Watch As HFT Debate Devolves Into Epic Screamfest In Milliseconds
Submitted by Tyler Durden on 04/01/2014 14:23 -0400
The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis “Shame On You,” for apparently telling the truth of what occurs in the stock ‘market and letting everyone in on it’. The tension grows when he presses Katsuyama on whether he really believes it is rigged… who then erupts “I believe the markets are rigged.. and that you are a part of the rigging.” Then the gloves come off “you wanna do this, let’s do this!” and then it got worse (or better)…
Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)… but to watch the status quo crushed under the awesome honesty of reality as this is all exposed.
Administrator
Author
April 1, 2014 3:48 pm
The author of the new book “Flash Boys” got into a heated debate on live TV with BATS Global Markets exchange president William O’Brien about the pros and cons of high-frequency trading and whether it ruins the markets for the retail investor.
On CNBC on Tuesday, Lewis accused HFTs of “rigging the market” and touted the new exchange IEX making a more even playing field.
“I think he is outrageous and part of the problem,” said Lewis pointing to the BATS president. “This is the heart of capitalism right now, the unfairness of the exchanges.”
Founder of IEX exchange, Brad Katsuyama, also joined the cast to battle out whether the high-frequency traders beats out the regular investor.
“I believe that the markets are rigged and I think you are part of the rigging,” said Katsuyama directly to O’Brien.
Katsuyama went onto the explain why traders should price trades more fairly. The exchanges’ view of the market is slower than some of their fastest participants, he said.
“Shame on both of you for falsely accusing thousands of people on wrongdoing…to try to build a business on fear, mistrust and accusations,” shot back O’Brien.
Thinker
April 1, 2014 3:50 pm
I love Fourth Turnings.
TJF
April 1, 2014 4:14 pm
I wonder if Mr. BATS has any idea that he looks and sounds like a man with something to hide and makes a fortune by running an exchange that allows the HFT traders to front run and ‘earn’ their billions. What a douchebag.
platoplubius
April 1, 2014 4:46 pm
Check out this headline from GlobalResearch
Putin Flushes the US Dollar: Russia’s Gold Ruble Payments System Delinked from Dollar?
A New Financial System independent from Wall Street and City of London begins to take shape concretely in Russia?
Russia “forced” by the sanctions to create a currency system which is independent from the US dollar.
Russia announces that it will sell (and buy) products and commodities – including oil – in rubles rather than in dollars. The move is towards the development of bilateral.
Putin has been preparing this move — the creation of a payment system in rubles completely independent and protected from the Dollar and the “killer speculations” (e.g. short-selling) of the big Western financial institutions — for a long time.
After sanctioning several Russian banks to punish Russia for Crimea, the Washington politicians were told by the financial power-to-be to step back because obviously, the Wall Street vampires understand that putting Russian banks outside the reach of their blood sucking teeth is never a good idea.
For Wall Street and the city’s financial services, countries like Russia should always have an open financial door through which their real economy can be periodically looted. So Washington announced that it was a mistake to enforce sanctions on all Russian banks; only one, the Rossiya bank shall be hit by sanctions, just for propaganda reasons and to make an example out of it.
It is what Putin needed. Since at least 2007, he was trying to launch an independent Ruble System, a financial system that would be based on Russia’s real economy and resources and guaranteed by its gold reserves. No tolerance for looting and financial speculation: A peaceful move, but at the same time a declaration of independence that Wall Street will consider as a “declaration of war”.
According to the Judo strategy, the sanction attack created the ideal situation for a “defensive” move that would redirect the brute force of the adversary against him. And now it’s happening. Bank Rossiya will be the first Russian bank to use exclusively the Russian ruble.
The move has not been done in secret. On the contrary. A huge golden ruble symbol will be set up in front of bank Rossiya headquarters in Perevedensky Pereulok in Moscow “to symbolize the ruble’s stability and its backing by the country’s gold reserves,” the official agency Itar-Tass explains quoting the bank officials.
In fact, the officials are very clear on their intention to punish the western speculators that have been looting their country for a long time:
“Russia, at its present stage of development, should not be dependent on foreign currencies; its internal resources will make its own economy invulnerable to political wheeler dealers.”
This is only the first step, declared Andrei Kostin, the president of VTB, another bank previously sanctioned:
“We have been moving towards wider use of the Russian rouble as the currency of settlement for a long time. The ruble became fully convertible quite a long time ago. Unfortunately, we have seen predominantly negative consequences of this step so far revealed in the outflow of capital from this country. The influx of foreign investments into Russia has been speculative and considerably destabilizing to our stock markets.”
According to Itar-Tass, Kostin was very precise and concrete:
“Russia should sell domestic products – from weapons to gas and oil – abroad for roubles and buy foreign goods also for rubles….Only then are we going to use the advantages of the rouble being a foreign currency in full measure.”
Putin himself lobbied for the new siystem in meetings with members of the Upper House of the Duma, the parliament, on March 28, overcoming the last doubts and indecisions: “
“Why do we not do this? This definitely should be done, we need to protect our interests, and we will do it. These systems work, and work very successfully in such countries as Japan and China. They originally started as exclusively national [systems] confined to their own market and territory and their own population, but have gradually become more and more popular…”
How bout those pesky sanctions on Russia? All part of the soap opera designed to facilitate public support towards World War 3!
Westcoaster
April 1, 2014 6:22 pm
Re: Platoplubius
I noted this post yesterday & seems to me it’s the smoking gun in all the conjecture regarding Ukraine…..what a bunch of imbeciles in the U.S. state dept then of course they’re trying to promote WWIII so go figure.
Administrator
Author
April 1, 2014 7:34 pm
Posted by Jesse
HFT: 60 Minutes Sanitizes Its Report – What Banks, What Exchanges?
There were some gaping holes in the 60 Minutes expose about the stock market being rigged. The story was spun in such a way to make one think that uncontrolled innovation had created some unfortunate and inadvertent technical arbitrage opportunities in exchange centers outside of Manhattan, but a clever insider, funded in part by ultimate insider David Einhorn and backed by the big dogs of Wall Street, had come up with a clever technical fix in a new and better exchange called IEX. Protected by a spool of fiber to induce network latency.
Free market triumphs, mission accomplished. And wait breathlessly for the IPO.
Don’t even think about a minimum transaction tax, a speed bump rule such as a minimum order duration, or anything more comprehensive than that. A spoolful of fiber makes the medicine go down.
I was so enchanted that they allowed someone to say ‘the stock market is rigged’ on national television that I thought that giving it a day or two to sink in might be appropriate. And it is rigged. It is just not fixed, in the manner of genuine reforms. It is a laughingstock amongst insiders. Well not everyone is laughing.
What was this 60 minutes piece, a limited hangout expose that will still be boldly and hotly denied?
The Fight Today That Stopped Floor Trading on the NYSE
“How frightened hypocrisy hastens to defend itself.”
Victor Hugo
What is coming down the road, another flash crash or a major market failure? Or are the natives just getting restless? Look, reform! And it was self-regulating! The major owner and executive chairman of CBS, Sumner Redstone, of the aptly named holding company National Amusements, could not have asked for a better script.
If you did not notice, they parsed HFT into two types. Conventional HFT that rides on the bid ask, normally in small incremental orders, aimed at skimming and carving up the smaller orders of the retail investors. What INEX is addressing is ‘front running’ HFT that games lags between exchanges to jump in front of BIG orders from powerful insiders.
Never mind the front running, which was taking a bite from the pros, how about the steady nibble at the bid and ask on virtually every order that is being placed? Doesn’t anyone remember the computerized transactional skimming in the movie Office Space?
NY AG Eric Schneiderman himself praised mom and pop affecting HFT as ‘providing liquidity.’ I think that canard has been capably debunked in many places and much better than I can do. It is like sex in college. The kind of liquidity you get you don’t want, and when you desperately need even that liquidity, its not there. Why not just praise portfolio insurance to abolish risk, and party like its 1987?
And what about the bombing of quiet markets with an avalanche of orders to brazenly manipulate the price? We have indictments of American companies doing that from Europe to Japan, with the sexy title ‘Dr. Evil strategy.’ And it is happening like clockwork, almost every day.
And as the king of Samoan metals traders, Salelologa Dave said, ‘I’ll know that real change is coming to our system when the Government allows Sixty Minutes to discuss the manipulation of the gold market.”
And brother, that is the truth. We can’t even get the CFTC to disclose its five year study of manipulation in the silver market that we paid for.
60 Minutes Sanitizes Its Report on High Frequency Trading
By Pam Martens
April 1, 2014
Two of the chief culprits of aiding and abetting high frequency traders, the New York Stock Exchange and the Nasdaq stock exchange, failed to come under scrutiny in the much heralded 60 Minutes broadcast on how the stock market is rigged.
This past Sunday night, 60 Minutes’ Steve Kroft sat down with noted author Michael Lewis to discuss his upcoming book, “Flash Boys,” and its titillating revelations about how high frequency traders are fleecing the little guy.
Kroft says to Lewis: “What’s the headline here?” Lewis responds: “Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.”
Kroft then asks Lewis to state just who it is that’s rigging the market. (This is where you need to pay close attention.) Lewis responds that it’s a “combination of these stock exchanges, the big Wall Street banks and high-frequency traders.” We never hear a word more about “the big Wall Street banks” and no hint anywhere in the program that the New York Stock Exchange and Nasdaq are involved.
60 Minutes pulls a very subtle bait and switch that most likely went unnoticed by the majority of viewers. In something akin to its own “Flash Boys” maneuver, it flashes a photo of the floor of the New York Stock Exchange as Kroft says to the public that: “Michael Lewis is not talking about the stock market that you see on television every day. That ceased to be the center of U.S. financial activity years ago, and exists today mostly as a photo op.”
That statement stands in stark contrast to the harsh reality that the New York Stock Exchange is one of the key facilitators of high frequency trading and making big bucks at it….
Administrator
Author
April 2, 2014 7:02 am
“The markets for equities of all kinds had evolved to a platform for hackers…[High-frequency traders] are the ultimate hackers. They’re running software programs that have one goal, and that’s to exploit the trading systems as early and often as possible…
When software programs are trying to outsmart other software programs and hack the world’s trading platforms, that is a recipe for disaster.”
Unusual trading in shares of the Nasdaq suggests investors foresaw “Flash Boys” controversy.
The new Michael Lewis book, Flash Boys, focuses on high-frequency trading, which, Lewis contends, amounts to high-tech front running. Unusual action in the options market late last week suggests a bit of trading ahead of the 60 Minutes segment that effectively launched Lewis’ book.
Nasdaq OMX (ticker: NDAQ) operates some of the biggest stock and options exchanges in America, but its own shares rarely attract much attention in either market. So heavy trading in bearish options on the stock seems peculiar, especially now that high-frequency trading is under review by federal authorities.
Some investors bought about 6,000 puts in anticipation the stock would decline. Trade Alert, an options analytical service, said the volume was five-times greater than normal trading volume. The trading seemed to make little sense — until Monday’s announcement that the Federal Bureau of Investigation was investigating high-frequency trading.
Nasdaq benefits from high-frequency trading. The exchange, like others, sells “co-location” services that allow HFT firms close access to exchange computers. This gives HFT firms faster access to price information, ahead of other investors. The millisecond advantage can be enough to give those traders a profitable edge.
In recent trading, Nasdaq’s stock was down 3% at $35.85 on heavy volume. The puts bought last week — April $36 and $37 puts when the stock was trading around those strike prices — are now more valuable.
A dealer who sold some of the Nasdaq puts to the mystery buyers said the action now looks very suspicious. He opined that someone knew about the 60 Minutes interview with Lewis, and perhaps even about the FBI investigation. “This stuff is very rarely coincidental,” the dealer said, requesting anonymity.
The options trading, and stock price action, suggests Nasdaq’s stock and options are now viewed by investors as the way to trade the HFT investigations. Other exchange stocks are also lower today, reflecting a mixed session for financial stocks, but only Nasdaq’s stock trading volume is heavier than normal. Other exchanges, like the InterContinental Exchange (ICE), which owns the New York Stock Exchange, also offer technology services to benefit HFT traders. But ICE owns so many different businesses that the purest-play on HFT news appears to be Nasdaq. Indeed, Nasdaq’s stock reacted sharply when New York State Attorney General Eric Schneiderman made a recent speech that alleged that stock exchanges give HFT firms unfair advantages over other investors.
Regulatory authorities should question the Nasdaq put buyers just to make sure no one had inside information about the FBI investigation. A Nasdaq spokesman did not respond to two requests for comment.
A spokeswoman for the Chicago Board Options Exchange, which is in charge of reviewing unusual trading for the entire options market, said unusual trading activity is reviewed on a regular basis. The exchange does not comment, however, on specific reviews, the spokeswoman said.
Submitted by Tyler Durden on 04/03/2014 19:35 -0400
It is now quite clear why BATS CEO Bill O’Brien was so agitated during the Tuesday’s screamfest on CNBC. As The Wall Street Journal’s Scott Patterson reports, under pressure from the NYAG, BATS has hurriedly issued a statement correcting the CEO’s false comments during the exchange with IEX’s Brad Katsuyama. After Katsuyama said “you wanna do this, let’s do this” clearly giving him an out, O’Brien stated that BATS priced its trades off ‘high-speed’ data feeds when in fact they price their trades off a much slower feed (and therefore ‘enable’ the exact HFT-front-running that is in question).
Here is the clip in particular where O’Brien lies following Katsuyama’s question… that BATS uses the high-speed feed to price its trades…
The exchange in question…
“What do you use to price trades in your matching engine on Direct Edge?” Mr. Katsuyama asked Mr. O’Brien.
“We use the direct feeds,” Mr. O’Brien said.
Mr. Katsuyama, whose IEX dark pool markets itself as a haven for investors against high-speed traders, later brought up the issue again. “You use the SIP to price trades on Direct Edge,” he said.
“That is not true,” Mr. O’Brien said.
But as The Wall Street Journal reports, it was true
BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.
BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.
The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.
Full BATS Statement below:
Clarification Regarding Market Data Usage
April 03, 2014
BATS Global Markets wishes to clarify the market data usage of its exchanges. With respect to routing, EDGA & EDGX use direct depth-of-book data feeds for all major exchanges, and data from the relevant securities information processor (SIP) for certain smaller exchanges. With respect to the matching engine, EDGA & EDGX currently use the SIP, but will be transitioning to direct feeds from all major exchanges in January 2015. BATS BZX and BYX exchanges currently use direct feeds for both routing and its matching engine from all major exchanges, and SIP data from certain smaller exchanges.
Apparently the NYAG decided to make a public spectacle and to force O’Brien to shame himself (in a very low frequency fashion) publicly on Twitter:
This leaves us with two possibilities, either:
1) The CEO of BATS has no idea what his firm actually does and is merely happy to earn an impressive amount of money skimming off the rest of the population of market traders no questions asked, or
2) The CEO of BATS is a liar and is merely happy to earn an impressive amount of money skimming off
the rest of the population of market traders no questions asked.
Watch As HFT Debate Devolves Into Epic Screamfest In Milliseconds
Submitted by Tyler Durden on 04/01/2014 14:23 -0400
The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis “Shame On You,” for apparently telling the truth of what occurs in the stock ‘market and letting everyone in on it’. The tension grows when he presses Katsuyama on whether he really believes it is rigged… who then erupts “I believe the markets are rigged.. and that you are a part of the rigging.” Then the gloves come off “you wanna do this, let’s do this!” and then it got worse (or better)…
Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)… but to watch the status quo crushed under the awesome honesty of reality as this is all exposed.
The author of the new book “Flash Boys” got into a heated debate on live TV with BATS Global Markets exchange president William O’Brien about the pros and cons of high-frequency trading and whether it ruins the markets for the retail investor.
On CNBC on Tuesday, Lewis accused HFTs of “rigging the market” and touted the new exchange IEX making a more even playing field.
“I think he is outrageous and part of the problem,” said Lewis pointing to the BATS president. “This is the heart of capitalism right now, the unfairness of the exchanges.”
Founder of IEX exchange, Brad Katsuyama, also joined the cast to battle out whether the high-frequency traders beats out the regular investor.
“I believe that the markets are rigged and I think you are part of the rigging,” said Katsuyama directly to O’Brien.
Katsuyama went onto the explain why traders should price trades more fairly. The exchanges’ view of the market is slower than some of their fastest participants, he said.
“Shame on both of you for falsely accusing thousands of people on wrongdoing…to try to build a business on fear, mistrust and accusations,” shot back O’Brien.
I love Fourth Turnings.
I wonder if Mr. BATS has any idea that he looks and sounds like a man with something to hide and makes a fortune by running an exchange that allows the HFT traders to front run and ‘earn’ their billions. What a douchebag.
Check out this headline from GlobalResearch
Putin Flushes the US Dollar: Russia’s Gold Ruble Payments System Delinked from Dollar?
A New Financial System independent from Wall Street and City of London begins to take shape concretely in Russia?
Russia “forced” by the sanctions to create a currency system which is independent from the US dollar.
Russia announces that it will sell (and buy) products and commodities – including oil – in rubles rather than in dollars. The move is towards the development of bilateral.
Putin has been preparing this move — the creation of a payment system in rubles completely independent and protected from the Dollar and the “killer speculations” (e.g. short-selling) of the big Western financial institutions — for a long time.
After sanctioning several Russian banks to punish Russia for Crimea, the Washington politicians were told by the financial power-to-be to step back because obviously, the Wall Street vampires understand that putting Russian banks outside the reach of their blood sucking teeth is never a good idea.
For Wall Street and the city’s financial services, countries like Russia should always have an open financial door through which their real economy can be periodically looted. So Washington announced that it was a mistake to enforce sanctions on all Russian banks; only one, the Rossiya bank shall be hit by sanctions, just for propaganda reasons and to make an example out of it.
It is what Putin needed. Since at least 2007, he was trying to launch an independent Ruble System, a financial system that would be based on Russia’s real economy and resources and guaranteed by its gold reserves. No tolerance for looting and financial speculation: A peaceful move, but at the same time a declaration of independence that Wall Street will consider as a “declaration of war”.
According to the Judo strategy, the sanction attack created the ideal situation for a “defensive” move that would redirect the brute force of the adversary against him. And now it’s happening. Bank Rossiya will be the first Russian bank to use exclusively the Russian ruble.
The move has not been done in secret. On the contrary. A huge golden ruble symbol will be set up in front of bank Rossiya headquarters in Perevedensky Pereulok in Moscow “to symbolize the ruble’s stability and its backing by the country’s gold reserves,” the official agency Itar-Tass explains quoting the bank officials.
In fact, the officials are very clear on their intention to punish the western speculators that have been looting their country for a long time:
“Russia, at its present stage of development, should not be dependent on foreign currencies; its internal resources will make its own economy invulnerable to political wheeler dealers.”
This is only the first step, declared Andrei Kostin, the president of VTB, another bank previously sanctioned:
“We have been moving towards wider use of the Russian rouble as the currency of settlement for a long time. The ruble became fully convertible quite a long time ago. Unfortunately, we have seen predominantly negative consequences of this step so far revealed in the outflow of capital from this country. The influx of foreign investments into Russia has been speculative and considerably destabilizing to our stock markets.”
According to Itar-Tass, Kostin was very precise and concrete:
“Russia should sell domestic products – from weapons to gas and oil – abroad for roubles and buy foreign goods also for rubles….Only then are we going to use the advantages of the rouble being a foreign currency in full measure.”
Putin himself lobbied for the new siystem in meetings with members of the Upper House of the Duma, the parliament, on March 28, overcoming the last doubts and indecisions: “
“Why do we not do this? This definitely should be done, we need to protect our interests, and we will do it. These systems work, and work very successfully in such countries as Japan and China. They originally started as exclusively national [systems] confined to their own market and territory and their own population, but have gradually become more and more popular…”
Alea Iacta Est!
…….
How bout those pesky sanctions on Russia? All part of the soap opera designed to facilitate public support towards World War 3!
Re: Platoplubius
I noted this post yesterday & seems to me it’s the smoking gun in all the conjecture regarding Ukraine…..what a bunch of imbeciles in the U.S. state dept then of course they’re trying to promote WWIII so go figure.
Posted by Jesse
HFT: 60 Minutes Sanitizes Its Report – What Banks, What Exchanges?
There were some gaping holes in the 60 Minutes expose about the stock market being rigged. The story was spun in such a way to make one think that uncontrolled innovation had created some unfortunate and inadvertent technical arbitrage opportunities in exchange centers outside of Manhattan, but a clever insider, funded in part by ultimate insider David Einhorn and backed by the big dogs of Wall Street, had come up with a clever technical fix in a new and better exchange called IEX. Protected by a spool of fiber to induce network latency.
Free market triumphs, mission accomplished. And wait breathlessly for the IPO.
Don’t even think about a minimum transaction tax, a speed bump rule such as a minimum order duration, or anything more comprehensive than that. A spoolful of fiber makes the medicine go down.
I was so enchanted that they allowed someone to say ‘the stock market is rigged’ on national television that I thought that giving it a day or two to sink in might be appropriate. And it is rigged. It is just not fixed, in the manner of genuine reforms. It is a laughingstock amongst insiders. Well not everyone is laughing.
What was this 60 minutes piece, a limited hangout expose that will still be boldly and hotly denied?
The Fight Today That Stopped Floor Trading on the NYSE
“How frightened hypocrisy hastens to defend itself.”
Victor Hugo
What is coming down the road, another flash crash or a major market failure? Or are the natives just getting restless? Look, reform! And it was self-regulating! The major owner and executive chairman of CBS, Sumner Redstone, of the aptly named holding company National Amusements, could not have asked for a better script.
If you did not notice, they parsed HFT into two types. Conventional HFT that rides on the bid ask, normally in small incremental orders, aimed at skimming and carving up the smaller orders of the retail investors. What INEX is addressing is ‘front running’ HFT that games lags between exchanges to jump in front of BIG orders from powerful insiders.
Never mind the front running, which was taking a bite from the pros, how about the steady nibble at the bid and ask on virtually every order that is being placed? Doesn’t anyone remember the computerized transactional skimming in the movie Office Space?
NY AG Eric Schneiderman himself praised mom and pop affecting HFT as ‘providing liquidity.’ I think that canard has been capably debunked in many places and much better than I can do. It is like sex in college. The kind of liquidity you get you don’t want, and when you desperately need even that liquidity, its not there. Why not just praise portfolio insurance to abolish risk, and party like its 1987?
And what about the bombing of quiet markets with an avalanche of orders to brazenly manipulate the price? We have indictments of American companies doing that from Europe to Japan, with the sexy title ‘Dr. Evil strategy.’ And it is happening like clockwork, almost every day.
And as the king of Samoan metals traders, Salelologa Dave said, ‘I’ll know that real change is coming to our system when the Government allows Sixty Minutes to discuss the manipulation of the gold market.”
And brother, that is the truth. We can’t even get the CFTC to disclose its five year study of manipulation in the silver market that we paid for.
60 Minutes Sanitizes Its Report on High Frequency Trading
By Pam Martens
April 1, 2014
Two of the chief culprits of aiding and abetting high frequency traders, the New York Stock Exchange and the Nasdaq stock exchange, failed to come under scrutiny in the much heralded 60 Minutes broadcast on how the stock market is rigged.
This past Sunday night, 60 Minutes’ Steve Kroft sat down with noted author Michael Lewis to discuss his upcoming book, “Flash Boys,” and its titillating revelations about how high frequency traders are fleecing the little guy.
Kroft says to Lewis: “What’s the headline here?” Lewis responds: “Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.”
Kroft then asks Lewis to state just who it is that’s rigging the market. (This is where you need to pay close attention.) Lewis responds that it’s a “combination of these stock exchanges, the big Wall Street banks and high-frequency traders.” We never hear a word more about “the big Wall Street banks” and no hint anywhere in the program that the New York Stock Exchange and Nasdaq are involved.
60 Minutes pulls a very subtle bait and switch that most likely went unnoticed by the majority of viewers. In something akin to its own “Flash Boys” maneuver, it flashes a photo of the floor of the New York Stock Exchange as Kroft says to the public that: “Michael Lewis is not talking about the stock market that you see on television every day. That ceased to be the center of U.S. financial activity years ago, and exists today mostly as a photo op.”
That statement stands in stark contrast to the harsh reality that the New York Stock Exchange is one of the key facilitators of high frequency trading and making big bucks at it….
“The markets for equities of all kinds had evolved to a platform for hackers…[High-frequency traders] are the ultimate hackers. They’re running software programs that have one goal, and that’s to exploit the trading systems as early and often as possible…
When software programs are trying to outsmart other software programs and hack the world’s trading platforms, that is a recipe for disaster.”
Mark Cuban, June 27, 2012
Did Someone Front Run Michael Lewis?
By STEVEN M. SEARS
Unusual trading in shares of the Nasdaq suggests investors foresaw “Flash Boys” controversy.
The new Michael Lewis book, Flash Boys, focuses on high-frequency trading, which, Lewis contends, amounts to high-tech front running. Unusual action in the options market late last week suggests a bit of trading ahead of the 60 Minutes segment that effectively launched Lewis’ book.
Nasdaq OMX (ticker: NDAQ) operates some of the biggest stock and options exchanges in America, but its own shares rarely attract much attention in either market. So heavy trading in bearish options on the stock seems peculiar, especially now that high-frequency trading is under review by federal authorities.
Some investors bought about 6,000 puts in anticipation the stock would decline. Trade Alert, an options analytical service, said the volume was five-times greater than normal trading volume. The trading seemed to make little sense — until Monday’s announcement that the Federal Bureau of Investigation was investigating high-frequency trading.
Nasdaq benefits from high-frequency trading. The exchange, like others, sells “co-location” services that allow HFT firms close access to exchange computers. This gives HFT firms faster access to price information, ahead of other investors. The millisecond advantage can be enough to give those traders a profitable edge.
In recent trading, Nasdaq’s stock was down 3% at $35.85 on heavy volume. The puts bought last week — April $36 and $37 puts when the stock was trading around those strike prices — are now more valuable.
A dealer who sold some of the Nasdaq puts to the mystery buyers said the action now looks very suspicious. He opined that someone knew about the 60 Minutes interview with Lewis, and perhaps even about the FBI investigation. “This stuff is very rarely coincidental,” the dealer said, requesting anonymity.
The options trading, and stock price action, suggests Nasdaq’s stock and options are now viewed by investors as the way to trade the HFT investigations. Other exchange stocks are also lower today, reflecting a mixed session for financial stocks, but only Nasdaq’s stock trading volume is heavier than normal. Other exchanges, like the InterContinental Exchange (ICE), which owns the New York Stock Exchange, also offer technology services to benefit HFT traders. But ICE owns so many different businesses that the purest-play on HFT news appears to be Nasdaq. Indeed, Nasdaq’s stock reacted sharply when New York State Attorney General Eric Schneiderman made a recent speech that alleged that stock exchanges give HFT firms unfair advantages over other investors.
Regulatory authorities should question the Nasdaq put buyers just to make sure no one had inside information about the FBI investigation. A Nasdaq spokesman did not respond to two requests for comment.
A spokeswoman for the Chicago Board Options Exchange, which is in charge of reviewing unusual trading for the entire options market, said unusual trading activity is reviewed on a regular basis. The exchange does not comment, however, on specific reviews, the spokeswoman said.
Everybody Knows
RE
https://www.youtube.com/watch?v=Lin-a2lTelg
BATS Admits CEO Lied About HFT On CNBC
Submitted by Tyler Durden on 04/03/2014 19:35 -0400
It is now quite clear why BATS CEO Bill O’Brien was so agitated during the Tuesday’s screamfest on CNBC. As The Wall Street Journal’s Scott Patterson reports, under pressure from the NYAG, BATS has hurriedly issued a statement correcting the CEO’s false comments during the exchange with IEX’s Brad Katsuyama. After Katsuyama said “you wanna do this, let’s do this” clearly giving him an out, O’Brien stated that BATS priced its trades off ‘high-speed’ data feeds when in fact they price their trades off a much slower feed (and therefore ‘enable’ the exact HFT-front-running that is in question).
Here is the clip in particular where O’Brien lies following Katsuyama’s question… that BATS uses the high-speed feed to price its trades…
The exchange in question…
“What do you use to price trades in your matching engine on Direct Edge?” Mr. Katsuyama asked Mr. O’Brien.
“We use the direct feeds,” Mr. O’Brien said.
Mr. Katsuyama, whose IEX dark pool markets itself as a haven for investors against high-speed traders, later brought up the issue again. “You use the SIP to price trades on Direct Edge,” he said.
“That is not true,” Mr. O’Brien said.
But as The Wall Street Journal reports, it was true
BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.
BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.
The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.
Full BATS Statement below:
Clarification Regarding Market Data Usage
April 03, 2014
BATS Global Markets wishes to clarify the market data usage of its exchanges. With respect to routing, EDGA & EDGX use direct depth-of-book data feeds for all major exchanges, and data from the relevant securities information processor (SIP) for certain smaller exchanges. With respect to the matching engine, EDGA & EDGX currently use the SIP, but will be transitioning to direct feeds from all major exchanges in January 2015. BATS BZX and BYX exchanges currently use direct feeds for both routing and its matching engine from all major exchanges, and SIP data from certain smaller exchanges.
Apparently the NYAG decided to make a public spectacle and to force O’Brien to shame himself (in a very low frequency fashion) publicly on Twitter:
This leaves us with two possibilities, either:
1) The CEO of BATS has no idea what his firm actually does and is merely happy to earn an impressive amount of money skimming off the rest of the population of market traders no questions asked, or
2) The CEO of BATS is a liar and is merely happy to earn an impressive amount of money skimming off
the rest of the population of market traders no questions asked.