The Nasdaq, In Addition To Manipulated, Is Also Compromised

Over the years we have not spared our praise for the Nasdaq: the one exchange to first legalize frontrunning aka Flash Trading, to actively promote churning via HFT erection-inducing liquidity rebates in stocks and options, to create novel and ingenious ways to skirt Rule 611, and, most recently, to overtake the NYSE as host for greatest number of fraudulent Chinese reverse-mergers, the Nasdaq has never kept a secret that it cares far more about its clients than the investing public. Yet little did we know that in addition to pervasive manipulation we can also add thorough security breach and compromise to the exchange's list of transgressions. According to the WSJ, "Hackers have repeatedly penetrated the computer network of the company that runs the Nasdaq Stock Market during the past year, and federal investigators are trying to identify the perpetrators and their purpose, according to people familiar with the matter." Now it is sadly ironic that the world's "electronic exchange" (whatever that means in a world devoid of any carbon-based traders) is the one that would succumb to an outside incursion. What, however, is punishable by even the most mentally retarded, transvestite midget porn-obsessed SEC minion, is that US investors have to learn that practically any stock transaction in the recent past may have been frontrun by illegal means (as opposed to just legal ones that are available to any one with a few Mahwah collocated Cisco machines), through a  newspaper.

From the WSJ:

The exchange's trading platform—the part of the system that executes trades—wasn't compromised, these people said. However, it couldn't be determined which other parts of Nasdaq's computer network were accessed.

Investigators are considering a range of possible motives, including unlawful financial gain, theft of trade secrets and a national-security threat designed to damage the exchange.

The Nasdaq situation has set off alarms within the government because of the exchange's critical role, which officials put right up with power companies and air-traffic-control operations, all part of the nation's basic infrastructure. Other infrastructure components have been compromised in the past, including a case in which hackers planted potentially disruptive software programs in the U.S. electrical grid, according to current and former national-security officials.

"So far, [the perpetrators] appear to have just been looking around," said one person involved in the Nasdaq matter. Another person familiar with the case said the incidents were, for a computer network, the equivalent of someone sneaking into a house and walking around but—apparently, so far—not taking or tampering with anything.

A spokesman for Nasdaq declined to comment.

A probe into the matter was initiated by the Secret Service and now includes the Federal Bureau of Investigation.

What is truly great about all this is that regardless if the hacker is Jerome Kerviel, Sergey Aleynikov, the Chinese, the Russians, some other "the", or just a kid with free time on his hands, it goes to show just how much everyone trust the US investing public with being able to process potentially too "real" information, in this case the concern being that even more investors will pull their money from a market that is nothing short of daylight fraud. Because if the flash crash managed to convince investors to pull all their money from stocks for 7 months only until Meredith Whitney did the administration the greatest favor imaginable, and forced another rotation, this time out of munis and into stocks, thus unclogging the equity inflow pipeline, who knows how the news that there are actual "malicious" hackers running around behind the scenes would be accepted.

Bottom line is that (what is left of) the US investor continues to be treated by everyone in charge like a child: being told whatever those in control feel like telling, and being prodded when to buy stocks when insiders continue selling shares in record numbers to hapless degenerate momo gamblers.

At this point it is more than clear: those who persist at snapping after Bernanke's flashing "free money, guaranteed" lure, deserve to lose everything. There is no proactive mechanism that can transform the kind of self-destructive behavior that everyone lamented back in 2008, and which is now once again in complete control.

Perhaps the only question that deserves to be asked, now that we know that even JP Morgan was in on the Madoff fraud, is how many of Madoff's clients themselves knew, or harbored serious suspicions, that his operation was a fraud? Of course they all say it was a surprise after the fact, but we doubt it. In fact, our wager is that the number is about 50%. But denial has amazing powers. And just as those people though they would pull out eventually, and just in time, so now too, when everyone knows that not only are our markets a manipulated and exposed fraud, but the very financial system is a ponzi scheme, they too will all be able to pull out eventually... and just in time.

As always, our best wishes in the proper execution of this impossible task.