624365 Manzilla
Manzilla's picture

If you think it's coming to an end then you A.) smoke way too much crack B.) think way too highly of yourself. No way in hell anything will be done about this. If you believe otherwise you are ignorant. I'm surprised you think the regs have the balls to honestly address this. No f*&kin' way. Lay off the hopium.

Thu, 09/01/2011 - 20:26 | 1624367 Medea
Medea's picture

"return to true efficiency"


Surefire sign that this is one of the weak Tylers.

Thu, 09/01/2011 - 20:29 | 1624379 Tyler Durden
Tyler Durden's picture

Again... read the commentary in this post. The Beginning Of The End For Wall Street's Various Prop Trading Desks

Nobody, and we mean nobody, could and wanted to believe it.

Yet... 1.5 years later prop trading has been eliminated.

Thu, 09/01/2011 - 20:32 | 1624393 doomandbloom
doomandbloom's picture

what about market makers that hold on to positions without hedging it...hoping to make a profit?

Thu, 09/01/2011 - 20:35 | 1624403 Tyler Durden
Tyler Durden's picture

Most flow traders, especially in OTC products, now have hard limits on profits and losses.

Thu, 09/01/2011 - 20:39 | 1624411 buzzsaw99
buzzsaw99's picture

That sounds like a name game. So it isn't prop trading but obviously someone with deep pockets is keeping the market manipulated on a daily basis. Call it account #88888 if it makes everyone feel better. So fixed income sux, and the bigs make zero money (front running) trading stock and commodity transactions? The fed must be paying more than I thought for those "borrowed reserves".

Thu, 09/01/2011 - 20:27 | 1624373 Downtoolong
Downtoolong's picture

That’s ultimately the rub of being an HFT practitioner, isn’t it? There is always documented evidence of your crimes lying around. But, FINRA putting an end to it? I will believe it when I see it. I have always said that FINRA’s motto is “To prevent the little guys from beating the big guys at their own rigged game.” Maybe this time will be different. Like with so many problems these days, we can only hope.

Thu, 09/01/2011 - 20:29 | 1624378 MarkD
MarkD's picture

They will find another way to prop up the market....... ZH will be on it.......CNBC will deny it exists......... and 2 years from now the SEC will investigate it.

Thu, 09/01/2011 - 20:31 | 1624386 brandnet
brandnet's picture

"Regulators" will take years to understand any single HFT algorithym... This is optimistic at best. 

Thu, 09/01/2011 - 20:50 | 1624450 Rynak
Rynak's picture


"Regulators" will not be analyzing the code - programmers will. And they will understand quite quickly.... the question is just how long it will take for the programmers to explain it to their employers, and if those employers are even capable and willing to understand it.

Thu, 09/01/2011 - 21:25 | 1624537 Zero Govt
Zero Govt's picture

it's very easy to understand, it's not rocket science, it's Rothchilds age-old frontrunning technique (first fast pigeons, now intercept market buy/sell orders with computers) and fuk all to do with the 'algorithm' cloak of deception

that's why the battle was on to site their computers as close to the NYSE as possible giving their computers a 0.0008 second advantage over others sited further away to trade faster (first in) on the buy/sell info. These computers (pre-programmed unconscious digitised toilet flush mechanisms) simply number crunch buy and sell orders and frontrun the market by milliseconds. If any regulator needs more than a month to understand this and find evidence they should be shot for being dumb, stupid and clueless (a regulator niche speciality)

Thu, 09/01/2011 - 21:53 | 1624628 Rynak
Rynak's picture

Thus, my comment further down "a *complete* solution isn't just to opensource algos... it is to get rid of "high frequency trading" alltogether".

Opensourcing the algos will merely neutralize HFT advantages, among HFT-users... it will do nothing about the fact, that a human cannot react as fast as a machine, and that there is no reasonable need at all, for a market to change in milliseconds.... fundamentals don't change in milliseconds, so there is no need for this, unless you're trying to cheat.

Fri, 09/02/2011 - 00:29 | 1625171 MsCreant
MsCreant's picture

fundamentals don't change in milliseconds, so there is no need for this, unless you're trying to cheat.


Fri, 09/02/2011 - 00:35 | 1625181 knukles
knukles's picture

What an excuse to own physical; 24K au ethernet cables!

Thu, 09/01/2011 - 20:32 | 1624388 ZeroAffect
ZeroAffect's picture

"the only event that could possibly top it, would be extrication (by force or otherwise) of the ChairSatan and his globalistic central planning cohort from capital markets."

Would love to see the cuffs slapped on the ChairSatan and a bunch of his cronies. And make 'em do the 'perp-walk' down Wall Street. Lord, make it happen soon, by force. Thank you, Lord.

Thu, 09/01/2011 - 20:48 | 1624444 DeadFred
DeadFred's picture

Don't forget the pitchforks, I really love pitchforks.

Thu, 09/01/2011 - 22:45 | 1624817 TheFourthStooge-ing
TheFourthStooge-ing's picture

Don't forget the pitchforks, I really love pitchforks.

...and we can't forget the tar and feathers. Hopefully, the next big investment in stocks on Wall Street will be these:


Thu, 09/01/2011 - 21:11 | 1624517 max2205
max2205's picture

You said 'top'

Thu, 09/01/2011 - 20:37 | 1624401 Cdad
Cdad's picture

I can feel it.  The "system" is suddenly at least mildly concerned with its credibility.  Interesting.  Of course, turning this rock will reveal the gravity of the work at hand...and that war, Tyler, will likely take years if it moves at the speed of Mary Schapiro.

We are four years out from the initial financial collapse, and bankers are still fighting in courtrooms about mortgages.  We are almost a year and half out from the flash crash, the regulators are now only suggesting that HFTs "were a factor" in it.  

I can feel it.  I can feel it.  

Daisy, daisy, give me your answer do........

Thu, 09/01/2011 - 20:43 | 1624429 buzzsaw99
buzzsaw99's picture

they don't want to clean up the casino, they just want to trick the suckers into coming back to the tables with feints at law and order.

Thu, 09/01/2011 - 20:50 | 1624452 Cdad
Cdad's picture

An obvious possibility.  However, I think getting Average Joe back into the market is literally impossible...on any large scale.  First off, he is broke.  Second, too many Average Joes are too old to play the game anymore.  Lastly, the crash of 2008 [as well as the one we are about to have] will take many, many more years to forget.  

I cede the possibility, but there are some real problems with that line of logic.  If the authorities pursue it, more of the same will fleeing...volatility and instability...flash crashes.

Thu, 09/01/2011 - 20:56 | 1624471 buzzsaw99
buzzsaw99's picture

The suckers I had in mind were mostly asian and petrodollars.

Thu, 09/01/2011 - 20:59 | 1624484 jackinrichmond
jackinrichmond's picture

i agree.  only a gambler with a losing fetish would play these markets now.

i wonder what the true trading volume on the s&p really is without the hft activity.

i wonder where the s&p would go to with no volume..  

maybe they can't stop hft for fear of collapsing the system....

Thu, 09/01/2011 - 21:23 | 1624550 CrazyCooter
CrazyCooter's picture

While I am anecdotal, a lot of people "read the internet" and get "email from friends" regarding the shit that has been going down. Anyone with 50k in any kind of retirement, a PC/internet connection, and a few friends is likely to have been exposed to any number of sites out there which address rampant fraud on a daily basis.

People who "want to know" ... know. It is that simple now and I think that is the one fundamentally different thing that makes this a game changer in terms of historical outcomes.

Personally, I refuse to put any of my retirement funds in anything BUT money markets (and I checked - they are 100% govvies at the moment). If I had a choice, I wouldn't put any money in retirement at all, opting instead to horde metals (which I do at personal expense above and beyond mandatory contributions). If I am representative of a trend of retirement cash flow "hiding" from the stock market, then that trend may be getting noticed.

The system can not sustain itself on a population that doesn't want to play. People were complacent in the past, but I don't think that will hold true going forward.

To me, the whole investment/retirement story is a scam; I don't ever expect to see much of the purchasing power I have saved. I know it will collapse and reset. I tell people I know the only way to get rich/retire is (1) chose your grandparents wisely or (2) hire a lot of people to work for you and if you don't do this, expect elbows and assholes instead of retirement.



Thu, 09/01/2011 - 20:49 | 1624446 mark mchugh
mark mchugh's picture

I gotta agree.  It's like a two-year old asking for a chess set....before getting too excited, I need to see if the kid is capable of understanding the game.

If I know the SEC and FINRA as well as I think, they're not going to do anything but takes crayons to the board and slobber on the pieces.


Thu, 09/01/2011 - 20:52 | 1624457 Cdad
Cdad's picture

Still, it is a victory.  It is a step in the right direction.  Let us hope that someone brighter and more timely than Mary Schapiro gets the gig.

Thu, 09/01/2011 - 21:42 | 1624604 mayhem_korner
mayhem_korner's picture

Depends on who might have 'crossed over' to their payroll.  That's the unknown in my mind.  Remember Ben Hockett, the Deutsche Bank escapee who advised Cornwall Capital shorting CDOs?

Thu, 09/01/2011 - 20:36 | 1624405 macholatte
macholatte's picture

After this momentuous victory against the "robots", the only event that could possibly top it, would be extrication (by force or otherwise) of the Chairsatan and his globalistic central planning cohort from capital markets

There's one more thing...... making the TBTF file for BK and flush this toilet.


Thu, 09/01/2011 - 20:54 | 1624466 Cdad
Cdad's picture

Getting rid of BOA and JPM and the like, as well as the Fed, that IS truly the key to recovery...or at least the possiblilty of recovery.

Thu, 09/01/2011 - 22:51 | 1624855 TheFourthStooge-ing
TheFourthStooge-ing's picture

There's one more thing...... making the TBTF file for BK and flush this toilet.

Such a pantload is going to require two or three flushes, a plunger, and a way to keep the plunge protection team otherwise occupied.


Thu, 09/01/2011 - 20:37 | 1624406 Rynak
Rynak's picture

Sorry, replied to the wrong post. Original post, by doomandbloom:

"What prevents the HFL ( high frequency looters) from showing a fake algo to the SEC and using something else?"

Answer: the "live" algo would make different decisions, than the algo that was handed over.... anyone capable of understanding the code, can notice than two algos behave differently.... of course, that assumes somone capable and willing to understand the code.

While i too am sceptic, that they will actually crackdown on this now, i have no doubts that IF it is actually done, as the article proposes, that then it indeed will render HFT useless... at least, among HFT-users (they can still fuck over humans). A *complete* solution isn't to just opensource the algos... it is to get rid of "high frequency trading" alltogether.

Thu, 09/01/2011 - 20:52 | 1624459 doomandbloom
doomandbloom's picture

but how will they check the 'live' algo?

What the can do is get the 'handed over' codes and simulate it in a test environment, but i am not sure if they can compare it to what is happening 'live'.

If they had the mechanism to review 'live' algo's they would have been able to catch people doing quote stuffing by now. Even nanex while proving that there is quote stuffing, cannot say which algo did it.


Thu, 09/01/2011 - 20:56 | 1624474 Rynak
Rynak's picture

It's quite simple. See, programming code is just a list of "things to do", based on "conditions".... if this, then do that, else do this.

Regulators can access who made which trades at which time, and under which conditions. Thus, all they need to do, is to observe a live algo's trades, and then check if they are in line with what the submitted code says. It is one of the few things, where checking cheating in programming is actually easy. By knowing the source, you know how an algo SHOULD behave... and if the live algo behaves differently, then it uses different code. Simple as that.

Thu, 09/01/2011 - 21:02 | 1624490 doomandbloom
doomandbloom's picture

Regulators can access who made which trades at which time, and under which conditions. 


Considering that they can see it, cant SEC see  quote stuffing happening  from the 'live' data itself without resorting to see source code?

Thu, 09/01/2011 - 21:04 | 1624502 Rynak
Rynak's picture

Now you're starting to think reasonable and sane.... stop that, it's totally "unrealistic" :-P

Thu, 09/01/2011 - 21:08 | 1624511 doomandbloom
doomandbloom's picture

maybe if we tell them that the source codes contain hidden tranny porn site names....maybe they will be more keen to go through it.

Thu, 09/01/2011 - 21:56 | 1624525 Rynak
Rynak's picture

Better, tell them that it contains child porn*. Child porn* is the "terrorist"-equivalent in IT-crackdowns. Just suspect childporn* in something, and the executive gets to do whatever the fuck it wants.

* = where childporn in legalese means "any actor younger than 18, even if she lied about her age on purpose". I.e. is ther teen-porn on your hdd? Then chances are that at least on vid will (in legal terms) be child porn, without anyone except of the actor knowing.

Thu, 09/01/2011 - 20:37 | 1624407 Eureka Springs
Eureka Springs's picture

Buying TD ZH a few rounds (not ammo) . Congratulations!

Thu, 09/01/2011 - 20:38 | 1624415 LoneStarHog
LoneStarHog's picture

Tyler, you and even Denninger has stated that the carbon-based traders/investors have left the markets; only computers are left.  What happens when the HFTs leave? The sound of Crickets and a crash of historic proportions?

Thu, 09/01/2011 - 20:39 | 1624418 nmewn
nmewn's picture

"You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit).

We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation."

Written in the legalese that only a few gazzilion quarter pennies per second can

Thu, 09/01/2011 - 20:43 | 1624433 tip e. canoe
tip e. canoe's picture

key phrase : (and not for your benefit)

Thu, 09/01/2011 - 21:33 | 1624575 nmewn
nmewn's picture

The word "may" is an interesting word device in contractural law...sometimes large enough to drive an HFT through.

Signing off...daddy issues ;-)

Fri, 09/02/2011 - 08:25 | 1625616 tip e. canoe
tip e. canoe's picture

nmewn, the word "may" is a very interesting word device in general.   here's Steinbeck's take on it in East of Eden:

"But the Hebrew word, the word timshel—‘Thou mayest’— that gives a choice. It might be the most important word in the world. That says the way is open. That throws it right back on a man. For if ‘Thou mayest’—it is also true that ‘Thou mayest not."

Fri, 09/02/2011 - 08:40 | 1625695 nmewn
nmewn's picture

Exactly right tip.

I may do this or I may do that or I may do neither.

They will need the HFT codes. The past tape is the record and everyone believes they were in fact frontrunning the entire world. Its why there is no volume...everyone suspects crooked dealers at every table in the casino.

Which of course, can hardly be called "investing"

Thu, 09/01/2011 - 20:39 | 1624419 B-rock
B-rock's picture

I think HFT makes day-trading and scalping easier because the algos adhere to technicals -- and when they set up, it's a GO! Am I wrong?  I'll miss the afternoon meltup too!  That is free money.

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