Archive for the ‘Trading’ Category
A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.
Oh really? The motive is unclear eh?
No it’s not.
The motive is to try to goad someone else into placing an order against the fake orders that are never intended to execute. This, incidentally, is illegal — the Securities Act makes unlawful any action taken in the market with the intent to distort prices. In other words the placement of any order into the market for any purpose other than to have it executed is against the law.
Translation: The ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity.
That’s a crime; intentional disruption of the markets is illegal.
“I feel a tax on order-stuffing is what the markets need at this point,” said David Greenberg of Greenberg Capital. “This will cut down on the number of erroneous bids and offers placed into the market at any given time and should help stabilize the trading environment.”
It’s much simpler to fix this, as I’ve noted before.
All orders must be valid until executed or 2 (two) full seconds have elapsed.
That’s it. That’s all you have to do. This change instantly makes this sort of game unprofitable and it ends instantly. It makes all orders comply with the law; any order you place is exposed to execution risk against every other person in the marketplace. That’s what the law says, and a literal one-line change in regulation would put that in place.
Why hasn’t it been done?
Because the markets are not for you, nor are they for honest companies. They have been stolen by the Wall Street bandits and now are used as a tool to screw you and everyone else.
On April 5, 2012, JPMorganChase commodity executive Blythe Masters appeared on CNBC, and she was questioned whether the bank is manipulating metals markets?
Watch the interview here.
Masters’ response was,
“There’s been a tremendous amount of speculation, particularly in the blogosphere, on this topic,” she told CNBC. “I think the challenge is it represents a misunderstanding of the nature of our business. … Our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk-management objectives. … We have offsetting positions. We have no stake in whether prices rise or decline.”
So Blythe Masters would have us ALL believe that J.P. Morgue’s 76 Trillion derivatives position – illustrated below – is ALL CLIENT DRIVEN:
The Undoing of Blythe Masters and J.P. Morgan Chase
Perhaps Ms. Masters is unfamiliar with [or conveniently forgets, perhaps?] the manner in which the OCC gathers and presents data, namely, they gather and publish data submitted by the banks themselves in submissions known as “Call Reports ”.
Here is what the OCC tells us about “end users” or clients [or clients who want to be identified, perhaps?] for derivatives, namely, THAT THERE ARE VIRUALLY NONE:
Source: Office of the Comptroller of the Currency
You Cannot Have it Both Ways Blythe
This is EXTREMELY INDICTING. The head of J.P. Morgue’s derivatives nightmare is telling the world that their business is “customer driven” and on the other hand – the OCC – whom J.P. Morgue reports to – is telling us there are NO CUSTOMERS [or none that want to be identified] for these hundreds of TRILLIONS of derivatives products?
The reality is that Blythe Masters is telling a partial truth – in that J.P. Morgue’s trading is customer driven; and partially misdirection in that Masters refuses to acknowledge that J.P. Morgue’s client “IS” THE Treasury [specifically, the Exchange Stabilization Fund, or, ESF] of the United States of America.
It’s appropriate – with this being Easter – that Blythe Masters would lay-such-an-egg in the mainstream press. Appropriately, it has landed squarely on her own face.
Rob Kirby for Gold Seek
As Trekkies can attest to, breaching the Temporal Prime Directive is never, ever a good thing. It usually ends very badly. I hope none of you are wearing a red shirt.
So We No Longer Need NBBO, Right?
On September 15, 2011, beginning at 12:48:54.600, there was a time warp in the trading of Yahoo! (YHOO) stock. HFT has reached speeds faster than the speed-of-light, allowing time travel into the future. Up to 190 milliseconds into the future, or 0.19 fantaseconds is the record so far. It all happened in just over one second of trading, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. The facts of the matter are indisputable. Based on official exchange timestamps, there is unmistakable proof that YHOO trades were executed on quotes that didn’t exist until 190 milliseconds later!
Let’s make sure everyone understands what’s being talked about here – there were trades executed on quotes that hadn’t yet occurred.
Or at least this is what the timestamps represented.
There is absolutely no excuse for this. It is an absolutely trivial matter to have synchronized time nowdays. Not by 190 milliseconds, but by a fraction of a millisecond. In fact, with no effort whatsoever, the colocated server that runs this blog keeps time to within about one millisecond, and I could be more accurate if I cared to spend some money. That is, I literally am accurate within one millisecond spending zero, using only multiple Internet resources available to everyone (ntpd, to be precise.) When I ran MCSNet I had a radio clock that sync’d off WWVB and provided time to our network – I picked it up surplus for under $100 and it provided a “chime” timesource accurate to within about a half a millisecond. Modern GPS receivers can provide similar time service with nothing more than a cable (I have one here at my home in just this application) and likewise are not expensive.
So, what’s going on here? Well, there are a couple of possibilities. Some of them are truly sinister. For example, the entire quote system may no longer give quotes to all the people at the same time, and thus the premise that you’re trading against a fair market is a total farce. Your quotes go in front of or behind others, and others trade in front of or behind you. What’s worse that activity could be happening selectively when it’s bad for you and good for someone else, and there’s no way for you to know!
There are, of course “innocent” explanations that do not involve intentional manipulation, but there’s no way to prove them. When you no longer can reasonably depend on synchronization at the most-base level – that is, that a timestamp is a timestamp is a timestamp and all are accurate – then you’re not trading or investing any more, you are probably playing at a poker table with a marked deck and confederates sharing their cards with the other players on a selective basis to rip you off.
The SEC won’t stop this crap as is quite clear from the facts over more than a year’s time so what options do you have left?
Have you noticed that a really bad mood seems to have descended on world financial markets? Fear and pessimism are everywhere. The global economy never truly recovered from the financial crisis of 2008, and right now everyone is keeping their eyes open for the next “Lehman Brothers moment” that will send world financial markets into another tailspin. Investors have been very nervous for quite some time now, but this week things seem to be going to a whole new level. Fears about the spread of the debt crisis in Europe and about the failure of debt ceiling talks in the United States have really hammered global financial markets. On Monday, the Dow Jones Industrial Average dropped 151 points. Italian stocks fared even worse. The stock market in Italy fell more than 3 percent on Monday. The stock markets in Germany and France fell more than 2 percent each. On top of everything else, the fact that protesters have stormed the U.S. embassy in Syriais causing tensions to rise significantly in the Middle East. Everywhere you turn there seems to be more bad news and large numbers of investors are getting closer to hitting the panic button. Hopefully things will cool down soon, because if not we could soon have another full-blown financial crisis on our hands.
Even many of those that have always tried to reassure us suddenly seem to be in a really bad mood.
For example, U.S. Treasury Secretary Timothy Geithner admitted to “Meet the Press” that the U.S. economy is really struggling and that for many Americans “it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for a long time to come.”
Does Geithner know something that we don’t?
To say that what Americans are facing will be “harder than anything they’ve experienced in their lifetime now, for a long time to come” is very, very strong language.
It almost sounds like Timothy Geithner could be writing for The Economic Collapse blog.
It certainly is not helping things that the Democrats and the Republicans still have not agreed on a deal to raise the debt ceiling. It is mid-July and Barack Obama and John Boehner continue to point fingers at each other.
Of course if they do reach a “deal” it will likely be a complete and total joke just like their last “deal” was.
But for now they are playing politics and trying to position themselves well for the 2012 election season.
Meanwhile, world financial markets are starting to get a little nervous about this situation. The newly elected head of the IMF, Christine Lagarde, has stated that she “can’t imagine for a second” that we are going to see the U.S. default on any debt. Most investors seem to agree with Lagarde for now, but if we get to August 2nd without a deal being reached things could change very quickly.
But it isn’t just the debt ceiling crisis that is causing apprehension in the United States. The truth is that there are a host of indications that the U.S. economy is continuing to struggle.
Even big Wall Street banks are laying people off. A recent Reuters article described the bad mood that has descended on Wall Street right now….
Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) and some other large U.S. investment banks are not just laying off weak performers and back-office employees. They are also cutting the pay of those they are keeping, scrutinizing expense reports and expecting even the most profitable workers to bring in more business for the same amount of compensation.
That is not a good sign for the U.S. economy.
If the corrupt Wall Street banks are even struggling, what does that mean for the rest of us?
But the big trouble recently has been in Europe. The sovereign debt crisis continues to get worse and worse.
As I wrote about yesterday, the emerging financial crisis in Italy has EU officials in a bit of a tizzy. If Italy requires a bailout it is going to be an unmitigated disaster.
One of the most respected financial journalists in Europe, Ambrose Evans Pritchard, says that financial tensions in the EU are rising to dangerous levels….
If the ECB’s Jean-Claude Trichet is right in claiming that Europe was on the brink of a 1930s financial cataclysm a year ago – and I think he is – it is hard see how the threat is any less serious right now.
Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.
Last year it was just small countries like Greece and Ireland that were causing all the trouble.
Now Italy (the fourth largest economy in the EU) and Spain (the fifth largest economy in the EU) are making headlines.
Up to this point, the EU has had all kinds of nightmares just trying to bail countries like Greece out.
What is going to happen if Italy or Spain goes under?
At this point things with Greece have gone so badly that some EU officials are actually suggesting that Greece should just default on some of the debt.
Yes, you read the correctly.
There are news reports coming out of Europe that say that EU leaders are actually considering allowing the Greek government to default on some of their bonds. According to The Telegraph, “the move would be part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing.”
All of this chaos is causing bond yields in Europe to go soaring.
Earlier today, The Calculated Risk blog detailed some of the stunning bond yields that we are now seeing in Europe….
The Greek 2 year yield is up to a record 31.1%.
The Portuguese 2 year yield is up to a record 18.3%.
The Irish 2 year yield is up to a record 18.1%.
And the big jump … the Italian 2 year yield is up to a record 4.1%. Still much lower than Greece, Portugal and Ireland, but rising.
Could you imagine paying 31.1% interest on your credit cards?
Well, imagine what officials in the Greek government must be feeling right about now.
If these bond yields do not go down, we are going to have a full-blown financial crisis on our hands in Europe. If these bond yields keep rising, we are going to have a complete and total financial nightmare in Europe.
The only way that any of these nations that are drowning in debt can keep going is if they can borrow more money at low interest rates. There are very few nations on earth that would be able to survive very high interest rates on government debt for an extended period of time.
Pay attention to what is happening in Europe, because it will eventually happen in the United States. Right now we are only paying a little more than $400 billion in interest on the national debt each year because of the super low interest rates we are able to get.
When that changes, our interest costs are going to absolutely skyrocket.
Not that the United States needs any more economic problems.
Right now Americans are more pessimistic about the economy than they have been in ages.
In a recent article entitled “16 Reasons To Feel Really Depressed About The Direction That The Economy Is Headed” I noted a number of the recent surveys that seem to indicate that the American people are in a real bad mood about the economy right now….
*One of the key measures of consumer confidence in the United States has hit a seven-month low.
*According to Gallup, the percentage of Americans that lack confidence in U.S. banks is now at an all-time high of 36%.
*According to one recent poll, 39 percent of Americans believe that the U.S. economy has now entered a “permanent decline”.
*Another recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.
The American people are in a really bad mood and investors around the world are in a really bad mood. More bad financial news seems to come out every single day now. Everyone seems to be waiting for that one “moment” that is going to set off another financial panic.
Hopefully we can get through the rest of this summer without world financial markets falling apart. But the truth is that the global economy is even more vulnerable today than it was back in 2008. None of the things that caused the financial crash of 2008 have been fixed.
We will eventually have a repeat of 2008. In fact, next time things could be even worse.
The entire world financial system is a house of cards sitting on a foundation of sand. Eventually another storm is going to come and the crash is going to be great.
WASHINGTON (MarketWatch) — Treasury Secretary Timothy Geithner on Monday urged global regulators to cooperate and develop common standards to ensure banks trading in the derivatives market have sufficient collateral, or margin, to weather future economic crises.
All derivatives must be exchange-traded. NOT “clearinghoused”, exchange-traded, so that they are double-blinded and the buyers and sellers have no idea who the other party is.
All derivatives must be margined nightly against cash just like every other exchange-traded product.
End of problem. Trade ‘em all you want, but:
You can’t screw people.
You can’t claim to have a risk covered when the counterparty cannot pay.
That’s all that needs to be done, it’s what I’ve advocated for years and it is the only solution that will actually work and cannot be gamed.
Those who have read my work for a while know that I strongly support environmental and wage-parity tariffs. I do not consider this “protectionism”, but rather leveling the playing field for those nations that corporations intentionally exploit through both near-slave labor conditions and the ability to dump pollutants into the air and water (not to mention poisoning their workers) as a means of “competing” with US workers and manufacturing. They then export their products back here and claim to be geniuses.
This is the evidence for my position.
This chart shows the annualized (that is, seasonality removed) change in employment adjusted for population change.
One must always look at employment ex population changes. If you add 1 million people of working age to the population then you must subtract them out of the employed figures to figure out whether your workforce, as a percentage of the total working-age population, is growing or shrinking. This is essential since those who are not working but of working age are a huge net drain on the government and economy.
The claims that we are “net beneficiaries” of off-shoring, that H1B Visas make us “more competitive” in our corporations, and that we’re “doing ok” in regard to our employment situation when one ignores the recession we just went through are proved utterly fallacious by this chart.
In point of fact even during the “boom times” of the most-recent recovery – from 2003-2007 – we managed to barely improve actual employment, and even then, only on a sporadic basis!
This came despite the allegedly-strong economy.
In short, there was no “strong economy” in point of fact. The claims were false. They were predicated on a lie – that expanding credit in fact is expanding wealth.
The employment base, when one looks at it ex-population, never expanded to any material degree at all even in 2000, which was the top of the market. It also never recovered any material number of jobs from 2003-2007.
We cannot recover until we address this. And we cannot address this so long as we continue to allow corporations to offshore jobs and import cheap workers on the H1B program.
We must impose tariffs that level the playing field for American production and shut off importing foreign workers who come here with subsidized educations while our graduates are coming into the workforce with six-figure debts, requiring salaries $18,000/year and more in excess of what that foreign worker can do the same job for.
If we don’t stop this, right now, we’re not going to recover.
We cannot force another credit-driven expansion. It will not work.
The numbers are what they are.
If we do not act now when the folly of the intended credit-driven expansion becomes realized both the stock market and government funding capacity will collapse, and the 2007-2008 downturn will look like a cakewalk.