HFT Stock Manipulation In Action - page 4
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They are not. They are simply cutting temporary losses. As soon as the control becomes less rigid, they will be back
They are not like Dimon that does not care how much JP Morgan will pay in fines
They are not. They are simply cutting temporary losses. As soon as the control becomes less rigid, they will be back They are not like Dimon that does not care how much JP Morgan will pay in fines
You are probably right
Or they have something else already (something even more devastating for us - the traders)
Lawsuit claims CME gave high-frequency traders special access
A group of traders has sued CME Group Inc, accusing the operator of the world's largest derivatives exchange of selling market data to high frequency traders, cheating other investors who lacked such access.
In a complaint filed on Friday in the U.S. District Court in Chicago, William Braman, Mark Mendelson and John Simms said CME and its Chicago Board of Trade unit have since 2007 given high-frequency traders early access to buy and sell orders.
They said this deprived other investors of the transparent, real-time data on futures and interest rate contracts that they thought they were getting, and were paying for.
"The defendants have perpetrated a fraud on the marketplace and intentionally concealed the activities of a select class of market participants from the rest of the defendants' customers and marketplace users," the complaint said.
CME, which is based in Chicago, has denied wrongdoing.
High-frequency traders use computer algorithms to obtain split-second advantages when placing trades, and are responsible for more than half of all U.S. trading volume.
Proponents say such trading improves market liquidity, while critics say it can destabilize markets and mask manipulation.
The trading is being probed by the U.S. Department of Justice and other federal and state investigators, and came under increased scrutiny with the recent publication of Michael Lewis' book "Flash Boys: A Wall Street Revolt."
CME in a statement said Friday's lawsuit was "devoid of any facts supporting the allegations and, even worse, demonstrates a fundamental misunderstanding of how our markets operate."
It added: "The case is without merit, and we intend to defend ourselves vigorously."
Tamara de Silva, a lawyer for the plaintiffs, said in a phone interview: "Exchanges have represented to regulators and to the broad public that information isn't distorted.... I'm making allegations that the exchange allowed these practices and profited from them." She declined to provide specifics.
The lawsuit seeks class-action status for customers in financial futures contracts, and agricultural, energy, metal, equity index, foreign exchange and interest rate futures and options contracts. It seeks money damages, and a halt to alleged favoritism.
CME on March 31 prevailed in a separate lawsuit in an Illinois state court brought by floor traders who sought to overturn rules that factor in electronic trades for settling end-of-the-day grain futures prices.
The same week, high-speed trading firm Virtu Financial Inc delayed its initial public offering. It had revealed on March 10 that it had just one losing trading day out of 1,238 such days in the five years ending Dec. 31, 2013.
The case is Braman et al v CME Group Inc et al, U.S. District Court, Northern District of Illinois, No. 14-02646.
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FBI Seeks Help From High-Frequency Traders to Find Abuses
Federal agents are making an unusual public plea for the financial industry to bare its secrets.
The Federal Bureau of Investigation has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.
The FBI joins a roster of authorities examining high-frequency trading, in which firms typically use super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies. The strategy to invite whistleblowers was prompted in part by the complexity of proving any misconduct, according to a person with direct knowledge of the matter.
Whistleblowers are ready to step forward from stock exchanges, Michael Lewis, author of “Flash Boys,” said today in an interview on NBC’s Today Show. The FBI is encouraging anyone with knowledge of possible misconduct to contact them, according to an FBI spokesman.
The FBI’s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to the FBI. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.
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High-Frequency Fight Starts in Foreign Exchange
Foreign-exchange dealers say they have the solution to the high-frequency trades eroding banks’ profits across financial markets.
A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc., was approached last month by banks asking if its technology could be applied to other asset classes, Chief Executive Officer Dan Marcus said. The system works by pausing trades at random to prevent dealers with high-powered computers from jumping in front of investors and gaining an advantage.
“These banks do need to trade foreign exchange because it’s their business and they’re hedging their currency exposure across the world,” London-based Marcus said in an April 15 interview. “They would rather trade in an environment that they can trust.”
High-frequency trading is coming under unprecedented scrutiny with the publication last month of Michael Lewis’s book “Flash Boys,” investigations by U.S. regulators and tough new rules approved this week by the European Union. Dealers use technology to execute orders in thousandths or even millionths of a second, profiting from tiny discrepancies in security prices across different trading venues.
Prime Target
Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35 percent of spot currency volume in October was by speed traders, up from 9 percent five years earlier, according to Boston-based consultancy Aite Group LLC.
About 30 percent to 35 percent of currency transactions on ICAP Plc’s EBS system are high-frequency trades, the Bank for International Settlements said in a December report. Bloomberg LP, the parent company of Bloomberg News, competes with EBS in providing news, information and trading systems.
“Foreign exchange has definitely been the area that people have moved toward in the last 12 to 18 months,” Hugh Cumberland, a manager at Colt Technology Services Group Ltd. in London, said in an April 3 phone interview. The company provides high-speed networks to financial-services companies. Tougher rules in other markets are “an encouragement for HFT traders to look to other areas like foreign exchange,” he said.
Dealers Frustrated
ParFX was set up after a group of the largest currency dealers approached a unit of Swiss broker Cie Financiere Tradition SA (CFT), frustrated by the arrival of high-frequency traders on many of their existing platforms.
The system started trading in July, and now executes deals for 15 firms including Deutsche Bank, Citigroup, Barclays Plc and UBS AG, the four biggest currency dealers. It expects to have 25 percent more clients by the end of April.
ParFX offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and “is the industry’s effort to heal itself,” according to Marcus.
“The idea of randomizing is, I guess, a potential solution,” John Adam, global head of product management at New-York based Portware LLC, which offers systems for high-frequency trading, said in an April 15 phone interview. “It’s placing a lot of faith in the randomizing, really. If somebody can figure out a pattern in that randomizer algorithm, that would be immensely problematic.”
Profits Slump
Currency dealers are fighting back against high-speed trading as profits from foreign exchange tumble.
The trillions of dollars that central banks pumped into markets in the wake of the global financial crisis have damped the trends that currency dealers rely on to make money. Foreign-exchange trading revenue at U.S. commercial banks totaled $1.53 billion in the fourth quarter of 2013, compared with an average $1.7 billion over the past two years, the Comptroller of the Currency said on March 31.
The foreign-exchange market has been hit by investigations of its own. At least a dozen authorities on three continents are examining allegations, first reported in June by Bloomberg News, that traders colluded to manipulate benchmark rates. The probes have seen dealers suspended from the U.S. to Singapore and Switzerland. No firms or traders have been accused of wrongdoing by government authorities.
High-frequency trading has its share of supporters, who say its ability to reduce spreads, or differences between the prices to buy and sell an asset, cuts costs for investors.
‘Benefited Investors’
Speed trading has “contributed to substantial improvements in market quality that have benefited all investors,” the Futures Industry Association Principal Traders Group, which counts some of the biggest high-frequency traders among its members, said in a March 30 statement.
Individual investors using these traders to execute orders benefit from low commissions and the best prices, PennTrade Financial Chief Executive Officer Steve Ehrlich said in a Bloomberg Television interview on March 31.
The new EU restrictions on the trading strategy, which still need to be signed off by national governments, include standards to keep the price increment for securities from being too small and requirements that market makers provide liquidity for a set number of hours each day.
New York state Attorney General Eric T. Schneiderman said March 18 he opened an investigation into whether U.S. stock exchanges and alternative venues provide high-speed traders with improper advantages. The Federal Bureau of Investigation is looking into whether they’re breaking U.S. laws by acting on non-public information.
HFT ‘Parasites’
Schneiderman sent subpoenas to six high-frequency trading firms seeking information about special arrangements they have with exchanges and dark pools as well as their trading strategies, according to a person familiar with the matter.
Chopper Trading LLC, Jump Trading LLC and Tower Research Capital LLC are among the firms, according to the person, who asked to not be named because the details of the investigation haven’t been made public.
Matt Schrecengost, the chief operating officer of Chicago-based Jump Trading, and Mark Gorton, managing director of New York-based Tower Research, didn’t immediately return voicemail messages seeking comment. No official at Chicago-based Chopper Trading was immediately available.
The renewed focus on high-frequency trading is encouraging participants in other markets to consider their own responses. Boston-based Fidelity Investments, the second-largest mutual-fund company, said April 10 it’s looking into setting up a stocks platform to beat the speed traders.
“There’s been a lot of dissatisfaction, particularly on the buy-side and asset-management community, about high-frequency trading,” said Richard Bentley, the vice president for financial services at Software AG, which aggregates trading platforms including ParFX. “There’s the perception that they’re parasites. What ParFX have done is essentially play to that and said, come and trade in our pool, because we’re not going to allow the HFT people to come and spoil the fun.”
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And we, the "simple traders" are going to be left at the mercy of HFT and environments that the banks do not trust? Finally we are told what are we : expendable fools that will trade in any environment we are given. Do we need any comment on that? I don't think so/. We are given metatrader that not even a failing bank with touch with a mile long stick ...
"Holy Grail" HFT Firm Virtu Questioned By NY AG
Having the trade record of Bernie Madoff and the braggadocio of a WWF wrestler was just too much for New York Attorney General Eric Schneiderman to ignore. Rigged Market HFT Poster-child, and recent-delayed IPO, Virtu Financial has received a letter of inquiry from the AG's office requesting information about its business. As Bloomberg reports, a person with knowledge of the matter said this week that six high-frequency trading firms have received subpoenas as part of Schneiderman’s investigation and Virtu was asked for similar information in a letter of inquiry which could be escalated to a subpoena if the company doesn’t comply voluntarily.
As Bloomberg reports,
...
Following a decision two weeks ago to postpone the IPO, Virtu has now delayed the deal indefinitely because of market conditions, a person familiar with the matter said yesterday. The IPO filing hasn’t been withdrawn, the person said. Shares of Virtu’s rival KCG Holdings have tumbled 13 percent since the Lewis book, “Flash Boys,” was published.
What gave it away?
From the S-1: "The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2013. As a result of our real-time risk management strategy and technology, we had only one losing trading day during the period depicted, a total of 1,238 trading days. "
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Anti-HFT Trading Platform Comes To "Rigged" FX Markets
The surge in volume on the anti-HFT equity trading platform IEX - of Flash Boys and TV-fight-night fame - makes it very easy to see how the buy-side (which the US retail investor is one small part of) clearly prefers an un-rigged place to find willing sellers (or buyers). Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35% of spot currency volume in October was by speed traders, up from 9% five years earlier, but just as in equity markets, there are speculators and there are natural buyers and sellers in FX markets (looking to hedge payments and receipts from real business for example). As Bloomberg reports, a currency-dealing platform known as ParFX, established in 2011, offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and "is the industry’s effort to heal itself."
IEX volumes hit record highs...
And now the FX markets - also dominated by High-Frequency-Trading - have an anti-HFT platform upon which to transact...
The FX market is just as plagued by the HFT "parasite" as equity markets... And ParFX was set up specifically to rmeove HFT's ability to front-run orders (just like IEX did in equity markets)... The bottom line is a search for "trust" is on the rise...What Professional Buyside Traders Really Think Of HFT
Stimulus & Response: HFT Survey Results
Summary: We recently completed an online survey of ConvergEx customers and partners on the subject of U.S. equity market structure, with 357 responses largely (65%) from our institutional buy-side clients and prospects. The headline number is startling: fully 70% of survey participants do not believe that equity markets are “Fair for all participants”. Part of the blame resides with the role of High Frequency Trading (HFT) in current market structure. A small majority (51%) believes it is either “Harmful” or “Very Harmful” to market participants, while only 19% believe it is “Helpful” or “Very helpful”. Our survey also indicates very much a “Wait and see” approach to how these professionals view the current landscape. Seventy one percent have made no changes to the way they interact with U.S. equity markets. Opinion is pretty evenly split – 43% versus 38% - on whether more regulation is better than the rules currently on the books. Our takeaway: when 70% of market participants think markets are unfair, something’s got to give.
* * *
The typical human has a response time of about 0.25 seconds, or 250 milliseconds. That’s the time it takes us to process a stimulus and generate a response. Light tends to generate faster responses than sound, and world-class athletes can have quicker reflexes than the average population. Sprinters at the Beijing Olympics logged an average 189 millisecond response time to the starter’s gun, and a few could get down to 109-121 milliseconds.
Human response time is an outsized topic in capital markets at the moment with the ongoing debate over High Frequency Trading (HFT). In reality, the topic has been on a slow burn for years, as anyone who reads Zerohedge will know. But with Michael Lewis’s book “Flash Boys: A Wall Street Revolt”, the previously arcane questions of how equity markets actually function has become mainstream. Lewis’s book is currently #1 on Amazon in three different Investing/Economic categories and #6 overall. It sits right between Elizabeth Warren’s “A Fighting Chance” (5th) and Disney’s companion book to the movie “Frozen” (7th).
The important question now is whether the scrutiny on equity markets driven by Flash Boys will actually engender any lasting change in how stocks trade in the United States. Response times will clearly not be measured in milliseconds; weeks and months is more like it. Yes, regulators and law enforcement have launched various investigations in an effort to untangle what is ultimately a very complex topic.
To get a sense of where institutional investors sit on this topic, ConvergEx recently completed an online survey on the subject of market structure and HFT (link here). Here is a brief summary of the responses:
The question I was personally most curious about relates market resilience: “How confident are you that the U.S. equity markets could handle the volume created by a sudden geopolitical crisis or other large volatility shock. Only 38% of respondents were either “Very Confident” or “Confident”. The remaining 62% were either “Not Confident/Not at all Confident” or “Neutral” (22%). Over the last two decades we have had numerous events, both geopolitical and macro/financial, that engendered a spike in equity market volumes, so it would be more heartening if the majority of respondents felt the current system could handle this kind of stress. Less than 40% is essentially not a ringing endorsement.
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Bill McNabb Of Vanguard Says That HFT Is Beneficial To Investors
It’s always nice to see someone serious and well respected saying the same thing that I have been and so it’s nice to see Bill McNabb of Vanguard stating that HFT is beneficial to investors, not detrimental as Michael Lewis seems to think in Flash Boys. And McNabb is making this claim that high frequency trading benefits us all on exactly the same grounds that I have been doing so. Because higher liquidity, more trades and more people trading lowers the bid ask spread and thus lowers the cost of trading:
The firm has had to spend heavily on technology to deal with the proliferating number of stock exchanges and trading venues, but says the reduction in spreads – the difference between the price of buying and selling stocks – far outweighs those costs.
“Are different traders trying to gain every advantage they can? I think that’s true,” Mr McNabb said. “I think that’s always been true – but I don’t think the market is rigged.
“From a data perspective, we can see what’s happened to our fund shareholders over the last 20 years and they’ve benefited by that reduction in transaction costs.”
The actual reduction in those costs McNabb puts at 50 basis points, 0.05%, over the last 10 to 15 years. And that is a substantial sum of money that is being saved by investors there.
Think it through this way. Turnover on the US stock exchanges is of the order of $200 billion a day. That’s not accurate but it’s close enough to being correct (it’s most certainly not $20 billion nor $2 trillion). And there’s some 250 trading days in a year, what with weekends and public holidays. Giving us a US stock market turnover of some $50 trillion a year.
That spread, whatever the level it is at, is the price that we investors are having to pay to the market participants for the privilege of trading. Or, if you want to look at it the other way around it’s the rent that we’re being charged by those who own the markets. And 0.05% of $50 trillion is a pretty large number. If I’ve got all my zeroes in the right place it’s some $25 billion dollars a year that investors are saving as a result of HFT driving down the bid ask spread. And this is over and above the collapse in spreads that happened in the 90s. We really wouldn’t be happy if the furore about HFT meant that we all lost that collective benefit now, would we?
Yes, it’s absolutely possible that people are front running orders (although McNabb doesn’t think it an important point), that this is all being done with money in offices by men so obviously it’s evil, but the truth does seem to be that the ordinary investor benefits from the existence of HFT. And as such we’d need a seriously good reason to try and limit it for if the existence benefits investors then the absence must harm them.
Certainly, there will be things like Knight Capital happening if we allow HFT to continue. Where they plugged in their fancy new algorithm and thought that it was training itself happily in the sandbox but it was actually losing them $400 million playing on the real markets. But preventing sophisticated investors from making glaring mistakes isn’t part of the purpose of the regulation of financial markets. And do note, even with that, the benefits of HFT to all of us other investors are still larger than the losses Knight suffered.
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