Another Zero Hedge warning about High Frequency Trading;
Over the past 2 years, and culminating with the Flash Crash it became all too clear that HFT is nothing but a parasitic phenomenon which churns volume in stocks providing the best liquidity rebates, while pretending to be adding liquidity. Recently the best we can do is to provide glaring examples of HFT algos gone wrong in hopes that some regulator somewhere will finally take the long overdue step to establish a minimum bid/ask time delay and thus put virtually the entire HFT frontrunning math Ph.D. crew out of business. The latest development in the ongoing saga against these parasites comes from none other than the Bank of England's Andrew Haldane who prepared a speech to the International Economic Association Sixteenth World Congress in Beijing China, titled "The race to zero"(pdf) which essentially recaps the hundreds if not thousands of posts we have written on the matter of risks posed by High Frequency Trading, and blasts the concept, as well as the toothless captured regulators who continue to exist in their zombie, porn-addicted state, and refuse to move one finger to finally end this next Flash Crash-in-waiting.
Read the whole thing. Via Melinda Romanoff, who clarifies;
Re: "churns volume in stocks". There are very few trades, just orders, which 99.999999% don't get filled. Entered and cancelled, entered and cancelled, as fast as the algo can go. Also, they do this not at say, $37.00 bid at $37.02 offered, where you and I can do business, but at $37.00001 bid, offered at $37.02. Mathematically, that's a lot of room. At millions of orders a second, going from $37.00001 to $37.00002 and so on, right up to $37.01 and back to $37.00001, you can then visualize how it might look like a pyramid signal. Any real order disturbs that signal, and the algo steps in front of the order to steal the penny first.
The actual volume traded on the exchanges is stupendously low, given the rise of stock prices. If these were actual trades, the volume would be in the trillions, every day. These bots ARE the market now, by and large.
More...
On June 30th, Chicago Purchasing Managers' Index, now owned by the NYSE, was flashed to select customers before the public release. It showed up in the HFT flows before the release. There are now more tiers to trading clarity, and they are basically charging firms to steal, with sanction. Here's that story.
Then there's the current administration's fee for business model showing up in the IEA/SPR crude release of last week, the release will purportedly not go to refiners but to commodity trading operations, say, like some large banks, who will arb it to best use. Story: http://www.zerohedge.com/article/iea-replaces-one-crude-supply-limiting-cartel-opec-another-tbtf-banks
I am fully aware these are probably biased pieces, but this display of raw theft rips the mask off any interest in "the customer".
And there's nobody to do anything about it.
I got out of the market long ago. It's nothing more than a casino. Lot's of sick sociopaths playing stock poker .... not a place for sane investors.
b-b-b-b-but, that's............... capitalism !!!
(big difference from free enterprise)
This is frightening for all who are on retirement or approaching same.
- Moving to Bonds? Surely inflation, late seventies when Nixon moved to devalue the U$, is somewhere in the future.
-money market funds? I stopped personal trading when the rate of return meant a loss even when I guessed correctly
-Equities? Have tried to move all equities away from China, and move to "Blue Chips". This is only less frightening as the only "blue chips" not involved with China are dependent on the American consumer who has gone to safety.
I cannot comfortably say to myself, c'est la vie, because it isn't. There are too many self enhancement schemes which do not pass the smell and feel test. Cheers;
Well, the governments decided that the market was the best place to put people to build their retirement savings. (unlike, say, owning more property than they could use and selling some, or owning tangible assets, or maintaining a hobby-level interest in their former industry and consulting). Move more "feed" into something and the parasites will follow on their own. After all, why did Willie Sutton rob banks?
Capitalism is such a remarkably productive system that it can support many more parasites than other economic systems. Unless it finds a way to deal with them, it will suffer the same fate as all hosts that attract too many parasites.
Soon the scam artists who have been getting rewarded, whether it is globull warming or carbon trading or scams like this is have to be jailed to preserve some modicum of honesty. Quit the crook market years ago, we now should listen to "Old Man" on Pawn Stars, "in my day we didn't have computers Chumlee, we wrote everything down in what was called ledgers" time we went back to that if these crooks can't control their urges to be the next AlGore with their algorerythems.
If fully deregulated, there would be nothing preventing the entry of alternative market organizations conducting business according to the preferences of their customers. There will always be gamers but you don't have to tolerate their enablers.
The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of politicial and economic opportunists."
Ernest Hemingway
Sounds like a post by a person who has lost some money in the stock market.
Dunno about anybody else, but my portfolio has tripled in the last year.
Like the old saying goes, the stock market is a place to test to see if you're really as smart as you say you are.
What we need is some really, really smart people; Ivy League grads- to figure out what's wrong, and fix it. You know the Obama admin. is loaded with just such people, and we all know their zeal in fixing that which is " broken ". " Tyler Durden " had better be careful in what he wishes for.
The only thing wrong with high frequency trading is that when the flash crash happened the big boys were bailed out and given do-overs. I know people who executed trades to their benefit during the flash crash that had them cancelled. In the US a line in the sand was drawn but here in Canada the response was to have some secret criteria for who got their trades cancelled. If you want to use software to make cash in the stock market that's fine but live with the risks.
"Quit the crook market years ago, we now should listen to 'Old Man' on Pawn Stars, 'in my day we didn't have computers Chumlee, we wrote everything down in what was called ledgers' time we went back to that if these crooks can't control their urges to be the next AlGore with their algorerythems.
Posted by: bartinsky at July 11, 2011 12:16 PM"
Keeping it simple is easier on the psyche, too.
Symptoms of the instability in the world are increased sales of real gold and silver, fewer people willing to gamble on the stock market, land and commodity sales, increased use of the barter system, swap meets, garage sales and a huge increase in the number of thrift shops operating. Smart people thrive on challenge. In my experience, anyway.
if you think that's bad...here comes the second half of the one-two punch that will destroy the US economy and thereby, the world's....here's a hint folks, people without jobs don't get credit because they won't pay the loans back, that's not racist, that's common sense....which doesn't seem to be very common among moonbats.....
Holder To Launch Crackdown On “Racist” Banks, Force Them To Lend To Minorities With Weak Credit…
Because it worked so well the first time we tried this with Fannie and Freddie . . . no, wait?
(IBD) — In what could be a repeat of the easy-lending cycle that led to the housing crisis, the Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination, according to court documents reviewed by IBD.
Prosecutions have already generated more than $20 million in loan set-asides and other subsidies from banks that have settled out of court rather than battle the federal government and risk being branded racist. An additional 60 banks are under investigation, a DOJ spokeswoman says.
Settlements include setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit and even counting “public assistance” as valid income in mortgage applications.
In several cases, the government has ordered bank defendants to post in all their branches and marketing materials a notice informing minority customers that they cannot be turned down for credit because they receive public aid, such as unemployment benefits, welfare payments or food stamps.
Among other remedies: favorable interest rates and down-payment assistance for minority borrowers with weak credit.
For example, the government has ordered Midwest BankCentre to set aside almost $1 million in “special financing” for residents living in predominantly black areas of St. Louis. The program includes originating conventional home loans at fixed prime rates for African-American borrowers “who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.”
Sadly, after Zero Hedge allowed this piece of 9/11-Truther conspiracy-theorist filth to get posted by one of their authors (under the pen name George Washington no less), I lost a ton of respect for the work they do. I was shocked at the commentors - I never expected the ZH community to be so full of those moonbats:
http://www.zerohedge.com/article/911-didnt-change-anything
The Justice Department has asked several banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination......Bemused at July 11, 2011 4:48 PM
I am as bemused as you.
You say "And there's nobody to do anything about it."
I say you're wrong. "Law Enforcement" is the great enabler for ALL this. And if THEY will not honor their oath of office, then maybe it's time for "dead pigs in the middle of the road", to paraphrase that old Loudon Wainwright III song...
Ditto, Ian. I generally resist linking ZeroHedge because of it.
So, ZH doesn't like it, and calls it "stealing" (from whom?).
Noted.
(Also, @Mark Matis: What oath do you refer to? What law do you believe is being broken by these trades and bids?
Law enforcement certainly has no legal oath-bound duty to invent crimes that have not been so-made by the Legislature, and punish them because a finance blogger thinks they're icky and a functionary at a conference is worried about "stability" - especially since the markets themselves have already been acting to prevent the instability portion.
Turns out they don't like that either!)
I'm with James, above - make the people doing it eat their own failures and the "problem" vanishes.