34 Replies to ““The RBC trading floor had a no-jerk rule””

  2. No grab 2 coffees great story, my wife told me it was a rigged game, it only cost me 15 thou to see she was right. The stock market can go to hell or New York, stick to real estate and tangible assets.

  4. Thanks to an honest RBC trader the entire stock market is being investigated.
    The SEC will probably screw it up,
    but at least the rocks are being turned over exposing the parasites that were stealing investors small interest gains.
    Coil 38 miles of fiber and stick it in a compartment the size of a shoe box causes the parasites to just sit there and spin looking for an order… ha.
    Now we need a brilliant inventor to coil 1 million miles of fiber optics into a shoe box size container and the National Spy Agency will just sit there and watch their own heads spin…

  5. Maybe I am being naive, but I don’t see how this makes any difference to the retail investor. It makes a difference to the brokerages and the institutional investors, but it made no difference to me. The guy trading a few hundred or few thousand, or even tens thousand shares isn’t being hurt because a bank pays a fraction of a fraction of a percent more on a trade. It is not that long ago that the cost of trading for the little guy was a three percent commission to buy and three percent commission to sell. Imagine having to wait a year for a stock price to go up enough just to cover brokerage fees, (or two years worth of dividend payments). I can now buy and sell any stock from the comfort of my home to ten dollars, even less if I shop around. This is as a direct result of all the automated trading systems that some people with billions of dollars to trade found a way to game.
    Is it good news that someone created a system that someone hasn’t figured out a way to game yet? Of course it is, but someone will figure out a way to game it to their advantage, and it still won’t affect me.

  6. It affects the whole market overall, so it does affect you if you trade in that market at any level. What you are describing is that it affects to a degree that you think will never change, so you will choose to accept it and carry on.

  7. Fascinating article, but it lacks a little perspective. In the good old days of a trading floor with live people all these games of front-running and other stuff used to happen, too, but the commissions charged were colossal and the bid-ask spread was typically at least 1/8 of a dollar. The typical investor was truly getting raped, and with a large bid-ask spread the market makers skimmed real money off the trading flow.
    With electronic trading the cost to trade has dropped to less than 1/10 on commissions, but the real leap has been reducing the bid-ask spread from 12.5 cents to a fraction of a penny. Yes, it’s disappointing that they still engaged in front-running and other elaborate strategies to fleece customers out of this much smaller fraction rather than simply fulfilling for their customer’s benefit, but leopards don’t change their spots based on the tools used. They just used them differently.

  8. minuteman said: “Maybe I am being naive, but I don’t see how this makes any difference to the retail investor.”
    It makes a difference because due to this type of activity, the stock report is a pantomime put on for the rubes. Company stock does not move due to the shifting value of the company, it moves because somebody has their thumb on the scale. If you not only don’t know but in principle -cannot- know what something is worth, then you can’t invest in it because you can’t figure out your margins. You can only gamble. When you watch Fast Money on CNBC, you’re watching a PUPPET SHOW. Why do you think Maria Bartiromo left for FOX News?
    Furthermore, every trade you make is taxed by a series of rent seekers who suck all the profit out of it. From the article:
    ” “That was the invisible tax,” Park says. It sounded small until you realized that the average daily volume in the U.S. stock market was $225 billion. The same tax rate applied to that sum came to nearly $160 million a day. “It was so insidious because you couldn’t see it,” Katsuyama says. “It happens on such a granular level that even if you tried to line it up and figure it out, you wouldn’t be able to do it. People are getting screwed because they can’t imagine a microsecond.”
    That’s coming out of your profit margin. Its one we know about thanks to this article, how many are there that we don’t know about?
    Then there’s the sheer direction of the market being completely detached from the economy that supports it. We had a crash in the Regan years, we had the 2001 crash, we had the 2008 crash, and now we’re going to have the 2014 or at the latest 2015 crash. Why? Because the market “value” bears no resemblance to the real value of the assets being traded. Nobody knows what Apple is really worth, but we do know 100% for sure that it isn’t worth $531.82 a share like it says on the NASDAQ chart right now. We also know it can’t possibly be worth more than Exxon/Mobil, even though it has a higher market cap.
    Want to know why the Middle Class is disappearing? Because of ten thousand tiny little factors just like this one. Ten thousand tiny invisible taxes, glass ceilings, disincentives and etc.
    Penny by penny we’re being bled to death by vampires.

  9. The “no jerk rule” is too rarely observed these days. Most people are too quick to break it to gain money for which they imagine no higher purpose than to spend on stuff that will demonstrate that they got that money to spend on stuff that will demonstrate that they got that money to spend on stuff that will demonstrate that…

  10. Market regulating itself: what an idea. To paraphrase Milton Friedman, this is a way of making the wrong people do the right thing.

  11. You can make sound investment decisions by looking at how much money a company makes, how much it pays out in dividends and an educated guess will tell you whether the dividend payments are likely to continue to be made in the future. You buy a stock because the company is profitable and you take an educated gamble on whether or not it will be profitable in the future. You are buying a share of the future earnings.
    If you buy stock in a company that is not making any money, is not likely to make any for the foreseeable future, but the price is going up because everyone is jumping on the bandwagon and hoping to find a bigger fool to sell it to in the future, you are gambling, not investing.
    For profitable investing, you have t think long term. It sucks to see th value of your capital collapse in a crash when everyone bails out of the market, but if the dividend payments keep coming in and you can wait out the crash (or bargain hunt after it), you have lost nothing. Canadian banks exhibited exactly this quality. Prices dropped in 2009, dividend payments did not, They could be bought with a 10 percent dividend in 2009.
    Also, because the markets work the way they do now, the retail investor can get an on line quote, make a trade and have it filed at the quoted price instantly. You are paying the quoted price, if some market maker is going to make a fraction of a cent per share of someone in gatting me that quoted price I am not going to loose sleep over it.

  12. Do you remember when people used to put their money in the bank to keep it safe from the crooks?
    Now the banks are the crooks.
    Banking is one of the few legal ways to steal money.
    If you fleece an old woman out of $500 on repaving her driveway, the gendarmes will be on your ass.
    If you steal the old woman’s $500,000 life savings, you get a cubicle with a view of Bay Street northbound.
    A haul of her $5,0000,000 will get you a view of the lake.

  13. I find it hilarious that IEX is eating the Big Boy’s lunch today by marketing mere, lowly, sucker-born-every-minute morality as a service. What Brad Katsuyama has done is discover who was doing all the stealing, and then start an exchange where they can’t do it.
    He’s not more “savvy”, he’s not faster, smarter, bigger, tougher, meaner, or any of the other destructive thief-vs-thief Wall St. ninja bullsh1t that everybody else is peddling. He’s more HONEST. He’s not LYING.
    Turns out, simply not LYING is worth a buttload of money.
    Here’s the video of Katsuyama that made all the traders at the NYSE stop what they were doing and watch it. 23 minutes of veritas, and just watch the sharkboy on the end of the table go f-ing nuts. He’s beside himself, watching bags fulla money flying out the window on little angel wings like a Bugs Bunny cartoon.
    http://video.cnbc.com/gallery/?video=3000263252

  15. electronic trading sure beats having to deal with a stock broker,much smaller fees just being one of the reasons.

  16. The rigging of the game is fairly recent, complex, most likely illegal and certainly corrupt; nothing but standard operating procedures for the big investment banks and financial firms. Goldman Sachs is really a criminal gang masquerading as an investment firm. These guys were up to their necks in the housing mess and are at the center of this high frequency trading conspiracy. Every one of the players in this scam needs to be convicted and go to jail for a long, long time. The same thing should have happened at Freddie and Fannie for the housing melt down but didn’t. As a result, these criminals in suits are emboldened to look for ways to game the system and screw the public. If you think for a minute that you are not affected by their actions you are dreaming. This scam affects everyone who has a benefit through CPP, an employer pension program, an RRSP (IRA) or any kind of investment account. What these critters conceived and executed is theft pure and simple on a massive scale. I have spent 40 years in this industry and watched it slowly evolve from a credible mechanism to assist people in building wealth to reach their financial goals to a rigged Ponzi scheme with regulators that are more concerned with enforcing asinine, ill-conceived regulations at the retail level than finding criminals operating on a massive scale like the high frequency traders.

  17. Unbelievable, I think this brad guy did something miraculous.Now the big wall street cheats are pissed,too bad.
    People like brad could have gone along to get along and become a multimillionaire and live a life of luxury but he didn’t it is a testament to his character and that is something in of itself.
    Now this blow hard is attacking him for it simply because he and his other “dark pool ” cronies took a serious hair cut. plain and simple.
    I applaud this brad guy. This is where morality meets capitalism and i don’t give a crap what anyone say’s capitalism with out morality is only marginally less dangerous than communism,socialism,or Marxism.
    This is a great example of that. you can still become rich and live a great life while being a moral capitalist who is only after fruit bearing trees. nothing wrong with that. But when you rig,or game a system, thumb on the scale type of thing you lose all credibility and head down a very dangerous road.
    Just my opinion.
    Also i know now why those bankers killed themselves.

  18. An improvement but the game is still rigged. Brokers make money on trades. Holding shares makes the broker not a dime. How many times have I seen someone with 50 or 100 grand decide to get rich in the stock market? Every day the broker might phone them with bogus stock tips, telling them to get out of some supposed loser and buy the future high flyer. Eventually the money is all gone.
    When they do it to some 80 year old grandmother, they might end up paying it back. When they do it to a middle aged person who would understand the risk, they keep it. People without sufficient knowledge of how crooked the system is shouldn’t be going near it. That said, in the long term solid shares are a great inflation protected investment. If you want to gamble, take a few grand and hit the casino.

  19. This is probably the best blog post on SDA in a long while, yet many will skip it over due to length or lack of “right wing” content. I’m also enjoying some of the comments here from Phantom, Rob Huck, etc..
    It is much more than just skimming the bid/ask spread. If you read the full article you’ll realize why. When bid/ask themselves are not a true reflection of the market, the distortion is fairly widespread. Being able to put up buy/ask calls and cancel them before they’re filled distorts the market completely. I also find it interesting that dark pools were part of the problem, when we were told dark pools were part of the solution.
    This is innovation, out of the box thinking. Always check and re-check your premises. That’s what Katsuyama did. When he didn’t understand something, he found someone that did.
    It also verifies two things that have run through my mind for a while. They’re both evil “right wing” thoughts. First is from Atlas Shrugged, Francisco constantly saying “check your premises”. When something doesn’t fit a formula of how things work, your understanding is wrong. Second is Milton Freidmans thoughts on market self-regulation. That’s exactly what we’re seeing here.

  20. Read the whole thing. Absolutely fascinating!
    I have little doubt of the political angle on this: The corrupt people inside of the trading firms will undoubtedly be perceived by many to be “rich conservatives”. Of course they aren’t true conservatives at all but that won’t stop Leftists from pitching it that way.

  21. My knowledge of the markets is pretty well limited to buy low and sell high, and maybe with a smattering of insight from reading about the American economy. I just have a hunch that the Dow is over priced…
    The ole mattress is looking pretty secure right now…

  22. To:
    Canadians who have not yet started withdrawing their RSP funds, be prepared to meet all sorts of unimagined “charges” and “fees” that you never agreed to pay. The banks will lie, cheat, steal, do whatever they can to con you into paying.
    The lies will continue on up from “customer service”, through management, through the ombudsman, to the Chairman of the bank.
    Their ethics are one c-hair away from rolling drunks in alleys for their wallets.

  23. This story is a complicated parable that shows that the most valued thing in business is can you be trusted.

  24. Hmmm, I can see them manipulating the ‘delays’ to their own advantage. All that stops them is ‘honesty’. Who’s to say how long that will last?
    1Ti_6:10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

  25. A couple of points:
    If this exchange drains the black pools that have existed practically since stock trading began it will an enormously beneficial thing. (And put a lot of trading houses out of business)
    Let’s hope it is also applied to bonds and commodities forthwith.
    It may be the most beneficial thing since open-cry markets.

  26. Great Post Kate !!
    I also think this HF trading thing (even normal trading)is a concern for the day traders and even the month traders. Why would anyone think they can consistently out smart others enough to make a profit by frequently buying and selling? Even at no cost overhead.
    I personally know people who are always ‘playing the markets’ – equities, canola, real estate, vehicles ect – and although some may make out well at one time or another, almost without exception they all end up with a loss. (If not, are they really keeping track of every dollar in and out ??
    I also personally know people who sit back and seize the moment not because they haven’t traded something! today but because they note; Hey, is this market ever oversold compared to historical, so cheap I guess I’ll buy a bunch. Five years later: Hey, if every one is so gunge-ho to buy at these high levels I will sell them mine.
    IOW: When everyone is running, you walk. When everyone is walking, you run. I know people who are worth $Million$ by this philosophy. Not trying to time the market on a daily/monthly basis but sorta timing it on a half-decade basis. It often works big time because most other people have short memories. And because the media is no help at all. In fact, the media’s policy of hyping and torquing and fearmongering is a big negative. Most people get their information from the media.
    And yes, although it is true that on line trading has much lower costs one still has to have a win/lose record well above 50% just to break even. Add to that the fact that the deck is stacked against you (Kate’s post) and it may be similar to buying 50/50 tickets – after a long enough time when the statistical math has played out, you will have exactly half your ticket buying money.

  28. Ron;
    I like to consider myself an investor not a speculator or blatant gambler. Day traders can fill that role. If they get burnt by those who invest billions to achieve a techie advantage then that is the risk they run. I buy CNR stock because of steady revenue growth, consistant and growing dividends and the realization that this company plays a critical role in our economy.
    In the crash of 2008 the number of sellers vs buyers was outstripped by a factor of 10 -12. Reading the article one should appreciate that creating a market is not automatic and that markets are exploited regularly and not just through this example. In actuality it was the market that uncovered this electronic advantage and one of the reasons why was a concern that traders were placing bogus trades to artificially manipulate the market. Again, this is why I am a value investor and not a day trader.

  29. I believe “High Frequency” trader is the wrong term. What Brad Katsuyama I think meant to say was ” HF Algorithm trader”. If you invest or trade in the markets, this will have a negative effect on you at some time. Watch this Mark Cuban interview for an explanation: http://www.cnbc.com/id/101539820
    Being part of a trading family with 60 plus years behind us, I will tell you that the brokerage firms have always worked things to their advantage ahead of the clients’ interests. Many retail brokers don’t realize what their firms are up to either. Back in the old days, the tickertape was always playing late. Later, when you could get the feed online, it was still 10 minutes late. This was so that the traders at head office could use arbitrage to their own advantage before dealing with the public. In the last couple of years though, that information gap has just about levelled out and wouldn’t have made much difference to the longer term investor.
    BUT this is different! Unforeseen mistakes in algorithms can ruin the day for many who can’t afford for it to be ruined. The reason I believe the large brokerage firms don’t like the algorithms is that it can destroy their day as well and there was no way to fight it before now.

  30. I agree bartinsky; a two-cupper for sure.
    Great article Kate; well worth the read.
    ZH has been posting articles on this but this was far more informative on what the real deal is.
    TSX has been far more stable than the US side of things and this explains why that is, to me. Have noticed that for example the UK markets top investment listing are CND energies market – interesting no?
    Few years back we turned privately owned stocks we had (just small potatoes really)- that had suddenly gone up for the first time since 2001, into a mint 4×4 ’07-Ford truck – cash. Happy with the ROI, as since then that stock hasn’t yielded more than half of what it was in Jan 2011 when we cashed out. And the truck is still mint. :).

  31. My eyes usually glaze over when people start to talk about economics. Even my own.
    This post though was different. Very understandable to stock market virgins like me.
    It was a good read as well seeing how this economic colossus ran.Better yet the professional moral way these people went about changing a corrupt system. Even to the point of losing it all themselves over the ethics.
    Nice to see some balance of return to an already chaotic system.

  32. IEX has found support from some of the big players in the market, not out of any moral imperative on the part of the big players, but because IEX has shown a way for participants to understand and make some sense of where they’re at in the market. “Build a better mousetrap and buyers will beat a path to your door”.

  33. Markets are designed to raise capital and have served well. To a limited degree anything that creates liquidity help markets. I do not consider all those who trade to be investors.
    More value to society might be had with a debate over government spending within the context of a balanced budget. What a novel concept. Unfortunately the vast majority of politicans and progressives find this limiting. The idea that they might be culpable in the rapid decline of overall living standards will never be debated.

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