Some Observations On SPY VWAP And Block Manipulation As FSA Launches Probe On Front-Running Of Block Trades

Across the pond, the FSA has just announced that it is launching a probe to focus on the front-running of block trades. Without doubt this is dictated by the recent bust including Moore's block execution trader, who likely was involved in just this (note: this is purely speculation absent further data). Images of Flash Trading, HFT, algos gone wild, and all sorts of other computerized frontrunning come to mind. When are the useless excuses for human detritus over at the SEC going to do a comparable probe? Oh wait, they are watching kiddy and tranny porn as we speak, and counting their Wall Street salaries once they leave their cushy taxpayer subsidized offices. Sorry, go back to demanding an increase in your budget you worthless examples of reverse evolution. In the meantime, we present some obvious block manipulation data in the SPY which if we had anything remotely resembling a market regulator would be immediately probed. Maybe the FSA can LBO the SEC? Surely Goldman can provide financing.

Analyzing the VWAP data for the SPY since the market lows yields some rather interesting observations. First, we are currently trading nearly two full standard deviations above the SPY VWAP from the low. VWAP is 112.1104, the SPY is 117.6, one standard deviation is 3.53, meaning that algos have now gone totally nuts when it comes to mean reversion, and that someone is pushing against the natural flow, with a virtually unlimited cash supply. Then again, this could be merely a function of the Fed's decision to destroy America's few prudent savers with infinite ZIRP. What is far more obvious, are the flagrant SPY block trades that have served no other purposes than to soak up (or release) excess liquidity in the market. In the table below, which represents the trades with largest VWAP calculation impact, two of the top trades (and potentially the 5mm and 2.5mm blocks as well), were transacted for no purpose whatsoever than merely to mask activity. The transacting party would throw in $700 and $300 million respectively (and possible $500 and $250 million) to stir activity the SPY, and to churn liquidity, only to withdraw the entire block within minutes at no or marginal profit. We are trying to track down the definition of churn, coupled with flash trading-based block frontrunning. We are confident that the SEC will help out in that particular effort... or maybe not.

And just in case you were wondering, here is the SEC guy who, as Gawker puts it, was surfing for porn as your 401(k) vanished, and will soon vanish all over again.