High Frequency Trading
LEW SAYS GOVERNMENT TRYING TO UNDERSTAND HIGH-FREQUENCY TRADING
"The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2014. The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during the period depicted, a total of 1,485 trading days..." - Virtu S-1
According to the WSJ, "prosecutors in the Justice Department’s antitrust division are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation, these people said. The agencies have made initial requests for information, including a subpoena from the CFTC to HSBC Holdings PLC related to precious-metals trading, the bank said in its annual report Monday. Who is involved in this latest gold-rigging scandal? Why everyone! ... which makes it immediately obvious why the European regulator had to promptly cover up the whole affair. Under scrutiny are Bank of Nova Scotia , Barclays PLC, Credit Suisse Group AG , Deutsche Bank AG , Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Société Générale SA, Standard Bank Group Ltd. and UBS AG , according to one of the people close to the investigation.
The EU’s financial watchdog, the European Securities and Markets Authority, will look at whether automated trading adds fake, or ghost, liquidity to markets, said Steven Maijoor, the regulator’s chairman. “There has been a suggestion that the liquidity they are providing is not real liquidity because once you would like to go into the trade and accept an order the offer disappears,” Maijoor said in an interview in Hong Kong on Jan. 20. “We are looking now into the specific issue of what is called ghost liquidity.”
Yesterday was a bad day for the HFT lobby, after not one but two incidents which exposed the high frequency parasites doing what they do best, and perhaps only: rigging markets. And since it would be laughable if its wan't tragic, we decided to make it even more laughable, by noting that none other than intellectual titan in the House of Representatives, Maxine Waters, had a few choice words to say about the latest HFT rigging busts. That's right: Maxine Waters now opines on market microstructure issues.
Is the world's biggest hedge fund going all-in on HFT and Dark Pools? We ask because Ray Dalio's Westport, CT-based Bridgewater, which at last check manages around $160 billion between its Pure Alpha and All Weather fund products, and which according to preliminary data had a solid performance in 2014, has just hired Jose Marques, the former global head of the quant and algo-heavy electronic trading at Deutsche Bank, to become Bridgewater's new head of trading.
Turn on any “news” outlet and what will be touted in some form of giddy-esque fashion is the markets are once again hitting new all time highs. And not only will this Christmas be better than expected, it will be better because people will now enjoy a sudden rush of unrealized gains now that gasoline is plummeting. Sounds like a festive holiday season made to order. Well it is, just not for Main Street...
Looking for answers to both financial safety as well as financial freedom in the same light or viewpoint where it seems one only needs to “think like a billionaire” or “tweak” or “slightly modify” perceptions on how one approaches these financial markets today – will hurt more than it will help. The Wall Street everyone believes they are dealing with today is just in name and memory. What made sense just 6 years ago not only doesn’t but rather if you try to apply any sense that resembles “common sense” you might as well be asking the Cheshire cat for a more straight answer. "How exactly are you handling the stresses and strains having to basically push sound fundamental theories or market underpinnings aside and now trade and position money at risk based solely on what some Central Bank will do next?" This is the avenue I wish Tony had driven or sought.
We’ve now created a situation unfortunately in the market where between high frequency trading and algorithms and interference by the planners they can make things happen that looks like everything is OK. And it’s the "OK" part where I think we can really relate to gold not being allowed to go up. Because that's the canary in the coal mine. If gold was above $2,000 we’d all be wondering: What the hell is going on here? And so they haven’t allowed it to happen. However, there is a tremendous imbalance currently seen between global supply and demand for precious metals, and a true price recovery has got to come from the physical market first - or China will continue to buy 60 tons a week until a prodigious upward price correction is forced.
Woe unto the gold speculators, and a curse laid upon the house of silver.
At least, that’s how it may feel. In more clinical terms...
“More than Forgiven, This Evil Must Be CURED”
It’s not supposed to be like this. We’ve all been told earnings are great, corporate profits are great, analysts estimates have been rising. As a matter of fact, if one dared to question any of these metrics we were referred to as “idiots.” (And that is an actual quote.) Today as we enter this earnings cycle we have a new phrase that I’m sure will enter the lexicon of the lay person in reference to stocks, but will send shivers down actual Wall Street’ers as they have to defend, argue, or give a smoke and mirrors story that will have a chance of being believed. That phrase will be “a trap door event.”
It is very common to find examples of stock quotes changing rapidly - hundreds and sometimes thousands of times per second in a single stock. At the extreme, we've seen in excess of 25,000 quote changes in a single stock in one second of time or less. Sometimes a simple pattern evolves from the quote price changes, such as in the case of a certain High Frequency Trading (HFT) algorithm that we've recently seen run every day in Google stock. The algo starts with an order to buy 100 shares, then replaces a millisecond (ms) later with an order to buy a penny higher.. and repeats hundreds of times. "So what? HFT needs to be able to cancel quotes fast so they can tighten spreads, add liquidity and lower costs." The problem is that when HFT cancels a quote after just 1 ms, then anyone located more than 93 miles (150 km) away will see a stale quote. Worse, they won't know it's stale unless and until they try to act on it and wait for a response.
Did someone finally inform the SEC that Bernie Madoff's business model has been adopted by every central bank in the "developed world?" Whatever the reason for today's record SEC award, which almost certainly has to do with HFT, a topic which this blog first brought to light back in 2009 when nobody had a clue what algo/high frequency trading is, congratulations to the lucky winner (unless of course it has to do with someone spilling the beans on US tax evaders in Swiss banks), and our condolences to the banks, because now that one can comfortably retire by informing the regulators of the pervasive crime that takes place within the US financial system on a daily basis, suddenly every disgruntled person laid off by the US banking sector is the next potential $30 million aware recipient.
We didn’t get what we first postulated yet: Crisis became calm. Contagion became cured. And last but not least catastrophe morphed into an even grander state of complacency. What we did might be even more illuminating. Here’s what a few of us also know that we are not “wrong” about:"When a monkey throwing darts can outperform most of today's so-called 'best of the best' hedge funds – we’re going to put our money on the monkey, rather than putting it anywhere close to where these people can put their hands on it for their own personal self-serving monkey business." What we don’t need – nor want – is another bowl of the 2008ish tripe washed down with this years new flavored Kool-aid.