Two months before the CFTC and DOJ slammed one solitary trader in a London suburb with "seasonally-adjusted" allegations that it wasn't actually Waddell and Reed who flash crashed the market on May 6, 2010 as the SEC originally claimed but an E-mini spoofer named Nav Sarao (whose only real crime was exposing the rigging by the HFT cartel), we showed in explicit detail how HFTs were rigging the Treasury market with "egregious manipulation" in the futures market through spoofing.
To regular ZH readers who have seen countless intraday examples of Treasury rigging, not to mention the power of HFT demonstrated during the October 15 flash crash, this was nothing new, but what made this particular case unique is that it was brought up in litigation by one HFT firm, HTG Capital Partners, which charged unnamed "John Does" with doing precisely what we had alleged HFTs do in all capital markets, all the time. This is what we said:
... the catalyst that cracked the Libor conspiracy was when the members started to make less and less money, until ultimately the formerly golden goose was bled dry. At that point, their incentive to keep their mouths shut became nil, and in some cases negative. From that point on, it was just a matter of time before the regulators had a case against the conspiracy granted to them on a silver platter.
The same is now happening to high frequency trading, because in a market in which volumes are crashing to unprecedented lows, and where there are no longer whale accounts for the HFTs to frontrun, pardon "provide liquidity to", there is no longer a need for as many HFT firms. And those firms which end up on the losing end of the technological arms race, now that there is not enough profits for everyone to go around, are suddenly incentivized to bust the whole criminal ring wide open. Or in the words of Louis XIV, "After me, the flood."
Which brings us to a the case of HTG Capital Partners, Plaintiff v John Doe(s), defendants, case 15-cv-02129, Northern District of Illinois. What does HTG allege?
From the lawsuit:
This matter involves the egregious manipulation of the U.S. Treasury futures markets trading at the Board of Trade of the City of Chicago (“CBOT”), a designated contract market and a wholly-owned subsidiary of CME Group, Inc. (“CME Group”). Since at least January, 2013, and continuing through at least August, 2014, the Doe Defendant(s) engaged in an illegal form of market manipulation known as “spoofing” in the U.S. Treasury futures markets. The term “spoofing” refers to, among other things, the manipulative practice of entering bid or offer orders with the intent to cancel those orders before execution (these orders are hereinafter referred to as “Deceptive Orders”). Examples of spoofing include entering orders to create the appearance of false market depth or to create artificial price movements upwards or downwards. This practice enabled the Doe Defendants to manipulate the market to their benefit, and to the detriment of HTG and other market participants. This Complaint seeks to recover the financial losses HTG suffered as a result of the Doe Defendant(s)’ illegal activity.
We give the CFTC and the DOJ the customary 6 months to 5 years before they finally catch up to what our readers already knew, but earlier today in confirmation that a crack down on yet another market for gross manipulation is imminent, the Post reported that the Department of Justice fresh from doing all it can do prevent Vladimir Putin from blowing $10 billion in the bottomless hole that is World Cup 2018 infrastructure spending, is probing the Treasury market for possible manipulation.
Make that absolutely certain manipulation, one which will result in another multi-billion round of litigation settlements and furious wristslaps and for which absolutely nobody will go to prison because "technical glitches" and "algorithms" will be blamed; maybe the occasional bank logo will be Point72'ed.
From the NY Post:
Justice lawyers, believed to be in the early stages of a probe, have reached out in recent months to at least three of the 22 banks that act as primary government debt dealers and requested information regarding auctions of Treasury debt, said one person close to one of the banks that received the request.
No single bank has become the focus of the probe, it is believed, and no bank has been accused of any wrongdoing. In addition, there is no guarantee that the requests for information will turn up any evidence of manipulating Treasury auctions.
A spokesman for the DOJ on Sunday declined comment on the matter.
The requests for information came as Justice was set to wrap up a probe into manipulation of foreign currency rates.
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Last year, the Treasury Department issued some $7 trillion in debt. They are considered the most easily traded and trusted debt in the world. Treasuries are sold through regular auctions, and include bills, notes and bonds with maturities ranging from a few weeks to 30 years.
They are also the easiest to rig not only due to the surge in futures trading as opposed to underlying cash, but because market participants believe the market is one of the few ones which is unrigged, leaving themselves acutely exposed to manipulation.
So with Treasurys about to be exposed as the next big market manipulation scandal, there will be just two left: corporate bonds and equities (by now we assume it is clear to everyone that the price of gold has been manipulated for decades as confirmed by countless bank settlements). After all the DoJ has to show it is not afraid of going after the evil, big banks (even if it seems a tad flustered about actually perp-walking any employee of said banks).
And if there is one thing that will be sure to get retail investors back in the "market" in droves it is the DOJ inevitably confirming that stocks, like Treasurys, like FX, like commodities, like Libor, has been always manipulated, not just by the HFT parasite plague but by the biggest "fiduciaries" of the market.