=========================================================== " October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February."
bring it on. third time should indeed be a big charm. oct 2008, last week and pretty soon coming at your freindly neighbourhood movie theatre. check your local listings for show times.
and then after that it should be the end of hfts algos hedgies. bye bye renaissance captial....
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"If the trend is your friend until it meets a bend, that trend is now the investor’s enemy." - SocGen’s Albert Edwards
Posted by Larry Doyle on May 11, 2010 7:55 AM | ShareThis
Like leading sheep to the wolves, the manner in which high frequency trading activity has grown to dominate our equity markets is nothing more than a trap. How has that trap worked? Stay on message and continue to promote the premise that high frequency trading adds liquidity to the market. Time and time again, America would hear from quantitative traders and their analysts engaged in high frequency trading that these programs would provide consistent liquidity from which retail investors would benefit.
What a crock!! That said, the HFT activity itself is not to blame for the market plunge. The programs behaved as they were designed. That is, during periods of extreme volatility, those running the programs would simply shut down the machine. Is that liquidity? No, I don’t think so.
Never again should America have to listen to anybody engaged in high frequency trading and hear them say these systems provide liquidity to the market. They don’t.
While we learned that high frequency trading activity does not provide liquidity to the market, we also learned that regulators themselves have once again shown themselves to be incapable and incompetent of truly protecting investors. Talk that regulators will institute circuit breakers and such to lessen the fall of the markets will work to protect exchanges, but will they work to protect investors? Bloomberg addresses this topic in writing, Exchanges to Report Back to SEC on Proposal for Circuit Breakers:
Heads of the biggest U.S. trading venues will submit plans to federal officials this week for shutting down stock markets nationwide during investor panics.
NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets Inc., Direct Edge Holdings LLC, International Securities Exchange Holdings Inc. and CBOE Holdings Inc. are negotiating the threshold of gains or declines at which trading should stop, according to two people familiar with the matter. Their chief executive officers met yesterday with Securities and Exchange Commission Chairman Mary Schapiro in Washington.
“You have to agree in advance on the point at which a short-term circuit breaker would be put in,” said John Coffee, a law professor at Columbia University in New York. “We may want the circuit breaker to kick in on a 5 percent decline.”
These circuit breakers may serve to break the fall, but they do not address the core problem. What is that? The simple fact that the exchanges themselves are set up as for profit entities. That structure has caused them to provide a variety of incentives to dealers to garner their trading activity. In the process, the system itself has been built not to serve investors but to serve the dealers and the exchanges themselves.
The executives could provide no clear explanation for the selloff, according to the people, who asked not to be named because the meeting was private. None saw evidence that the plunge began with a trading error. CNBC citied “multiple sources” in reporting May 6 that New York-based Citigroup Inc. may have entered a mistaken transaction that contributed to the plunge. Citigroup said it found no evidence it was involved in an erroneous order.
The erroneous story of a “fat finger” causing an out trade is also an indication that the industry itself, served by the charade at CNBC, is not truly interested in protecting investors but rather saving face.
It is one of the most bi zarre searches since Bin Laden.
Regulators are still looking for a Waldo (star, of course, of "Where's Waldo?") so they can pin the blame on someone -- and any old, fumbling fat-fingered trader will do -- for the near catastrophic decline in stock prices last Thursday.
Now, in the latest apparent development in this case, The New York Times said the government is interrogating a trader -- probably at Gitmo -- about "heavy selling in the market for stock index futures."
That's all well and good. Scapegoats are what makes America the land of the great -- let's waterboard the poor fool for not going along with the plan to keep the stock market up in the name of national interest.
To me, however, the bigger mystery in last Thursday's market activity -- when the Dow Jones industrials in just 15 minutes turned an already-stunning 400-point decline into a mind-boggling 1,000-point rout -- is this: Who rescued the market?
If a Waldo was to blame for the decline, then a Sam (as in Uncle Sam, perhaps) was probably responsible for the recovery to a loss for the day of "just" 348 Dow points.
The 600-plus point gain also happened in just minutes.
There are so many things to nibble on in this story that I'll have to wear a lobster bib.
I've been suspicious for some time about how Washington and some Wall Street giants have been playing footsie. You scratch my back, I'll line your pockets -- or something like that.
And I have the phone records that prove the culprits had means, opportunity and motive.
So when traders told me last Thursday that someone seemed to have a very unusual appetite for stock index futures contracts just as the Dow neared the level of a 1,000-point drop, it wasn't a surprise.
In fact, it was so predictable we could have held the door open for Sam, or Morgan, or Goldie -- or whoever it was -- and greeted them.
And -- quite frankly -- it was an acceptable time to rig stock prices. Things were out of control and someone had to step forward.
Next nibble -- the person, unnamed by the Times, who is supposedly being questioned for his/her heavy selling of futures contracts, which I guess is frowned upon.
Let me ask the interrogators this: Has anyone ever been questioned for heavy buying in stock index futures contracts?
That's the sort of buying that a former Federal Reserve governor back in 1989 suggested should be used to support stock prices in case of emergency.
And it's this sort of abnormal buying that likely contributed to several stock market bubbles over the past decade, which resulted in several crashes and, which brings us to where we are today -- at a point where stock gamblers can panic and move the market abnormally lower because others have managed to keep prices artificially high.
Next -- the media's reaction to the decline.
I'm not just talking about the long faces on the hosts of all those financial TV shows. I understand, they all have retirement accounts invested in stocks that you'd like to see rise.
I feel their pain.
But when allegedly competent sources started telling these hosts that someone had accidentally hit a "B" for billions when he only wanted to sell "M" for millions of shares, didn't anyone think of checking?
People who really know this sort of stuff say that computerized trading programs don't work like that.
And if anyone who had been conveying that nonsense to their viewers had taken a deep breath, picked up the phone and asked a real trader they would have discovered the truth.
So what is the whole truth and nothing but the truth in this episode? It's simple.
Stock prices have risen by nearly 80 percent since March, 2009, mainly because the Federal Reserve once again has kept interest rates too low for too long. There's no other place to invest for a reasonable return.
And people have moved stock prices beyond the uppermost limit of reasonableness, especially at a time when there is so much uncertainty in the world financial community.
And like a rubber band stretched beyond its limit, stock prices are vulnerable to accidental breaks whether it's because of fat-fingered traders, real- life disasters and even a sudden return to economic rationality.
Boo! See, I just sent the stock market lower.
And here come the investigators. john.crudele@nypost.com
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"Even a dog knows the difference between being stumbled over and being kicked." -Justice Oliver Wendell Holmes
"Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." -Samuel Adams
eurostoxx this morning was frozen, rumors saying big real fat finger of a basket of euro future (eurex family derivatives is big, from sectors to inflation http://www.eurexchange.com/market/quotes....
What is the role of the stock market? I had always learned from my educational and work experience that markets have an important role in free market capitalism. That role is to provide liquidity and minimize friction as much as possible, so as to give confidence to the providers of capital, so that there is an easy, efficient, and cost-effective way to move their capital around as they desire. When this role is being fulfilled, capital is raised and allocated for new wealth-creating industries, which grow, create jobs, create economic growth, and raise standards of living. Those with capital are courted by merchant and investment banks that generate ideas with them, and put them in touch with entrepreneurs with vision. They invest in those entrepreneurs via seed capital, and eventually in initial public offerings, or IPO’s. You remember IPO’s? There used to be this thing called the IPO Calendar, and it is typically a great barometer for how the economy is doing. Today nobody in our industry knows what an IPO is. I actually saw one High Freak on TV three days ago tell MC Cabrera that he thought an IPO calendar was a maintenance schedule for a trade-engine server. Ok, I actually did not, but you get the point. David Weild of Grant Thornton sure does. Please read, perhaps over the weekend, his research piece: Why are IPO’s in the ICU:
(And for the High Freaks… that is ICU and not CPU). And if you work for the SEC, please read this piece twice.
The image I picked for today’s Thoughts is pretty bleak one. It is from a war-themed video game, and those of you with teenage kids have probably seen similar imagery as you walk through the family room while they are playing. I am amazed at the graphics, and I am even more sadly amazed at how desolate, bleak, and shell-like the cities are that serve as the battlefields for our well-armed teens. You see where I am going with this. Our secondary markets have become like that game.
Massive firepower and resources are devoted to the activity of evolved trading (scalping). Huge financial institutions called Exchanges cater to this activity so myopically, that they have lost all perspective of the real role of financial markets. And sadly, our regulators have allowed them to do so. In the name of evolution and “adapt or die” mentality, our markets have been hijacked and stripped of its most important role and function. We need to all adjust our thinking, because our economy demands it. We need to adjust our perspective, because our economy demands it. Markets need to be fair, and inspire confidence! That confidence is needed so that those with capital can feel confident in investing. This confidence is unfortunately on the wane. You hear it at parties, and you hear it on the street. Amazingly you hear it from brokerage firm executives (one who yesterday wrote an article suggesting that the source of our markets problems is the market order! Yes… he thinks the solution is to eliminate the market order and tell the world that our “most efficient and liquid markets” can’t handle the 100yr old market order!)
The confidence must be restored or investors (the owners of the market) will continue to flee, and then our markets will be left to the high freaks (the renters of the market), and exactly like the war video game pictured above, complete with shelled out buildings populated by well-armed kids.
Joe is back in DC today, telling those who will listen how to restore that confidence. Wish him luck.
The Euro has been weakening since 4am, by the way. I have already seen the futures go from flat to down 1.8%. They are now below that all-important 200 day moving average. The Euro is still what the markets are keying off of, but note that our markets caught a bounce from noon onwards yesterday. From that point we saw the financials catch a bid and outperform, which I think is a good sign. HF GO!
Oh… and supposedly there was another Fat Finger in the Eurostox futures just a little while ago, that sent them limit down. Fat Finger is the new goto blame thingy apparently. Kind of like the dog ate my homework.
This entry was written by sarnuk, posted on May 20, 2010 at 8:56 am, filed under Uncategorized. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL.
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
21 May, 2010 Data Feed Information Gets Suppressed After Clients Demand It Overseas!
Check out this story, please. We want to tip our hat to the buyside overseas. They have effected change by standing up against a gigantic lobby. I don’t know what else to say, except we are proud of you, and there are millions here in the states who are proud of you as well.
Chi-X Europe, Bats Suppress Dark-Pool Data After Client Demand 2010-05-21 10:31:21.859 GMT
By Nandini Sukumar May 21 (Bloomberg) — Chi-X Europe Ltd., the region’s biggest alternative stock-trading system, began suppressing some market data from its dark pool after customer concern about information leaks led to a decline in business. Starting today, London-based Chi-X Europe will no longer disclose customer identification or order numbers in Chi-Delta, its dark pool. Bats Europe, the second-largest multilateral trading facility, will impose similar controls on May 24. “We’ve changed our practices in response to customer requests,” Alasdair Haynes, chief executive officer of Chi-X Europe, said in a phone interview today. “We’ve suppressed some market data in our dark pools in order for customers to be satisfied there’s no information leakage. We expect trading to bounce back now.” The move comes after customers said they are concerned that identification could lead to others guessing their trading strategy and follows a May 11 report from U.S. brokerage Themis Trading LLC titled “Exchanges and Data Feeds: Data Theft on Wall Street.” The value of trades on Chi-X Europe’s dark pool plunged 61 percent to 118.7 million euros ($148 million) in the seven trading days after the report was released. As of May 24, “Dark Pool Trade Message Order IDs will no longer be exposed but instead be obscured with zeros,” Bats Europe said in a notice to members. This is “following participant demand.”
Don’t Display Quotes
Trading on dark pools, off-exchange platforms that don’t display public quotes, will likely rise to 7 percent of the total in “major” European markets this year, according to Tabb Group LLC. Dark-pool trading accounts for about 4.1 percent of European equity volume at present and there are 33 dark “environments” in the region, the study said. Brokers such as Credit Suisse Group AG and Goldman Sachs Group Inc. operate dark pools for their clients, as do European bourses including London Stock Exchange Group Plc, NYSE Euronext and Deutsche Boerse AG. Alternative trading systems such as Chi- X Europe and Bats Europe and the London-based units of electronic crossing networks Investment Technology Group Inc. and Liquidnet Holdings Inc. also have their own platforms. Turquoise, now owned by LSE and the investment banks that set it up to rival the exchange, had a surge in business after the Themis Trading report, Xavier Rolet, chief executive officer of LSE, said on a conference call today. Turquoise has tried to make its dark pool “a safer place for brokers to trade institutional client orders,” Natan Tiefenbrun, commercial director of Turquoise said.
For Related News and Information: News on exchanges: NI EXC <GO> News on dark pools: STNI DARKPOOL <GO> Top stocks stories: TOP STK <GO> News on European stocks: TNI STK EUROPE CN <GO>
–Editors: Andrew Rummer, David Merritt.
To contact the reporter on this story: Nandini Sukumar in Brussels at +44-207-673-2479 or nsukumar@bloomberg.net
To contact the editor responsible for this story: David Merritt at +44-20-7673-2639 or Dmerritt1@bloomberg.net This entry was written by sarnuk, posted on May 21, 2010 at 8:03 am, filed under Uncategorized. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL.
* European investors shift trading to Turquoise, Smartpool
* Banker -- volumes will return back within a few days
LONDON, May 21 (Reuters) - Chi-X Europe and BATS have changed the way they report data from their "dark pools" after a U.S. report alleged they were disseminating information that helped high-frequency traders identify big investor orders.
Following the paper by Themis Trading earlier this month entitled "Data Theft on Wall Street", European investors shifted trades from Chi-X and BATS, Europe's leading alternative trading platforms, to other dark pools including London Stock Exchange-controlled Turquoise this week. (LSE.L)
Dark pools are venues that allow buyers and sellers of large orders of shares to avoid revealing pre-trade information and signalling their intentions to the rest of the market.
"We had a lot of calls from clients asking us what was going on and asked us to stop routing flow to them for a while," said a specialist in trade execution at a big European broker. "They said it was better to be safe than sorry."
Turquoise had the largest dark trading volumes on Thursday among European alternative venues, known as multilateral trading facilities (MTFs), up from a ranking as sixth-largest just a few months ago, LSE said. [ID:nLDE64J0XB]
Turquoise and Smartpool gained dark trading volume in the past few days, while Chi-X and BATS volumes slipped, Thomson Reuters data showed.
Themis cited two problems with the way some platforms provided post-trade data.
They reported multiple trades using a consistent order identification number, allowing nimble players to infer information about orders and pricing strategy.
In addition, some revealed information about which side of a trade was passive, alerting others to hidden resting orders.
"In response to market participant reaction we immediately changed the data so that even the very, very limited post-trade data from the dark book has been stopped." said Chi-X Europe Chief Executive Alasdair Haynes in a statement on Friday.
"This is now sorted, and all our clients are aware of this immediate change," he added. The change was effective from Friday.
BATS has told its European clients it will obscure order ID numbers with zeros on all dark pool trade messages starting on Monday.
By next week, trading data should show whether these moves were effective in encouraging investors to return or whether Turquoise will hold on to its gains.
"Give it a couple of days and the flow will come back (to Chi-X and BATS)," the bank execution specialist predicted.
David Lester, Turquoise chief executive officer, said that since the firm's acquisition by the LSE, Turquoise had moved to differentiate its dark pool as a safer venue for brokers to trade large institutional client orders.
High-frequency traders can come into its dark pool, but investors are given a choice of whether to interact with them, he said.
Turquoise ownership is split 51 percent by the LSE and 49 percent by 12 big banks. (Editing by Karen Foster)
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
Asimov
Posts: 104043
Incept: 2007-08-26
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Fat Finger is the new goto blame thingy apparently. Kind of like the dog ate my homework.
Exactly what I've been thinking.
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It's justifiably immoral to deal morally with an immoral entity. If you trade based on what other people say, you will lose money. Especially what I say. I won't be held responsible. Festina lente.
Joint CFTC-SEC Advisory Meeting Today at 1pm; See it Live
Re-iterating yesterday’s post somewhat, today there is a televised meeting that we think all institutional and brokerage traders should tune in to, time permitting. It will be webcast live, with the link for it available later this morning on http://sec.gov/
They should be focusing on the events around May 6th, with the panels as follows: Joint CFTC-SEC Advisory Committee Meeting Agenda and Panelists 1:00 Opening Statements from SEC Chairman Mary L. Schapiro and CFTC Chairman Gary Gensler 1:15 Panel One: Exchange Observations
* Craig S. Donohue, Chief Executive Officer, the Chicago Mercantile Exchange * Edward J. Joyce, President & Chief Operating Officer, Chicago Board Options Exchange, Inc. * Joseph Mecane, Executive Vice President & Co-Head of U.S. Listing and Cash Execution, NYSE Euronext * Eric Noll, Executive Vice President-Transaction Services, NASDAQ OMX Group * William O’Brien, Chief Executive Officer, Direct Edge * Joseph Ratterman, President & Chief Executive Officer, BATS Exchange, Inc. * Chuck Vice, President & Chief Operating Officer, the Intercontinental Exchange, Inc.
2:45 Panel Two: Perspectives on Liquidity
* Leonard Amoruso, Senior Managing Director & General Counsel, Knight Capital Group * David Cummings, Owner & Chairman of the Board, Tradebot Systems * Jeff Engelberg, Principal & Senior Trader, Southeastern Asset Management, Inc. * Thomas Peterffy, Chairman & CEO, Interactive Brokers LLC * Anoop Prasad, Managing Director, D.E. Shaw & Co. * Matt Schrecengost, Chief Operating Officer, Jump Trading LLC * David Weild IV, Capital Markets Advisor, Grant Thornton
Please consider listening in. Now is the time when we need to firmly understand our market structure, good and bad portions of it.
I don't care if it makes sense -- only if it makes money. -- Me Bank (n): See scam, fraud and theft.Eat a bankster -- they're low-carb. What part of "shall not be infringed" was unclear?
High-frequency Trading: Where are we and how did we get here?
Posted At : June 28, 2010 10:30 AM | Posted By : Paul Wilmott
"The truth is the high-frequency traders create volatility and create liquidity," said John Damgard, president of the Futures Industry Association.
What he apparently meant to say was that they reduce volatility, not create it. And this was just a slip of the tongue. As Sigmund Freud observed, such slips can reveal the reality.
I am concerned about High-frequency Trading (HFT) for two main reasons: Reduction of the relationship between value and price; Potential for positive feedback.
Markets exist to enable businesses to raise money, to expand, to thereby employ people, and so on, for the benefit of society. This only works if the market does a decent job of revealing the true value of a company via its share price. Otherwise the market is no different from a casino, a share price may as well be given by the spin of a roulette wheel. Fundamental analysis is supposed to do a similar job. You analyze a company, study its customers, research the management, etc., and come to a conclusion. But fundamental analysis is hard work.
Much easier is to run a data feed into a black box containing some algorithm, then optimize that algorithm. Your HFT black box doesn't care a hoot about the true value of a company, it only cares about what happens to the price over the next few seconds. You may spend a few months setting up this black box the first time, but thereafter you can apply it to a wide variety of markets with relatively little effort. Just re-optimize for that market. (And we know from how market players are compensated that the question of whether or not the result is long-term profitable is of second-order importance.) Not so with fundamental analysis, each market is different, each requiring the same weeks of hard work.
The above wouldn't matter if the HFT boys didn't dominate the market. Is it now 70% of trades on some exchanges are HFT trades?
Whenever you have a bandwagon, such as HFT now is, then you have the potential for systemic risk and feedback. Remember the last bandwagon…the credit products. How did that one turn out for the world economy?
To get feedback you need a quantity of traders following similar strategies.
"They all have different strategies," you say. Perhaps true for a while, but nor for long. Traders copy each other mercilessly, and since people in finance change jobs every two years it doesn’t take long for ideas to diffuse widely.
But feedback can be positive or negative.
Negative feedback is when an up move in a stock leads to a sell signal, and thus a fall in the price, and a down leads to a buy, and thus a rise in the price. This dampens volatility.
Positive feedback is when an up begets a buy, which causes the stock to rise again, causing another buy, etc. etc. And when a fall begets a sell, causing another fall, and further selling, and…
So which is it? Does HFT result in a reduction of volatility via negative feedback or an increase via positive feedback? This is an easy one. If you are a hedge fund manager which of the following would you prefer? A or B?
A. Low volatility. Shares go up or go down fairly predictably. No skill is required to make money, even by the man on the street. Hedge funds can’t charge large fees.
B. High volatility. Very difficult markets, experts needed and can charge large fees. If a fund does well they make a killing because of the enormous profit they have made for their clients. But they are just as likely to lose all their clients' money, in which case…nothing bad happens to the fund manager.
Yes, we are in that familiar territory of moral hazard. Of course the funds want to increase volatility and they have found themselves in exactly the place they want to be to make this happen.
(BTW If you want the mathematics of feedback see PWOQF2 or read the paper The feedback effect of hedging in illiquid markets, (P.Schoenbucher and P.Wilmott.) SIAM J. Appl. Math. 61 232-272 (2000). It's all about the gamma of a strategy.)
How did we find ourselves in this place? Because the HFT boys cleverly played the "liquidity card" at the right time. The argument goes along these lines: "When Mom and Pop want to sell off some of their portfolio to fund their retirement then they'll get a better price if there's more liquidity. So liquidity is good." True! For the shares they've held onto for 20 years they will indeed get an extra cent. Whoohoo! Break out the champagne! So you mustn't argue with the liquidity card. The more the merrier, right? Well, no. The fact that during those 20 years their shares have lost 50% of their value thanks to the Great HFT Crash doesn't ever get mentioned. One extra cent versus a 50% fall? Hmmm.
Everything in moderation. The more liquidity there is, the more you rely on its providers, and the worse the collapse when that liquidity dries up. And who is in the position to both cause this drying up, and to benefit from it? Why, it's the HFT boys again!
P
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
D.C. Current | MONDAY, AUGUST 30, 2010 Was the Flash Crash Rigged?
By JIM MCTAGUE | MORE ARTICLES BY AUTHOR Stock-quote provider Scott Hunsader suspects that manipulation by ultra-high-speed rogue traders may have been behind the May 6 market meltdown.
ERIC SCOTT HUNSADER, a self-taught programmer who became an expert on market data, argues that rogue traders using high-speed computers deliberately slow the stock market's consolidated tape every trading day, to create fleeting price mismatches among the dozen exchanges handling NYSE-listed shares and to profit from the momentary differences.
Hunsader has given federal regulators an intriguing analysis that suggests that such market manipulation preceded the May 6 Flash Crash and contributed to the violence of the selloff that saw the Dow Jones Industrial Average fall more than 700 points in about 15 minutes, its worse one-day plunge ever. The DJIA bounced up 360 points five minutes later. Some retail investors who had come back to the market after a hiatus of two years were frightened away again.
Hunsader is founder and president of Nanex, a quote-feed provider. "We consolidate all trade quotes from the equities, options, futures, futures options—anything that trades on U.S. markets," he says. He normalizes the data and compresses it 20-to-1 so that it can be sent over the Internet, "which is a thing we do that nobody else does." Customers need only a regular high-speed Internet connection to receive it. High-frequency traders can execute thousands of stock orders each second, via advanced computers using decision-making algorithms. The traders pay exchanges hundreds of thousands of dollars a month for direct feeds to their trading floors and to their pricing data. The data allow them to see information headed for the Consolidated Quote System in advance. The CQS is the "tape" that the stock-buying public sees. The regulators believed that the time advantage provided by the direct feed versus the CQS was just a millisecond or two. But Hunsader asserts that traders are delaying the tapes by hundreds of milliseconds during short intervals.
HOW DO THEY DO IT? HE SAYS that they send quotes for a Big Board stock or combination of stocks to an exchange at the rate of 20,000 quotes-per-second versus a usual flow rate of about 10,000-per-second. The higher or longer the message traffic stays above 20,000, the slower the tape. This seems right out of the movie The Sting. If you have advanced knowledge of the market's direction and more time to use that knowledge, you make more money. You can short a stock before the public knows it's headed down or scarf up shares that are headed higher before individual investors can react.
Exchanges have tried to duplicate Hunsader's findings with their own data for May 6 and say that they have been unsuccessful. They see no corresponding slowdown in the tape at 20,000 trades per second. The tape slows on any heavy trading day. Rather than manipulation, they contend that the slowing might simply indicate insufficient capacity to handle existing customer volume. In any event, they hadn't a clue about any tape slowdowns until Hunsader raised the issue. It lagged behind direct feeds on May 6 by over 20 seconds.
Hunsader says his data show that on April 28, similar high-speed activity caused an ultra-mini flash crash in stocks like Procter & Gamble and Wal-Mart, which fell 50 cents and then fully recovered in just two seconds—more than enough time for a high-frequency trader to short the stocks, buy in at the low and then sell when they again traded with a normal bid-ask spread of a cent. "It was eerily similar to May 6," he asserts, adding that the exchanges could write software to thwart such manipulation. "It's programming 101," he declares.
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
Last week, rumblings were heard about the CME Group possibly considering changing the way its Chicago Board of Trade grain futures prices are settled.
According to the traders who spoke with Reuters, the changes would give more in
"CME Group scheduled a series of meetings this week to discuss proposed settlement changes with traders.
"Nothing is definite or solidified. We are listening to a variety of ideas from a broad spectrum of customers and continue to hold discussions with the marketplace," CME Group spokeswoman Mary Haffenberg said.
She said there was no timeline for implementing any changes.
The exchange would not divulge the details of its plans but several veteran grain traders said CME had proposed using a weighted average of trades made on its Globex electronic platform and the exchange's traditional open-outcry pits.
Although the vast majority of all CBOT grain futures volume is traded electronically, settlement prices for corn and soybeans are still established in the pit.
Currently, CBOT wheat and rice futures are the only grain products settled off Globex.
The exchange floated a proposal last November to tie settlements for some deferred corn and soy complex contracts to Globex, but shelved the plan a week later.
Floor traders expressed concern that giving more influence to the electronic trade could raise the risk of price distortion at the close and also threaten the viability of the traditional trading pits. The Chicago Board of Trade first began trading in open-outcry pits in the mid-19th century.
The number of pit traders has dropped dramatically since CBOT launched side-by-side electronic and open-outcry trading in 2006.
Critics of high-volume trading entities that thrive on electronic markets, including so-called "black box" firms that trade based on algorithms, accuse them of distorting markets.
"They are catering to the ... high-volume, high-frequency traders," one floor trader said. "The Board of Trade is sucking up to them because they pay a lot of fees."
Others noted the open-outcry trade in agricultural options remained brisk.
"As long as the option pits are viable, I don't think they will close the floor," said grain merchandiser Glenn Hollander of Hollander & Feuerhaken, a firm that has been on the trading floor for 66 years.
"If they ever figured out a way to do the options business electronically, they would close the pit in a minute," Hollander said."
Source: Reuters
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
You would prefer that a human settle them? A human with a position and an axe to grind? Electronic settlement would be a massive improvement in many products.
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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."
Pat I don't Know, but for what I see since when the pit in Minneapolis is closed the liquidity is grown fast, but faster was the grown of the volatility
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
CME: No Trades Broken In Test Orders Placed On Globex
By Jacob Bunge
Of DOW JONES NEWSWIRES
CME Group Inc. (CME) said Tuesday that no trades had to be broken after some test orders were mistakenly sent to its electronic futures trading platform Globex on Monday.
The world's largest futures exchange operator issued a notice early Tuesday that a number of orders intended for a "quality assurance testing program" accidentally went live in active energy and metals markets on Globex. The test orders were placed on Globex for a six-minute period from 2:38 p.m. CDT, according to CME.
"As soon as we became aware of the issue, we began working with affected customers and implemented other corrective steps," it said. "We have also kept the Commodity Futures Trading Commission apprised of developments related to this event."
It was unclear how many test orders were placed on Globex during the period.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
CME, after multiple (and horrible) fails in the computer department has it 'right' with Globex ][. It's a fairly robust (and fair, within reason) platform. It's ability to keep up with the flows was complicit in "flash crash."
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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."
FINDINGS REGARDING THE MARKET EVENTS OF MAY 6, 2010 REPORT OF THE STAFFS OF THE CFTC AND SEC TO THE JOINT ADVISORY COMMITTEE ON EMERGING REGULATORY ISSUES
Now, welcome to the cross-fire hurricane of cross-asset jumpin’ Jack mini flashes.
The development first raised its ugly head last week, when cocoa futures on the ICE exchange slumped more than 8 per cent only to recover immediately. The move drove an equally sharp slump in the iPath Dow Jones-UBS Cocoa Total Return Sub-IndexSM ETN.
Zero Hedge now draws attention to yet another mini flash crash, this time in the stock of Century Aluminium on Monday, which fell 17 per cent before recovering immediately (chart via Bloomberg):
But was the above move associated in any way with the cancellation of more than 200 lots of aluminium on Tuesday at the London Metal Exchange?
As Reuters reports, prices of aluminium also dropped precipitously for a few seconds on Monday:
Prices of aluminium fell by more than 3 percent for a few seconds early in the day before recovering after what traders described as a “big figure typo”. “It was unfortunate. We picked up a bit and I was telling a client we had a great fill for his order when the message on the cancellation came through,” one dealer said.
“It was a good thing Shanghai was shut. Had you opened an arbitrage at that point, you’d end up holding a position in one market, while the other half of your transaction was canceled.” Chinese markets, including the Shanghai Futures Exchange, are closed until Friday for National Day holidays.
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Another trading source said the exchange had sent a message to LME Select users that all trades for primary aluminium at 0100 at a price of $2,286 would be cancelled. Traders estimated more than 200 lots, or more than 20 percent of the volume traded by 0721 GMT, could be caught up in the cancellation, worth around $11 million to $12 million. No one from the exchange’s Singapore office was immediately available for comment.
The mystery lingers on — for now.
Related links: Market on edge after Apple drops like a stone - FT Alphaville The non-role of internalisers during the flash crash – FT Alphaville All eyes on broker-dealer internalisation – FT Alphaville
This entry was posted by Izabella Kaminska on Tuesday, October 5th, 2010 at 9:33 and is filed under Capital markets, Commodities. Tagged with aluminium, cocoa, commodities, futures, Hft, mini flash crash. Edit this entry.
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A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain
19 Nov, 2010 Duke Law and Technology Review Paper on HFT
This is a balanced paper that examines the history, costs, benefits, and risks of high frequency trading. Not a bad place to first point someone who wants to familiarize themselves with a not-so-easy-to-explain topic.
Government explores the future challenges and opportunities of computer trading in financial markets
23 November 2010 09:30
Department for Business, Innovation and Skills (National) Department for Business, Innovation and Skills
The Government Office for Science today embarked on its latest Foresight project, which will examine the challenges and opportunities presented by technological advances in financial markets worldwide.
In recent years the ways in which financial markets operate have been transformed by fast-paced technological progress. For example, the volume of financial products traded through computer automated trading - taking place at high speed and with little human involvement - has increased substantially in the past few years. Today, over one-third of the UK’s equity trading volume is generated through high frequency automated computer trading while in the US this figure is closer to three-quarters.
The Foresight project The Future of Computer Trading in Financial Markets, sponsored by Her Majesty’s Treasury and led by the Government Office for Science under the direction of the Government’s Chief Scientific Adviser, Professor Sir John Beddington, aims to make a significant contribution to the efficiency, integrity and resilience of financial markets, by identifying options for policy makers in the UK and internationally.
The Foresight project will explore how computer generated trading in financial markets might evolve over the next decade or more, and how this will affect:
* Financial stability; * Integrity of financial markets, including price information and liquidity; * Competition; * Market efficiency in allocating capital; * Transaction costs on access to finance; and * Future role and location of capital markets.
It will also assess options for addressing the challenges ahead, and consider how the opportunities offered by advancements in computer technologies could be capitalised upon by the financial sector.
Government Chief Scientific Adviser, Professor Sir John Beddington said:
“It’s essential to develop a better understanding of how computer trading in financial markets might evolve, in order to help protect the UK and other economies against technology-led economic instabilities.”
“This timely and important investigation will have important findings not only for the UK economy but worldwide. I am delighted that the Financial Secretary to the Treasury Mark Hoban has agreed to be the sponsoring minister for this project and I look forward to working with him.”
Financial Secretary to the Treasury Mark Hoban, MP said:
“Computer automated trading has become central to the functioning of financial markets. This project will engage the world’s leading experts to assess the future economic and regulatory consequences of the evolution of computer trading.”
The project will appoint an international High Level Stakeholder Group to steer the overall direction of the project, which will be chaired by Mr Hoban.
The High Level Stakeholder Group will include senior representatives from important organisations in the public sector, the research community and business.
A group of leading experts will work with Foresight to guide the project and ensure its findings are of a high standard. A chair for this group will be appointed shortly. Current membership is as follows:
* Andy Haldane - Executive Director, Financial Stability, Bank of England * Professor Charles Goodhart - London School of Economics * Professor Oliver Linton - London School of Economics * Kevin Houstoun - Chairman, Rapid Addition; Co-Chair, Global Technical Committee, FIX Protocol Limited * Professor Philip Bond - University of Oxford and University of Bristol * Professor Dave Cliff - University of Bristol
NOTES TO EDITORS
1. Foresight is in the Government Office for Science (GO-Science). GO-Science supports the Government’s Chief Scientific Adviser in ensuring that the Government has access to, and uses, the best science and engineering advice. It is located within the Department for Business, Innovation and Skills.
2. The UK Government's Foresight Programme helps Government think systematically about the future. Foresight uses the latest scientific and other evidence to provide advice for policymakers in addressing future challenges.
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