Just days after China bans Citadel (and its high frequency trading) from trading Chinese markets, US Treasury and Federal Reserve officials have been forced to admit they "need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning." As WSJ reports, Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. markets in light of recent events. They are growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading. As Weiss concludes, "the constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic." The pre-emptive blame-mongery is beginning...
Chinese stocks are opening flat to marginally higher - still lower from Friday's close - despite the government unleashing yet more 'measures' in the name of stability. Having banned 5 accounts - reportedly including Fed-favorite Citadel - China is blaming excess market volatility on short-term short-sellers and has put in place curbs on short-selling that force traders to hold for at least one day. On the bright side, margin traders reduced exposure for the seventh day in a row, reducing outstanding balances to 5-month lows.. which leaves the median China stock trading at a remarkable 61x reported earnings (compared with 12x in Hong Kong).
Citadel Barred From Trading In China After Regulator Accuses "Automated Trading" Unit Of ManipulationSubmitted by Tyler Durden on 08/02/2015 21:02 -0400
Define irony: for the past 7 years, Wall Street's worst kept secret is that Citadel, the world's most levered hedge fund, has been the NY Fed's just slightly more than arms-length enforcer of market stability, by which we mean spoofer, buyer and otherwise "plunge protector" in the equity and E-mini futures markets. Which is why Citadel must have been shocked to learn late last week that China had suspended trading at a brokerage account used by Citadel in China.
Having claimed 'foreign interests' were "waging an economic war" against China, it was ironic that the most outspoken of Chinese SOEs is now under investigation for 'selling' shares when it was told not to. As Reuters reports, China is extending its dragnet for "malicious sellers" to Hong Kong and Singapore as the witchhunt blame-mongery continues, Rather ominously, the China Securities Regulatory Commission (CSRC) has demanded trading records to try to identify those with net short positions who would profit in case of further falls in China-listed shares, three sources at Chinese brokerages and two at foreign financial institutions said. Even more incredibly, as Bloomberg reports, despite total ignorance by US regulators, China is 'daring' to crackdown on market manipulation via 'spoofing'.
- U.S. stock futures slip amid lukewarm earnings, fall in commodities (Reuters)
- Stressful times for low-polling Republicans who may miss debate stage (Reuters)
- Trump shows staying power with surge ahead of first debate (Reuters)
- China Market Manipulation Probe Targets Spoofers After Crash (BBG)
- Beijing Chosen to Host 2022 Winter Olympics (WSJ)
- Obama Warns Support on Iran Deal ’Getting Squishy’ Amid Pressure (BBG)
- Pacific trade negotiators chase elusive final deal in tough talks (Reuters)
Since the market is once again on the verge of a terminal liquidity seizure with its associated side-effects (see China for details), the authorities needed to remind the "market" just who the scapegoat will be when the next crash finally does come. Which is why earlier today in an unexpected "preliminary second quarter guidance" release, ITG, owner of the Posit dark pool, was just busted with a $22.6 million potential SEC settlement for what appears to have been blatant frontrunning of company clients in its own prop trading pod. But what is particularly amusing in this case is that while everyone knows that when it comes to HFT's, it is never called "rigging" - the proper nomenclature is "glitch", so now we learn a new term to use instead of "criminal frontrunning" - drumroll... trading experiment,
For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.
Having gazed ominously at the extreme monetary policy smoke-and-mirrors intervention in bond markets, and previously explained that "the stock market is to important to leave to the vagaries of an actual market." While the rest of the world's central banks' direct (BoJ) and indirect (Fed, ECB) manipulation of equity markets, nobody bats an eyelid; but when PBOC steps on market volatility's throat (like a bull in a China bear store), people start complaining... finally. There is no difference - none! And no lesser Asian expert than Stephen Roach warns that we should be afraid, very afraid as he states, the great irony of manipulation, he explains, is that "the more we depend on markets, the less we trust them."
Deflation is back on the front burner and it's going to destroy all of the careful central planning and related market manipulation of the past 6 years. Clear signs from the periphery indicate that a destructive deflationary pulse has been unleashed. After years of suppression, the forces of reality are threatening to overwhelm our managed global ""markets"'. And it's about damn time.
"Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies. Traders at some of these primary dealers talked with counterparts at other banks via online chatrooms and swapped gossip."
One senior UK bank director said: “The problem with Martin was that he made so many enemies, partly for good reason because banks did rightly need firm treatment after the crisis. But he seemed to have a mindset that all bankers were evil.”
- Back Greek talks or face chaos, Merkel tells German lawmakers (Reuters)
- Fear of the Unknown Binds a Greek Deal With Few Believers (WSJ)
- Grexit Still on the Table Even With EU’s Latest Band-Aid (BBG)
- Donald Tusk warns of extremist political contagion (FT)
- Germany, Not Greece, Should Exit the Euro (BBG)
- Sabine Files Bankruptcy in New York as Oil Prices Fall (BBG)
- Markets Bow to Central Bankers as Bonds Rise, Pound Strengthens (BBG)
But... but... they just provide liquidity.
Since 1982, the entire market has been nothing but one massive slow-motion leveraged buyout. This places the SEC right up there with the Federal Reserve in market manipulation credentials.
We already know that markets and exchanges only break on downdays. So does that mean that on days in which algos are indescriminatly buying ES as follow through from China's stock market manipulation and Greece's "hopes" for can kicking, investors are safe? Nope, as one of the most popular online discount brokers found out moments ago:
- TD AMERITRADE EXPERIENCING "WIDESPREAD" ORDER-ROUTING PROBLEMS - OFFICE OF PRESIDENT: RTRS
- TD AMERITRADE SAYS EVEN ORDERS THAT WERE ACCEPTED ARE STALLED
Were some TDA traders maliciously selling China stocks overnight one wonders, or did Ameritrade also decide to do a "software update" in the middle of the trading day?