In case you were wondering, yes the stock market is rigged. The proof is detailed in this report. The scum on Wall Street are legally stealing billions from you. When you control the lawmakers, you control the laws. Why would anyone invest in the stock market? Don’t play in their game.
Steve Kroft: What’s the headline here?
Michael Lewis: Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.Steve Kroft: By whom?
Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.
Steve Kroft: Who are the victims?
Michael Lewis: Everybody who has an investment in the stock market.
When unemployment hits 80%, the stock market will be at 500,000!
So IEX “slows” down HFT traders by wrapping 60km (37 miles) of fiber optic cable on a spool in front of the IEX stock exchange servers, thwarting hundreds of billions of $$ invested by said HFT companies to try to gain advantage.
BRILLIANT!
2014-03-31 06:24 by Karl Denninger
LOL! The Market Is Rigged (HFT)
I spat my coffee this morning….
Eric over at Nanex has been on this for a number of years. I’ve been on it too. And now there’s a new book and suddenly CNBC is talking about it to all three of their actual viewers.
At the end of the day the problem is that providing someone a way to cut in line is against the law.
But that doesn’t bother the so-called “regulators” just like nothing else does, provided you make them enough money for them to look the other way. The price of that willful blindness can be shockingly cheap; in general the revolving door between Wall Street and Washington DC turns both fast and profitably for both cities.
Everyone wants to wring their hands on this but the simple fact of the matter is that the exchanges, which are regulated entities, actually pay for so-called “quote traffic” under certain circumstances and they have set up structures that encourage this sort of behavior.
The defenders of this behavior claim they’re providing a “benefit” to investors usually related to alleged “liquidity.” But as I pointed out years ago if you and I trade 100 shares of a stock back and forth 1,000 times there is the appearance of 100,000 shares of liquidity in that name but in fact there is only 100 shares of liquidity present. If some third party comes in and tries to buy or sell more than 100 shares this will become immediately apparent, because neither of us is willing to transact in more than that number at any given point in time!
I said this back in 2010, nearly four years ago:
Two ways:
•Force all orders to be valid for one second. That is, once you place an order, you cannot cancel or modify it for one second. It must remain “exposed” for at least that period of time, during which it may be executed against. This makes placing tens or hundreds of orders in the book beyond what you truly wish to transact extremely dangerous, in that a sudden price move can leave you owning (or short) all of those shares you represented as “available” to buy or sell.
•Impose a exponentially-increasing cancellation fee as the number of cancels rises against the number of executions for a given market participant in a reasonably short period of time (e.g. 10 minutes.) Permit one or two cancels per filled order for a given number of shares in an issue over a reasonably-short period of time without penalty. From that point forward impose a fee that begins at 1/100th of value of the order and doubles for each successive cancel without an execution, up to the entire value of the order. This makes the tactic of placing 10, 20 or 30 orders for each one you intend to execute extraordinarily unprofitable and stops that practice immediately.
I have since changed my mind slightly — the first bullet’s interval should be two seconds instead of one, and I’ve added a third point. Why? Because any order you place into the market should be able to be executed against by any human making a manual decision, which means that the quote should have to be valid until either it executes or all humans can physically see it with their eyes, react to it, and get a message back to the exchange with instructions for execution. Human reaction time is about 1/2 second and since people do trade from anywhere on the planet you must have two round-trip message times around the planet accounted for (once to see the quote, once to react to it and receive confirmation that your order was accepted.) Two seconds accounts for all of this; one might not.
Second, all orders you have out must be able to be executed. This means you must have the margin capacity to clear every quote you have open. If I wish to have open 10,000 shares worth of a $10 stock I must have $100,000 worth of buying power in confirmed and available margin capacity and during the time those orders are pending. If this is not in cash then I am functionally borrowing the funds during that time (and that is never free.)
More than eight out of ten “trades” currently executed are nothing more than gaming the system. There’s no social benefit to this, and the idea that there is no “harm” to others that comes from it is fanciful. Nothing ever benefits someone without there being a concurrent cost somewhere. That the cost is diffuse and a tiny fraction of a cent per person who actually trades whether it’s you in your 401k or some Wall Street bank is immaterial to the fact that someone’s paying for these distortions.
Finally, there is simply the law to consider. The Securities and Exchange Act makes unlawful “market manipulation” and Reg-NMS mandates that the consolidated quote be the actual best and time-sync’d feed of quotations. Selling a higher-speed feed is arguably a direct violation of the law.
None of this is difficult to figure out, but in a world where legislators pass laws that legalize bribery in various forms by calling it “campaign contributions” and people walk between writing laws and allegedly living under them via the revolving door between Wall Street and Washington should we really be surprised that chief among these people’s goals and accomplishments are ways to exempt themselves from behavior that would, for anyone else, land them in the slammer?
Fraud expert and former regulator Professor William Black says, “Even today, we are well into 2014, and the Department of Justice record is intact. There have been zero prosecutions of the elite officers who led the epic epidemic of fraud. It was the most destructive in world history, zero of them even unsuccessfully prosecuted, much less prosecuted.”
What is the result of massive rampant unprosecuted fraud? Professor Black says, “If you don’t have any accountability, you not only make certain that there is going to be a next blow-up, but it will be worse. . . . We have effectively removed the criminal laws for a particular elite class of frauds.”
Of course the stock market is rigged. Always has been, always will be. JPM and Goldman often tell their clients one thing (buy FB) while they are doing another (shorting FB). Thanks to the central planning Federal reserve, the stock market is the “only game in town”. Zero interest rates have destroyed saving money, and robbed savers of some $400 billion that they might have had were it not for the Fed. Fixed income/bonds are also a losing proposition, because of ZIRP. The junk and high interest rate bonds have exploded, with record amounts of debt.
Since other investments are gone, because of the Fed, the stock market is all that remains. Of course they are ripping people off, but they can get away with it, so who cares? Wall Street is yet another criminal enterprise, just like the Fed, just like our government. HFT is just the latest in a long list of Wall Street scams, and it won’t be the last. And the criminals in Washington are getting filthy rich on insider and HFT trading, so don’t expect it to ever change.
Study after study has found QE and interest rate manipulation does nothing but enrich the banksters and billionairs, but grandma Yellen isn’t about to let facts intercede in her enriching the rich. QE hasn’t helped with unemployment whatsoever, yet they’re going to continue.
Yellen Says Extraordinary Support Needed for ‘Some Time’
By Jeff Kearns and Craig Torres Mar 31, 2014
Federal Reserve Chair Janet Yellen, easing investor concern that interest rates may rise earlier than previously forecast, said the central bank’s unprecedented stimulus will be needed for “some time.”
Yellen, citing the examples of three people struggling to find work, used a speech to a community development conference in Chicago to make the case for continued Fed stimulus, which has included more than five years of interest rates near zero and trillions in bond purchases.
“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said. “The scars from the Great Recession remain, and reaching our goals will take time.”
Stocks rose as Yellen highlighted the Fed’s commitment to spur the economy and put 10.5 million unemployed Americans back to work.
Appreciate the Bill Black quotes Admin, but when the hell are we good upstanding gentry going to stop using the word “elite” to describe these lower-than-scum, treason-committing, war-promoting, neo-con enabling, poor excuse for a human being, mfers who are robbing us blind and driving our once great country down a sewer hole? Because “elite” is the farthest word in the English language from describing them!
And in my next comment I’ll tell you how I REALLY feel!