HFT

The Treasury flash crash and similar recent events in currency markets are "shots across the bow," Jamie Dimon says in his latest letter to shareholders. The JPM chief goes on to warn, as we have for years, that declining liquidity in credit markets is likely to exacerbate future crises: "The likely explanation for the lower depth in almost all bond markets is that inventories of market-makers’ positions are dramatically lower than in the past. For instance, the total inventory of Treasuries readily available to market-makers today is $1.7 trillion, down from $2.7 trillion at its peak in 2007. The trend in dealer positions of corporate bonds is similar."

We know it will be next to impossible to wait until October when this book of toner repair and printer cartridge replacement wisdom comes out, here is a sampling of timeless soundbites by the former Fed Chairman and current blogger, that should be enough to hold readers over.

The future is upon us. JP Morgan, in an effort to stop its employees from rigging markets, aiding criminals, and generally doing all of the things that appear on the unofficial global investment bank perks of employment list, is going into full-on Minority Report mode by deploying algorithms designed to predict which employees will go rogue before it actually happens.

In retrospect, we almost feel bad for Gregg: after all in the new paranormal, in which the market is manipulated, fragmented and broken from the top (central banks) all the way to the very bottom (HFTs) with the sole purpose of pushing it ever higher in a futile attempt to restore confidence and retail investor participation in what is so clearly a rigged casino it is not easy pretending everything is fine when everything is on the verge of total collapse at any given (nano)second, and where the only recourse to coordinated selling is for the markets to break. Literally.

"It’s like walking in a mine field. Many risks lie ahead of you. Even if you are in the middle class, if something unexpected happens, you could slip into poverty."

S.S.D.D...

As noted earlier, with equities now a barren wasteland of volume (and liquidity), the last remaining HFT master (of whale order frontrunning) has been forced to go to those asset classes where organic flow is still abundant such as FX, courtesy of central banks engaged in global currency wars. However, HFTs realize it is only a matter of time before FX order flow also dries up as central banks take their trade away from public venues (and dark pools) and as such are always looking for new, untapped markets. One place where they are about to land according to the WSJ, with hilarious consequences sure to follow, will be the one place that HFTs should have felt at home from the very beginning: bitcoin.

The question on everyone's lips: which asset class was responsible for Virtu's trading perfection for yet another year.  It wasn't stocks because adding across the firm's America, EMEA and APAX equity product lines, Virtu revenues actually declined, from $201 million in 2013 to $195 million in 2014. It also wasn't commodities, where revenue dropped by almost $2 million in 2014 to $93.1 million.The answer is...

There are times when not only truth is stranger than fiction, but also, when serendipity coincides with moments that are branded into the pages of history where they become the allegory of the times. Sometimes its hard to judge or pick just one. Reason being they’ll seemingly come one right after another instead of that just one, almost surreal, moment. There’s no better illustration of these than the dreaded “front page magazine cover” proclaiming not only that the good times are here; but rather, the far more important underlying premise: they’re here to stay and will only get better! All the while insinuating – to worry about anything is a fool’s errand. i.e., “everything is awesome!”

Unlike yesterday's vertigo-inducing overnight session, today has been a smooth sea by comparison even if one which has flowed from the top left to the bottom right for now, with futures erasing all of the last minute surge which was HFT programmed to sticksave the S&P just green for the year and then some. It is difficult to pinpoint the catalyst that will be today's market narrative although with NFP in just over 24 hours, falling on a holiday which will allow S&P futures just 45 minutes of trading after the BLS report hits before closing for the day, and with the weak ADP not to mention the 0.0% GDP, the "whisper" expectation is for a NFP print that will be well below consensus, somewhere in the mid-100,000s if not worse now that the bartender hiring spree is over. The fact that March payrolls have missed on 6 of the last 7 reports probably adds to the dollar weakness, even if a huge miss tomorrow may just be the catalyst Yellen needs to launch the QE4 trial balloon.

Why is the assertion that “all markets are manipulated” generally greeted with scorn and derision?

"When an HFT that is not a member of an association executes an off-exchange trade, the HFT’s identity is usually not reported to the Financial Industry Regulatory Authority, or FINRA, which is the only association currently in existence. This frustrates FINRA’s surveillance efforts as it cannot quickly link trades to the HFTs responsible for them. This is a serious problem because, according to FINRA’s current Chairman, certain market participants disperse their trading activity across multiple markets in an attempt to hide various forms of market abuse, including layering, spoofing, algorithm gaming, and wash sales."

- SEC Commissioner Luis Aguilar.

Correlation is not causation but the plunge began just as The SEC voted in favor of high-speed trading firms being registered with FINRA...

Back on June 3, 2013, following what was merely the latest observation of how broken the market is thanks to central banks manipulation and HFT rigging, we wrote some snarky commentary.  And as happens with nearly 100% regularity nowadays, our snarky commentary on what takes place behind the scenes was once again almost 100% accurate. Because earlier today we learned precisely what happened...