Rigged Wall St.Trading and the Guys Who Figured It Out

[werepossum]

There's a big difference between HFT and what they are trying to hit at, which is scalping, front running and order stuffing.

Do HFTs add liquidity? No, they don't, since it is not meaningful liquidity.


Do they rig the market through the aforementioned means? Absolutely.

Do they create a financial tax of their own, solely for the benefit of the .01%? Absolutely.

Do they create algorithms that do nothing but screw the individual investors? Absolutely.

Should HFT be outlawed? No. However, violators should be fined massively, as in multiples of their earnings. That will stop the practice pretty quickly.

For as much as ZH gets wrong, this is one they have pegged perfectly. All you have to do is read some of the Nanex analysis to know that there is a lot more to HFT than liquidity.

Excellent summation.

 

[Oldgamer]

Here are two CEOs fighting over this very subject on live TV. http://www.cnbc.com/id/101544772

You can tell who the douchebag is in this debate.

 

[LegendKiller]

Here are two CEOs fighting over this very subject on live TV. http://www.cnbc.com/id/101544772

You can tell who the douchebag is in this debate.

It's because he knows the only way to defeat this is to come out swinging and try to discredit an author that is known as one of the best financial writers in history and a guy who discovered and fixed a massive problem.

Of course Katsuyama is trying to profit off of their financial malfeasance. That is 100% logical.

 

[Oldgamer]

It's because he knows the only way to defeat this is to come out swinging and try to discredit an author that is known as one of the best financial writers in history and a guy who discovered and fixed a massive problem.

Of course Katsuyama is trying to profit off of their financial malfeasance. That is 100% logical.

Pretty much Katsuyama is right it is in fact computerized scalping and should be made illegal.

 

[norseamd]

some guy was just on charlie rose about this

 

[BoberFett]

There's a big difference between HFT and what they are trying to hit at, which is scalping, front running and order stuffing.

Correct me if I'm wrong, but is it not the phenomenon of HFT that greatly increases the ability to do those things?

 

[DucatiMonster696]

A fascinating story, well worth the read.

My comment? The depth of piggish corruption on Wall St. runs deep indeed. :twisted:

If you think that corruption on Wall Street is piggish then you haven't looked at the connection between Wall Street, Banks and the US Federal Government. All 3 work to fulfill each others goals/agendas in a web of interlocking interests that ultimately sacrifices the little guy on Main Street.

 

[norseamd]

If you think that corruption on Wall Street is piggish then you haven't looked at the connection between Wall Street, Banks and the US Federal Government. All 3 work to fulfill each others goals/agendas in a web of interlocking interests that ultimately sacrifices the little guy on Main Street.

time to get rid of a private company that uses all of the powers of a federal institution while giving none of the benefits

we need a real federal bank that any and all citizens can use

 

[Fenixgoon]

great article.

 

[DucatiMonster696]

time to get rid of a private company that uses all of the powers of a federal institution while giving none of the benefits

we need a real federal bank that any and all citizens can use

The issue is the corruption and distortion that occurs due to centralization of power. You wouldn't solve anything by replacing one bad actor for another.

 

[soulcougher73]

There's a big difference between HFT and what they are trying to hit at, which is scalping, front running and order stuffing.

Do HFTs add liquidity? No, they don't, since it is not meaningful liquidity.


Do they rig the market through the aforementioned means? Absolutely.

Do they create a financial tax of their own, solely for the benefit of the .01%? Absolutely.

Do they create algorithms that do nothing but screw the individual investors? Absolutely.

Should HFT be outlawed? No. However, violators should be fined massively, as in multiples of their earnings. That will stop the practice pretty quickly.

For as much as ZH gets wrong, this is one they have pegged perfectly. All you have to do is read some of the Nanex analysis to know that there is a lot more to HFT than liquidity.

If you are willing to fine them then you admit its a bad practice. So why not just outlaw it instead? That makes much more sense than saying "this is bad..and if you do it..well fine you"

 

[blankslate]

Somebody did not read the article before stating that more taxation would fix the problem.

Slow them down. Make a consistent minimum of 2000 ms a requirement or put a "sin tax" on it.

Someone needs to understand that reading just the original article doesn't always give all the perspective you need.
http://www.forbes.com/sites/leesheppard/2012/10/16/a-tax-to-kill-high-frequency-trading/2/

/shrug

Or just outlaw it.

 

[hal2kilo]

I don't see HFT as cheating, they are just using existing conditions of these markets to their advantage. Since many people do find it unfair, or unsavory at the very least, a market has popped up that purports to be able to remove some of the unfairness that HFT was taking advantage of. I don't see how that is cheating.

Now there are a lot of other aspects of Wall St. that are completely unfair to the rest of America and the world for the most part, but this isn't one of them.

Must not have read the article. Or you have a perverse since of fairness. Or you don't care about a true transparent market.

 

[Darwin333]

A problem should be fixed, not taxed.

Fern

Force orders to be visible to the market for a certain, very small, amount of time to ensure that it is at least possible that they are executed would end this immediately. Like second or two max, that will fix the problem that is already illegal. See, it is already illegal to issue an order which you have no intention of being executed. An order that is issued and taken down in micro-seconds, long enough to be seen but not long enough to be seen AND executed, is very difficult to call a good faith offer. This is done millions of times a second, fake orders that are never executed but DO give the appearance of fucktons of demand.

Or you could give traders a reasonable amount of daily cancellations, hell give them quadruple a reasonable amount, and then charge them a single penny for orders that are canceled within a 2 seconds of being placed. This won't be a tax because it will never be paid, it will immediately end the front running and other bullshit games.

I do agree with you that a tax that hits the entire market, regardless of how small, is completely unnecessary. There are other ways, up to and including a new tax or fee, that hits only HFT that would effectively put an end to the bullshit and the tax or fee would never be paid because it would make it unprofitable. Are you really going to shed a tear because it is all of a sudden unprofitable to issue millions upon millions of orders that are by design never going to be executed and are used to manipulate the market and the ones that are intended to be executed only serve to skim a few pennies off of every transaction?

 

[werepossum]

Force orders to be visible to the market for a certain, very small, amount of time to ensure that it is at least possible that they are executed would end this immediately. Like second or two max, that will fix the problem that is already illegal. See, it is already illegal to issue an order which you have no intention of being executed. An order that is issued and taken down in micro-seconds, long enough to be seen but not long enough to be seen AND executed, is very difficult to call a good faith offer. This is done millions of times a second, fake orders that are never executed but DO give the appearance of fucktons of demand.

Or you could give traders a reasonable amount of daily cancellations, hell give them quadruple a reasonable amount, and then charge them a single penny for orders that are canceled within a 2 seconds of being placed. This won't be a tax because it will never be paid, it will immediately end the front running and other bullshit games.

I do agree with you that a tax that hits the entire market, regardless of how small, is completely unnecessary. There are other ways, up to and including a new tax or fee, that hits only HFT that would effectively put an end to the bullshit and the tax or fee would never be paid because it would make it unprofitable. Are you really going to shed a tear because it is all of a sudden unprofitable to issue millions upon millions of orders that are by design never going to be executed and are used to manipulate the market and the ones that are intended to be executed only serve to skim a few pennies off of every transaction?

A charge on cancelled orders (with a time limit) does seem practical.

 

[BoberFett]

time to get rid of a private company that uses all of the powers of a federal institution while giving none of the benefits

we need a real federal bank that any and all citizens can use

That doesn't seem like a bad option to me. Why should only specific private organizations be allowed to get to deal with the central bank? That hardly seems like a level playing field.

 

[werepossum]

Slow them down. Make a consistent minimum of 2000 ms a requirement or put a "sin tax" on it.

Someone needs to understand that reading just the original article doesn't always give all the perspective you need.
http://www.forbes.com/sites/leesheppard/2012/10/16/a-tax-to-kill-high-frequency-trading/2/

/shrug

Or just outlaw it.

From your article:

Ironically, many jurisdictions with loose securities regulation—the United Kingdom, Hong Kong, and Singapore, for example—already have some form of FTT. Even the United States has a securities transfer tax to fund the SEC.

It appears that such a tax will be used to raise money rather than to protect investors. Why for instance would the government fight traders posting fake offers to raise the price or placing a buy agreement before the owner can see the incoming offer if the government makes more money from that than from an honest trade?

A tax merely raises the cost of defrauding people. We need to eliminate the dark pools and unethical gaming, not make them slightly less profitable by transferring some of all investors' wealth to government. Darwin's idea, on the other hand, disadvantages only those working to game the system. The IEX discourages gaming by eliminating its built-in advantage and invisibility. Still need to address the dark pools though. If those are closed, then brokers or traders wishing to do the same thing will have to lave a traceable trail.

And the IEX did intentionally slow down trading, per Perk's article. Removing the built-in lag between exchanges with a delay sufficient for all exchanges and traders to see all offers was their biggest advantage. Ingenious, really.

 

[blankslate]

t appears that such a tax will be used to raise money rather than to protect investors. Why for instance would the government fight traders posting fake offers to raise the price or placing a buy agreement before the owner can see the incoming offer if the government makes more money from that than from an honest trade?

I do agree with you that a tax that hits the entire market, regardless of how small, is completely unnecessary. There are other ways, up to and including a new tax or fee, that hits only HFT that would effectively put an end to the bullshit and the tax or fee would never be paid because it would make it unprofitable. Are you really going to shed a tear because it is all of a sudden unprofitable to issue millions upon millions of orders that are by design never going to be executed and are used to manipulate the market and the ones that are intended to be executed only serve to skim a few pennies off of every transaction?

I would go with Darwin333's idea then and use the any funds from that to foster the use of exchanges like the IEX mentioned in the article which slows down trades enough that people can't engage in shens as easily as on other exchanges.

The capacity of the IEX could be expanded or there could be a public one set up using the same model as the IEX with input from the people who created the IEX.
Tax credits or a grant to the IEX to help make its infrastructure as robust as possible and expand its capacity to handle more simultaneous trades at once seems like a good idea if for some reason people object to a publicly funded exchange.

Then ad buys for public service announcements targeted at individual investors who are getting into the market for the first time could be made on business oriented basic cable channels.
"Don't want to get screwed over by humongous investment conglomerates? Trade on the exchange(s) that level(s) the playing field." for example.

As for the Dark Pools it's hard to see them going away unless authority to regulate them is given to the SEC or the CFTC whichever one is more appropriate to handle something like that. Of course big government is bad and big corporations are always better or something so we'll just have to leave them be I suppose.


....

 

[werepossum]

I would go with Darwin333's idea then and use the any funds from that to foster the use of exchanges like the IEX mentioned in the article which slows down trades enough that people can't engage in shens as easily as on other exchanges.

The capacity of the IEX could be expanded or there could be a public one set up using the same model as the IEX with input from the people who created the IEX.
Tax credits or a grant to the IEX to help make its infrastructure as robust as possible and expand its capacity to handle more simultaneous trades at once seems like a good idea if for some reason people object to a publicly funded exchange. Dark pools need a bright light and a big dose of chlorine.

Then ad buys for public service announcements targeted at individual investors who are getting into the market for the first time could be made on business oriented basic cable channels.
"Don't want to get screwed over by humongous investment conglomerates? Trade on the exchange(s) that level(s) the playing field." for example.

As for the Dark Pools it's hard to see them going away unless authority to regulate them is given to the SEC or the CFTC whichever one is more appropriate to handle something like that. Of course big government is bad and big corporations are always better or something so we'll just have to leave them be I suppose.


....

I agree with all of that. As for dark pools, my preference that any publicly traded stock must be traded publicly, with a record trail of all transactions. I suspect that would solve a lot of it. I don't think IEX needs any government help though. Spend that time and money forcing the other exchanges to come into the light. Dark pools need a bright light and a big dose of chlorine.

 

[mrjminer]

Figured this might light a fire.

Holder just announced a probe into high frequency trading. Only see it at the top of CBS's banner for streaming notices on their website atm though so no article: http://www.cbsnews.com/videos/live-video/

I just tried checking it out, but I guess it's just a general stream of the committee meeting so they're talking about other stuff. Suppose I'll wait for an article

 

[Budarow2]

Since "savings" rates pay zero (e.g., money market, savings accounts, etc.) and long term bond yields are near historical lows, the stock market is the only practical option.

So until retail investors find other significant options for investing (in an attempt to get ahead or retire some day), the corruption will continue because everyone "can" benefit from it (with the retail investor being the least likely to benefit and the most likely to take the fall when the stock market falls apart again).

 

[Attic]

If you think that corruption on Wall Street is piggish then you haven't looked at the connection between Wall Street, Banks and the US Federal Government. All 3 work to fulfill each others goals/agendas in a web of interlocking interests that ultimately sacrifices the little guy on Main Street.

I agree with this. HFT is just a symptom of the disease outlined above, medicate HFT (taxes or other) and the disease still persists in other severely detrimental ways to the host (most of us).

Get regulations that work, that aren't owned and applied selectively by the guys who are suppose to be regulated. Stop having a selective application of law that is applied based on how much or how little power and/or wealth one has. Many other things.

The SEC has known about quote stuffing/quote spoofing and how they are used to give HFT power to manipulate and cheat markets for years. Lewis may have written a book about it that is just getting attention now, Brad may have torn that douche OBrien a new one on national TV about how fraudulent HFT is, but don't forget that many people have been showing proof and writing and SCREAMING at the SEC about HFT manipulation of equity markets for years.


Unfortunately there is really no need for our system to change, because it ultimately is much more beneficial to lie and cheat or otherwise get around the rules (through money/power or making the rules) than to adhere to any set of laws with an intent to compete fairly. Solving HFT is somewhat impossible IMO, lets not forget who makes and applies the rules and Ducati nailed it. *If* HFT has to be sacrificed for appearances because of the current uproar, it will morph into something as bad or worse because corruption pays and it pays really well and is extremely safe and easy to engage in when you own the system of rule and law and few understand it and nobody challenges you.

One of the first things I'd like to see happen is to stop championing the ridiculous gay, or women, or minority rights.... agendas cleverly used to divide people. And start championing individual rights with the implicated and stated goal of protecting the individual from corporate/banking/government corruption and fraud. All individuals protected equally empowers the smallest minorities more than any BS scripted rights movement does. Currently limited group protections and laws are being championed while through slight of hand legislation and clever manipulations keep grabbing more and more power from everyone through law and its selective application against those it does or does not favor.

How is any individual safe against stuff like HFT if the individual has less power tomorrow than he does today?