This guy was probably just getting fed up with the fact that every time he tried to place a trade it was front-run by HFT. He, like anyone who trades these days, took basic countermeasures to disrupt this. If it's illegal, 98% of day traders should be put in jail. He probably made some money off of the algos and a very limited number of others, but he definitely did not cause the "flash crash". Computers that were extremely narrowly calibrated to make trades on a very specific derivatives market and a very specific security did.
Mr Saro is unfortunately the very definition of a scapegoat.
Mr Saro is unfortunately the very definition of a scapegoat.
2
It's scary seeing what the actions of one person can cause.
Just as people in the Advertising Industry will tell you that they are there to act as "Disruptors"; people who work on The Street, are there to act as "Distorters".
The first sentence of this article gives it all away - "arrest of a little-known futures trader". If he was a regular, well known, "Street Guy", with a big firm behind him, he would not have been arrested. To be fair, a more professional distorter would not have created such an obvious problem; but his actions, however under the radar, would be just as illegal.
The notion that that the professionals working on the street, are there to makes things work smoothly for investors, is a myth of Easter Bunny proportions.
The first sentence of this article gives it all away - "arrest of a little-known futures trader". If he was a regular, well known, "Street Guy", with a big firm behind him, he would not have been arrested. To be fair, a more professional distorter would not have created such an obvious problem; but his actions, however under the radar, would be just as illegal.
The notion that that the professionals working on the street, are there to makes things work smoothly for investors, is a myth of Easter Bunny proportions.
4
I suggest a 1% charge on the share value of all cancelled orders payable to the U.S. Treasury. That would punish only those placing orders they did not really intend to complete.
2
Impractical.
Such practices cannot be outlawed; anymore than Bitcoin can. You just drive it underground.
Such practices cannot be outlawed; anymore than Bitcoin can. You just drive it underground.
Ohhh. The only reason to live in Jersey is to hug the fiber. By running a sample data system faster (pref 10x faster, but hard to do) than a big HFT, one can inject just enough instability to get rich. Croesus rich. Then retire (after paying taxes) before the HFT figures out how to damp the system... this being America, the only metric of success is being wealthy beyond any conceivable need, and further, beyond anyone else.
The brain power is in the creation of the genetic algorithm -- the luck is two fold: scaling up before going bankrupt on the learning curve; and not getting Entangled in Real Time (i.e., a real market implosion spanning more than the short HFT time windows). Shielding: LLC with legions of mouthpieces; just like the big boys, one has to pay implicit protection money not after the fact Sarao playing catchup.
Construction: server hugging the fiber with pay as you go AWS analytics backend for sequential data set analysis to accelerate evolution.
The brain power is in the creation of the genetic algorithm -- the luck is two fold: scaling up before going bankrupt on the learning curve; and not getting Entangled in Real Time (i.e., a real market implosion spanning more than the short HFT time windows). Shielding: LLC with legions of mouthpieces; just like the big boys, one has to pay implicit protection money not after the fact Sarao playing catchup.
Construction: server hugging the fiber with pay as you go AWS analytics backend for sequential data set analysis to accelerate evolution.
4
It's easy to complain that high frequency trading produces nothing of value, but step into your average retail store and consider the products on the shelves. Most will end up in the garbage. How much value did they really provide?
Does the factory churning out disposable party toys really contribute more utility than a couple of computers chattering with each other? Many so-called productive sectors of the economy only get this label because the full costs are not properly accounted for.
Does the factory churning out disposable party toys really contribute more utility than a couple of computers chattering with each other? Many so-called productive sectors of the economy only get this label because the full costs are not properly accounted for.
1
I'm shocked, shocked I tell you, to find gambling in this establishment.
5
Transaction tax.00001%. Pure blasphemy of course.
5
So can we just pass a financial transactions tax already? Something like 0.2% on every Wall Street trade.
Flash traders contribute absolutely nothing to the economy. A financial transaction tax would take care of that, while reducing the profits to be made by flash trading. For those of us who own mutual funds or trade a few stocks from time to time, the burden would be trivial. For those trying to close the federal budget gap, the windfall would be tremendous,
Flash traders contribute absolutely nothing to the economy. A financial transaction tax would take care of that, while reducing the profits to be made by flash trading. For those of us who own mutual funds or trade a few stocks from time to time, the burden would be trivial. For those trying to close the federal budget gap, the windfall would be tremendous,
3
Unfortunately, those yelling the loudest about closing the budget
gap could not care less about actually doing so with the least social
cost possible. This is principally because the voters who
elected such people are indifferent to cost effective solutions to
social problems and those who are less so do not bother to vote.
gap could not care less about actually doing so with the least social
cost possible. This is principally because the voters who
elected such people are indifferent to cost effective solutions to
social problems and those who are less so do not bother to vote.
We can stop this in its tracks. Require a $5 fee to place a trade, and a $5 fee to cancel a trade. One dollar goes to the exchange, four dollars to the Federal treasury. No legitimate investor would be harmed in the least, and the high-speed vampires would have to find a useful job.
7
Are we really to believe that a single guy, working off his house in suburban London caused a DowJones crash of 600 points?
First of all simply the distance to the Exchange server would seem to preclude spoofing.
What is this article notbsaying?
And of course one single lonely Brit is indicted fir a widespread practice.
Hilarious
First of all simply the distance to the Exchange server would seem to preclude spoofing.
What is this article notbsaying?
And of course one single lonely Brit is indicted fir a widespread practice.
Hilarious
3
Creating the aura of false orders and excess volume is against the securities laws. This certainly calls for big-time jail time for all inclined. And, let's not forget to include executives who were responsible for managing the process.
http://thetruthoncommonsense.com
http://thetruthoncommonsense.com
High frequency traders continue to rip-off honest investors with impunity using pump-and-dump schemes like this:
http://investmentwatchblog.com/the-unending-high-frequency-rip-off/
http://investmentwatchblog.com/the-unending-high-frequency-rip-off/
1
"And it has been difficult to find firm evidence as to whether such strategies are directly harming ordinary long-term investors.".....Do the people who manipulate the market make money? Whose pocket does the money they take come from? Isn't it obvious that market manipulation hurts legitimate investors? When someone takes money that they haven't earned its called theft.
4
The problem is that the exchanges who make their money from the volume of transactions are essentially in collusion with HFT firms. It's an open secret that front running, spoofing, quote stuffing are all techniques being used by HFT's to cream profits on the roughly 40 public and private exchanges that operate in the US. I wonder how many members of the public know that there are 40 stock exchanges in the US? As for the claim it's a victimless crime because HFT's are trading against each other, this is risible since HFT's represent about 55% of volume it's inevitable that what I'll call genuine purchasers of stocks from mom and pops to major institutions like pension funds, insurers, and mutual funds are getting caught in the crossfire. The reaction of the regulatory agencies has been pathetic although to be fair they are constrained by a lack of resources to tackle what is a very complex business. No one has any idea of the extent of the profits being extracted in tolls by these HFT's and their co conspirators the exchanges.
22
American stock markets are now totally rigged. Between algos gone 'mad' spoofing bids and offers, the Plunge Protection team (run by the Fed), 7 years of zero interest rates for the .01% there is no longer any genuine price discovery in the markets.
So the SEC picks on a Brit in his basement in England , asserting that he alone is responsible for the 'flash crash' of 2010 when it is the system itself that is horribly wrong but the SEC only picks on 'little people' so its workers can work for the 'big people' in the future.
Pathetic.
So the SEC picks on a Brit in his basement in England , asserting that he alone is responsible for the 'flash crash' of 2010 when it is the system itself that is horribly wrong but the SEC only picks on 'little people' so its workers can work for the 'big people' in the future.
Pathetic.
8
Anyone who does not believe that the stock market is rigged only has to listen to the daily explanations of the reason for big rises and declines. It is clear that there is something going on beyond the normal market factors.
3
The entire system is rigged for the big firms and high speed traders. The prevailing attitude is summed up nicely as, "Trading is all about preying on other people's psychological weaknesses" rather than it being based firmly in economics and being fair marketplace for all participants regardless of income level. This case is the tip of the iceberg. The market has Congress in their back pocket. Caveat Emptor.
9
I'm with the idea of taxing transactions. A few pennies per order wouldn't hurt my portfolio all that much, and I'm pretty confident that it ultimately wouldn't hurt the economy either.
17
So don't let them cancel the orders. Is that too simple? Must everybody pay taxes to prosecute somebody instead of implementing this simple fix?
8
While we are at it, let's ban bluffing in Poker, draw plays in football, and diversionary attacks in warfare. We definitely need government to protect us fragile human beings from our own shortcomings like gullibility, greed and fear.
3
No, other people's greed. It's that simple. Stockbrokers have always been Judas goats. With electronic trading, they're just a lot better at it. The small investor does not buy stocks thinking it's a poker game.
3
oil prices have been manipulated DAILY FOR YEARS!!!
6
This is what the profession refers to as "an efficient allocation of capital", namely, from your pocket into theirs.
9
The problem appears to be that a rogue individual caused financial losses on bigger players. Both sides engage in market manipulation, but flash spoofing causes losses to front runners and other practices, employed by the Big Boys in the gray areas of trading. Since laws and regulations are lop sided in favor of institutions, rogue players represent a clear and present danger to the status quo. One can only imagine a virtual "army" of flash nerds, coordinating their efforts for whatever nefarious or beneficial purpose.
9
Yes, it is really out of hand when those other than the anointed bankers can manipulate markets. That is the exclusive prerogative of the ruling elite.
11
Who really believes that the big firms aren't doing this? Come on.
8
Our society is supposed to become more prosperous as a whole if those who have savings invest a substantial part of them in useful economic activity -- the production of goods and services that help those who purchase them. Stocks, bonds, and other securities exist in theory to facilitate the investment of savings made by others from their work and existing investments.
Traders and other investment professionals should be rewarded only to the extent that their work helps to direct savings to useful investments.
All of these different games and ploys used by the traders not only discredits them but directly results in using the resources of our society for economically pointless activity -- manipulative endeavors that have little or nothing to do with using other people's savings to fund work on new goods and services.
In the United States we have built up colossal savings and wealth over the past two centuries, but we increasingly squander so much of it that it is a wonder our society remains prosperous: We spend an immense part of our wealth on wars and repression of all kinds and squander an immense part of it on pointless, speculative manipulations in our "investment" markets.
In other regions of the word in the meantime, they invest their savings in great infrastructure projects, education, and fundamental research.
You can't tell people how to invest their money or which leaders to elect, and in the end people will get what they want.
Traders and other investment professionals should be rewarded only to the extent that their work helps to direct savings to useful investments.
All of these different games and ploys used by the traders not only discredits them but directly results in using the resources of our society for economically pointless activity -- manipulative endeavors that have little or nothing to do with using other people's savings to fund work on new goods and services.
In the United States we have built up colossal savings and wealth over the past two centuries, but we increasingly squander so much of it that it is a wonder our society remains prosperous: We spend an immense part of our wealth on wars and repression of all kinds and squander an immense part of it on pointless, speculative manipulations in our "investment" markets.
In other regions of the word in the meantime, they invest their savings in great infrastructure projects, education, and fundamental research.
You can't tell people how to invest their money or which leaders to elect, and in the end people will get what they want.
14
"Trader’s Arrest Raises Concerns About Market Rigging"...do you think we're all stupid? Of course it's "rigged"...you just have to be lucky enough to make the right bet. The Market is rigged, justice is rigged, government is rigged...anyone in 2015 who has this rosy view that the world operates ethically and above-board is a sucker. It just ain't so. So learn to adapt to it.
3
Used to be I would study investing and then make my own choices. Was a time I decided on a company on the east coast and told my broker to buy it. He said no, our headquarters doesn't follow it. I said, "Buy it!" And so they did and then that stock began its climb, the local branch began selling it; but they ever after could barely contain their hatred of me. In due time the local office closed and later the entire company went under. Many years later there is no way I can study anything or make an informed decision. Even the advisor I have been using appears to have given up. It's now clear that corporate money is going overseas, leaving U.S. citizens with their savings depleted beyond repair. In the end the Big Boys win all, even the government.
1
It seems like the exchanges could impose a random waiting period (of between one and three seconds) before each trade was executed. There is no way that the inherent value of a company would legitimately change in that amount of time, and the randomization would smooth out the effect of the delay (any slight gain or loss), over time.
There are probably much better ways to stop high-frequency traders, but politicians and regulators are bought and paid for, so once again, we won't get any action until a really huge flash crash (or similar) devastates the economy.
There are probably much better ways to stop high-frequency traders, but politicians and regulators are bought and paid for, so once again, we won't get any action until a really huge flash crash (or similar) devastates the economy.
4
How can this be new news? Unless this is yet another market manipulation?
My suggestion to people is grow your own food, own your own water, trade in Hard goods, maybe barter with Neighbors, Never be in Debt. Rely minimal on the system. Save for the Future, Buy Gold, and never waste any resource.
I hate it when these amateurs muck it up for everyone else. Leave the cheating to the professionals, sonny boy.
3
When has the markets not been rigged?
When you can sell something you don't own. Or bet on what prices will be in the future, and start rumors about the company.
It's all a matter of knowing the markets are rigged and trying to figure how to take advantage of it, and not get stuck holding the bag.
When you can sell something you don't own. Or bet on what prices will be in the future, and start rumors about the company.
It's all a matter of knowing the markets are rigged and trying to figure how to take advantage of it, and not get stuck holding the bag.
3
Everything about the markets is rigged. Always has been. Always will be. Anything involved with banking, government and politicians is rigged. Always has been. Always will be.
1
The issue isn't that this fine upstanding investor performed some creative maneuvering to beat the market odds. The question is why most Americans would not believe tactics like this go on everyday on the stock market.
Wherever there is money, there are assorted thieves lurking. In the Market, They come in all shapes and sizes with one goal, make money. Cheating is as American as apple pie (as they say). If you want to play, you have to pay.
If you think the gov't will protect you from market rigging, dream on. Everyone has been forewarned of the "market's risks" . With congess typically protecting these practices by Not regulating them, or not enforcing them as necessary, the gov't effectively supports the scheme.
Its tough to witness sometimes, but the investors get what they deserve.
Wherever there is money, there are assorted thieves lurking. In the Market, They come in all shapes and sizes with one goal, make money. Cheating is as American as apple pie (as they say). If you want to play, you have to pay.
If you think the gov't will protect you from market rigging, dream on. Everyone has been forewarned of the "market's risks" . With congess typically protecting these practices by Not regulating them, or not enforcing them as necessary, the gov't effectively supports the scheme.
Its tough to witness sometimes, but the investors get what they deserve.
4
The arrest raises "concerns" - why concerns? Market rigging happens every day, every hour, every minute by the band of thieves and swindlers that run the banks and the Wall Street dens of thieves.
Only some long term jail sentences for some of the top executives will change this. Lock up the likes of Dimon and Blankfein. Until then nothing will change - fines and penalties are laughed at.
Only some long term jail sentences for some of the top executives will change this. Lock up the likes of Dimon and Blankfein. Until then nothing will change - fines and penalties are laughed at.
11
Adding a delay of 0.1 sec to transactions would eliminate the possibility of this practice. Hard to see why there would be any argument against it, except that those who have power have the ability to destroy markets within microseconds. Ordinary people can't compete.
http://www.bloomberg.com/bw/articles/2012-03-29/trading-at-the-speed-of-...
http://www.bloomberg.com/bw/articles/2012-03-29/trading-at-the-speed-of-...
11
I work in this industry.
About high-frequency trading and trading firms: while trying to pick each others' pockets they just happen to pick ours. We're just by-catch to them.
About the conventional financial services/mutual fund/asset management industries: to call them "dinosaurs" pays them a compliment. Nobody's in charge. Nobody running large firms really knows what's going on. And the entire financial industry's structure is actually a house of cards, like it was back in early 2008, before the knockdown.
What could set off another 35% correction, even a full-blown market crash? Anything. Nothing. And it's standing in front of us, too, staring us right in the face. See its lizard eyes?
What about any of this is so difficult to understand?
About high-frequency trading and trading firms: while trying to pick each others' pockets they just happen to pick ours. We're just by-catch to them.
About the conventional financial services/mutual fund/asset management industries: to call them "dinosaurs" pays them a compliment. Nobody's in charge. Nobody running large firms really knows what's going on. And the entire financial industry's structure is actually a house of cards, like it was back in early 2008, before the knockdown.
What could set off another 35% correction, even a full-blown market crash? Anything. Nothing. And it's standing in front of us, too, staring us right in the face. See its lizard eyes?
What about any of this is so difficult to understand?
4
See, it offends me even to call it an industry. These people make money lobbing other people's money around: they do not create value. It's even more insulting that your monopoly money is counted into GDP at the same value as our productive activity making things for people to eat, wear, use, live in and ride in.
And to think that in its original meaning, "industry" was not an activity per se, but a virtue: the willingness to work hard.
And to think that in its original meaning, "industry" was not an activity per se, but a virtue: the willingness to work hard.
This arrest just raises "uneases". With all due respect, the market is a casino that is rigged in favor of the big boys and it has been fr quite a while. We had a period wherein the SEC did in fact regulate the market and protect investers but that is all over. The democratization of the market is a fantasy created to rob workers of their pensions and give corproate management more money to play with and WALL Street more fees from the uninitiated.
The. SEC needs to do its job but it is too controlled by those whose interests are served by a rigged market and a Wild West playing field.
The. SEC needs to do its job but it is too controlled by those whose interests are served by a rigged market and a Wild West playing field.
24
Laypeople are told over and over again that we should trust the market, but over and over again they turn out to be rigged at our disadvantage, and when the market collapses, we are left picking up the pieces, as the Irish taxpayers have done. I never made risky investments, but my salary dropped a third, and if I had not had a public job, I might have been out of work. Too many of my students had to go all the way to Australia . . . .
15
"There are few in the industry who are willing to defend spoofing."
It's not spoofing but front running which causes problems to legitimate dealers. Spoofing is putting in orders which are not meant to be executed. Front running looks at current orders and executions and tries to determine when someone else is buying or selling; front runners then try to buy or sell first, and only to sell or buy later to the legitimate dealer who then trades at a worse price. An example of a legitimate dealer here would be a pension fund. Spoofing is about the only way to stop front runners. Front runners misinterpret spoofing orders, go into their buy or sell first routine, but then have no one to sell or buy to, and so take a loss. The SEC needs to go after front runners. They're the scourge of the market, not spoofers. The reason why spoofers are disliked is only because so much of the American market is now handled by front runners (who pretend they are market makers).
It's not spoofing but front running which causes problems to legitimate dealers. Spoofing is putting in orders which are not meant to be executed. Front running looks at current orders and executions and tries to determine when someone else is buying or selling; front runners then try to buy or sell first, and only to sell or buy later to the legitimate dealer who then trades at a worse price. An example of a legitimate dealer here would be a pension fund. Spoofing is about the only way to stop front runners. Front runners misinterpret spoofing orders, go into their buy or sell first routine, but then have no one to sell or buy to, and so take a loss. The SEC needs to go after front runners. They're the scourge of the market, not spoofers. The reason why spoofers are disliked is only because so much of the American market is now handled by front runners (who pretend they are market makers).
15
All this cleverness will some day do us all in. Then what? All ships will be sinking with no help in sight. Maybe it's time for a return to money under the mattress.
John Arnold at Bloomberg agrees:
http://www.bloombergview.com/articles/2015-01-23/high-frequency-trading-...
http://www.bloombergview.com/articles/2015-01-23/high-frequency-trading-...
Again, random delays of 10 seconds or so would end this practice. Don't let the flash boys see unfilled orders.
2
All of this could be stopped with a minor transaction tax that would slow the volatility of trading.
37
Commodities Exchange fraud by big oil speculators manipulating gasoline prices has been overlooked by the Securities Exchange Commission since.....the Commission opened for business.
10
After reading "Flash Boys" by Michael Lewis, I don't see how the exchanges would have the information necessary to detect and prove abuses.
2
Ridiculous, trumped-up charges. A barracuda outsmarted the sharks at their own game. So what? Trading is all about preying on other people's psychological weaknesses. Anyone who came up with his own independent valuations would have been immune to this fellow's feints; only the spineless, the gullible, and the pathetic fell for it. He deserves a gold medal for courageous and creative trading, not castigation and legal action.
2
Spoken like a true trader!
The crime is much bigger and broader. The CFTC is willing to go after small timers rather than clean the mess up, and CME is a willing co conspirator.
First, CME has become a for profit exchange. That means it will promote whatever its client's want. If it offers the best NBBO, it makes money. The E-mini is spoofed every day all day.
Second HFT, is a problem and a liquidity drain on the downside despite what you hear from industry sponsored academics.
Third , it took the SEC 5 years to come to this conclusion?! It took Nanex, a month back in 2010 to figure out what was going on with 1/100th of the SEC's staff and computing power.
Fourth, If Mr. Sarao is the lone "gunman", the firm originally accused of this crime would be in a position to sue the SEC and CME big time.
Once again, we find the issue of self regulation in a lucrative business. Self regulation doesn't work in markets because we can all hire lawyers to arb the rules.
So I think your article needs a lot more work.
Oh..one more thing, this guy isn't going to see one day of jail if he has a competent legal defense.
First, CME has become a for profit exchange. That means it will promote whatever its client's want. If it offers the best NBBO, it makes money. The E-mini is spoofed every day all day.
Second HFT, is a problem and a liquidity drain on the downside despite what you hear from industry sponsored academics.
Third , it took the SEC 5 years to come to this conclusion?! It took Nanex, a month back in 2010 to figure out what was going on with 1/100th of the SEC's staff and computing power.
Fourth, If Mr. Sarao is the lone "gunman", the firm originally accused of this crime would be in a position to sue the SEC and CME big time.
Once again, we find the issue of self regulation in a lucrative business. Self regulation doesn't work in markets because we can all hire lawyers to arb the rules.
So I think your article needs a lot more work.
Oh..one more thing, this guy isn't going to see one day of jail if he has a competent legal defense.
20
Raises concerns? Is that a joke? Anyone with an IQ higher than room temperature understands that the markets are completely rigged, the big brokerages and hedge fund vampires get inside information and act on it constantly, as well as getting preferential first crack at any good IPOs.
Only an idiot believes the ordinary investor stands a chance of doing as well as the wealthy and connected, who buy and sell long before you even know there's price movement. When caught, this is what they hear from the Justice Department: "We're going to fine you one one-hundreth of one percent of the profits you made on that illegal deal. Please don't do it again."
The market is the same sucker's game as taxes - the many little fish throw their money into the pit where the few whales scoop it up and laugh.
Only an idiot believes the ordinary investor stands a chance of doing as well as the wealthy and connected, who buy and sell long before you even know there's price movement. When caught, this is what they hear from the Justice Department: "We're going to fine you one one-hundreth of one percent of the profits you made on that illegal deal. Please don't do it again."
The market is the same sucker's game as taxes - the many little fish throw their money into the pit where the few whales scoop it up and laugh.
39
One cannot be inherently ethical in a monetary system, especially when the monetary system, itself, is not ethical. So why do we pretend to be appalled by those who manipulate the markets in their own self interest when the very basis of capitalism is self interest?
Anyone with some basic arithmetical understanding can see where this is all headed. But how does one change such a theology when people would rather be destroyed by it than change it?
Anyone with some basic arithmetical understanding can see where this is all headed. But how does one change such a theology when people would rather be destroyed by it than change it?
10
There was an insightful blog of P. Krugman on this subject
http://www.nytimes.com/2014/04/14/opinion/krugman-three-expensive-millis...
that addressed the very big money behind the type of practices, shady
or not, but inevitably connected to high speed trading's darker sides
(are there any other sides?)
Where there is big money behind pushing a technological
edge, there is also power and intimidation of
regulators and their hopelessly outdated technologies. The race is not
between the shysters and everyone else, since the former
have already won in the corridors of power. They only
need remind its hired help who actually pays for
their electoral campaigns (do they really need to
be reminded?)
The instabilities that have become implicit features
of electronic trading and high finance are just givens
that every so often, when everyone moves in the same
direction, produce huge market changes that may
or may not be easily correctible. You just hope they will be,
and you don't want too many prying regulator eyes lurking
to make sure, since that inevitably spoils the fun of
trying to squeeze out just a little advantage every now
and then.
After all, the whole idea of fixing one's gaze upon
a computer screen all day in the hope that
money can be made by keeping track of numbers flying by is such
a depressing way to spend one's time that some
type of outrageous renumeration ought to be available
to those poor desperate souls obsessed by the lure
of a payoff.
http://www.nytimes.com/2014/04/14/opinion/krugman-three-expensive-millis...
that addressed the very big money behind the type of practices, shady
or not, but inevitably connected to high speed trading's darker sides
(are there any other sides?)
Where there is big money behind pushing a technological
edge, there is also power and intimidation of
regulators and their hopelessly outdated technologies. The race is not
between the shysters and everyone else, since the former
have already won in the corridors of power. They only
need remind its hired help who actually pays for
their electoral campaigns (do they really need to
be reminded?)
The instabilities that have become implicit features
of electronic trading and high finance are just givens
that every so often, when everyone moves in the same
direction, produce huge market changes that may
or may not be easily correctible. You just hope they will be,
and you don't want too many prying regulator eyes lurking
to make sure, since that inevitably spoils the fun of
trying to squeeze out just a little advantage every now
and then.
After all, the whole idea of fixing one's gaze upon
a computer screen all day in the hope that
money can be made by keeping track of numbers flying by is such
a depressing way to spend one's time that some
type of outrageous renumeration ought to be available
to those poor desperate souls obsessed by the lure
of a payoff.
7
All of us who depend on our 401Ks and IRAs to survive in retirement are told to "buy and hold" while criminal idiots like this--at Goldman Sachs, Morgan Stanley, Citibank, etc. "spoof" the markets using our retirement savings as their private cache.
50
What Mr. Saro did to spectacular effect in 2010 is done thousands of times every microsecond by today's high frequency traders. Mr. Saro is not even the tip of the iceberg with respect to the titanic amount of wealth harvested by trading practices that have nothing whatever to do with recognizing or creating value.
30
Oh comer on, the title is too hilarious. Traders are the small fish in market rigging. I don't think the power players (the cabals) are very worried. How many times have we seen individuals far down on the chain fall on the sword, only to be exonerated on appeal. Not to worry, rigging will proceed as scheduled.
14
5 years and a whistleblower later, its clear the CFTC and SEC are not up to the task of regulating high speed trading. This guy was 20% of the S&P 500 Futures market that day with his $200mn in spoofed orders. How could that remain secret for so long?
9
"Spoofing has long been against the exchange’s rules,"
Exactly where in the CME Rulebook is "spoofing" mentioned?
And where is the line that differentiates market-making from spoofing?
Exactly where in the CME Rulebook is "spoofing" mentioned?
And where is the line that differentiates market-making from spoofing?
6
The criminal charges against Sarao are ludicrous & laughable.
As Matt Levine at Bloomberg News wrote yesterday, Sarao turned OFF his spoofing algo when the Flash Crash plummet occurred.
Also, Sarao activated his algo on at least 250 other trading days. Why didn't his spoofing trigger crashes on those days, too?
According to the SEC and CME investigations, the Flash Crash was precipitated by Waddell & Reed, a mutual fund based in Overland Park, Kansas, when portfolio manager Michael Avery set loose a price-indiscriminant sell order of 75,000 e-mini futures -- about $3.5 billion notional, which was executed over a span of 20 minutes!
THAT price-indiscriminant sell order triggered the Flash Crash. End of story.
As Matt Levine at Bloomberg News wrote yesterday, Sarao turned OFF his spoofing algo when the Flash Crash plummet occurred.
Also, Sarao activated his algo on at least 250 other trading days. Why didn't his spoofing trigger crashes on those days, too?
According to the SEC and CME investigations, the Flash Crash was precipitated by Waddell & Reed, a mutual fund based in Overland Park, Kansas, when portfolio manager Michael Avery set loose a price-indiscriminant sell order of 75,000 e-mini futures -- about $3.5 billion notional, which was executed over a span of 20 minutes!
THAT price-indiscriminant sell order triggered the Flash Crash. End of story.
16
Laughable. No one prosecutes these crimes because it would open a can of worms larger than capitalism itself. The only fine distinction is whether these legalized crooks control 49.9% or 50.1% of the markets.
12
I'm glad the authorities are cracking down on this practice. However, I'm very nervous that one rogue trader and his computer can disrupt the stock market that way. Assuming the SEC and CFTC have confirmed this, they better come up with an iron-clad way to detect and prevent this activity. The threat of prosecution won't work if the actor is intentionally trying to harm us, and I can think of several parties who might be willing to try.
1
Do you actually believe there is a crackdown? Why on earth - because they said so?
6
The posh,,the well off and the swanky
Deny there's Market hanky lanky,
When a trader's arrested
And behind bars is guested
They seem to get peevish and cranky.
Deny there's Market hanky lanky,
When a trader's arrested
And behind bars is guested
They seem to get peevish and cranky.
3
There are many changes to the market that could fix many of these problems. For example if instead of continuous time, all exchanges operated on synchronized discrete 1/100 of a second clocks, all of the advantage of the high frequency traders would probably disappear, with no consequence to the ordinary investor (since a light signal from Ca to NY takes 1/1000 of a second, the speed advantage is nullified since the order has to wait for the next 1/100 second tick anyway.
As for spoofing and all these other manipulations, how about a very small fee for every order canceled. This would have no impact on the average investor, but might prevent many of these manipulative schemes. Its like with email - if only mankind had been smart enough to implement a 1/100 of a cent charge on every email - spam would never have been a problem.
As for spoofing and all these other manipulations, how about a very small fee for every order canceled. This would have no impact on the average investor, but might prevent many of these manipulative schemes. Its like with email - if only mankind had been smart enough to implement a 1/100 of a cent charge on every email - spam would never have been a problem.
26
"Concerns About Market Rigging"?
Don't we all really know, deep-down that these traders and institutions are willing and able to engage in rigging the markets?
This is really what Milken, Boesky & Co were convicted of--market rigging--in the '80s, and with all the anti-regulation zealotry of the 2000s many of the safeguards were rolled back further, leading to a (predicable) semi-collapse of the markets and the world economies.
And yet, very little has been done to address the powder-keg situation? NO major banks or CEOs have been brought to justice and Wall Street money calls the lobbying tune more than ever!
Don't we all really know, deep-down that these traders and institutions are willing and able to engage in rigging the markets?
This is really what Milken, Boesky & Co were convicted of--market rigging--in the '80s, and with all the anti-regulation zealotry of the 2000s many of the safeguards were rolled back further, leading to a (predicable) semi-collapse of the markets and the world economies.
And yet, very little has been done to address the powder-keg situation? NO major banks or CEOs have been brought to justice and Wall Street money calls the lobbying tune more than ever!
12
Can we have a reasonable time, say one day, where you can't sell a stock you just bought?
7
So a lone trader working out of his parent's house in England can completely disrupt our stock markets? Either we are fools to believe this, or the system is ridiculously vulnerable to fraud and the CME is guilty of gross negligence. You can't have it both ways.
67
What is the SEC waiting for? If what Sarao did was bad, simply require that any offer to buy or sell be kept open for some period of time - say, two minutes, which would allow even humans to get into the action - or until the order was filled at the offered price.
6
Its waiting to be told by the people who actually run the SEC to do something. The powers that be don't want a fair market. Now that the government is totally with in their control it never will be again.
2
Overlook the sharks, catch a minnow, and then congratulations all around. The usual show the authorities put on when enough people start complaining; dig up a little character or two and make a big show of it. Remember Abraham Lincoln saying "You can fool all of the people some of the time, and some of the people all of the time, but you can't fool all of the people all of the time." These days I'd bet that even HE'd reconsider. Meanwhile, boys and girls, go back to the gym, the restaurant, the bar, or the dealer so you can get wired enough to work all night and maybe keep that job of yours. There's nothing of interest here.
40
So, how many "minnows" have the Holderites caught? Any? One or two?
3
Agree completely. Make the "minnow" a foreign national and even better because suffer even less national backlash! Shameful.
1
This "minnow", as you call him, is actually the tip of the iceberg.
Shave off the tip, fine -- it's in your hands. You can crush it, pulverize it, throw it in some oven to melt. Now, what do you do with the rest of the iceberg? Bearing in mind, of course, that if you start trying to make it disappear the notional value of everything inflated by it starts disappearing with it.
I do not defend the sad state of our financial system, half relic, half casino. However, be warned. it is intimately intertwined with our illusion of prosperity, It resembles a tumor in this respect. If we try to cut it out we start killing that illusion as well. People will become frightened and panic. Then watch the fun.
Shave off the tip, fine -- it's in your hands. You can crush it, pulverize it, throw it in some oven to melt. Now, what do you do with the rest of the iceberg? Bearing in mind, of course, that if you start trying to make it disappear the notional value of everything inflated by it starts disappearing with it.
I do not defend the sad state of our financial system, half relic, half casino. However, be warned. it is intimately intertwined with our illusion of prosperity, It resembles a tumor in this respect. If we try to cut it out we start killing that illusion as well. People will become frightened and panic. Then watch the fun.
The notion that this one trader engaged in this vacuum-tube-powered craziness and everything and everyone else in "The Sacred Market" is as pure as the newly-fallen snow, absolutely boggles the mind. HFT-driven parasitic "strategies" as spoofing (or layering), quote stuffing, flash trades, momentum ignition, sub-pennying, ISOs, and countless others rule the market. There is a wide swath of former investors who laugh at what passes for "The Market" these days and want nothing to do with what has degenerated to a corrupt casino. CFTC is the crooked croupier of the day.
14
Wall Street traders think it's a big joke and that they are entitled to easy, obscene profits while the SEC looks the other way. Here's a typical conversation at the trading desk:
http://investmentwatchblog.com/the-flash-boys-make-their-case/
http://investmentwatchblog.com/the-flash-boys-make-their-case/
4
Seems to me the brokers, bankers, and other financial guys have worked very hard to lose our trust. I you want to be in the market, best to buy and hold.
1
What a ridiculous situation where the world's financial stability rests in the (phat-fingered) hands of people who have never done a real day's work in their lives.
This current system of automatic trading, moving imaginary piles of money from Pile A to Pile B is a gross insult to those of us who actually produce goods and services.
No wonder the Tea Party and UKIP are doing so well!
This current system of automatic trading, moving imaginary piles of money from Pile A to Pile B is a gross insult to those of us who actually produce goods and services.
No wonder the Tea Party and UKIP are doing so well!
1
Obviously honesty is not the best policy but in the so-called marketplace dishonesty has its friends even within the halls of government.
3
What hilarious hypocrisy by US Dept. of Justice. Wall St banks, traders and insurance companies (AIG) crashes the US economy for $5T in securities scams but some guy in his living room in London is going to jail.
6
This guy is like the card counters in Vegas. He figured out a way to beat an already rigged system and now is getting persecuted for it. Meanwhile the true perpetrators of the financial meltdown 7 years ago are back doing exactly what they were doing before, "God's Work".
8
CME sounds like a cross between a casino and a video game. The SEC needs to force it to impose some controls over their digital trading or go back to the days of the specialists in the pits. This is nuts. And obviously spoofing hurts the ordinary investor -- they are the source of the spoofer's profits.
17
One little guy manipulates the entire market from a row house in Britain. What a crock! Let's face it the people in finance know no bounds. To them the truth is but a lie undetected.
42
One of the first firms to invest heavily in high speed trading tech was Goldman Sachs. This gave them an advantage over the average stock investor that could not be beat. It should have been outlawed as it is manipulation of the most malicious kind. And now others are using the same tech. The market is as uneven as class equality. Insider trading is rampant and everybody knows it but the revolving door between the Fed and Wall Street whereby individuals jump ship working for both at some time in their lives keeps this abhorrent practice alive to the detriment of an even playing field. The resulting slap on the wrist and lack pf any jail time for offenders is sending bad signals worldwide to other nations about the fairness of the dollar as a medium of global investment and exchange. It's days are numbered as other currencies and Banks such as China's new one rise to compete with hopefully less corruption.
37
Wow. No, Lol. These regulators (SEC, CFTC) and their naively-trusted self-regulated organizations (CME) look like a bunch of (sorry!) fools.
Technology and finance are so far ahead of their capabilities, that they are floundering at this point. If they had half an ounce of self-esteem, they would simply shut shop and go away quietly.
I hate to say this, but perhaps the Republicans do have a point about the level of incompetence in our government.
Technology and finance are so far ahead of their capabilities, that they are floundering at this point. If they had half an ounce of self-esteem, they would simply shut shop and go away quietly.
I hate to say this, but perhaps the Republicans do have a point about the level of incompetence in our government.
2
Asking for a moratorium an automated trading is no different from telling doctors they can't use computers because of the potential for error, and just as nearsighted.
1
There are many unanswered questions. This guy was spoofing for years, so how can it be said that his actions caused the Dow to drop 1000 points on one particular day, while nothing happened on all the other days he was doing it? Furthermore, why should the markets be so weak that the actions of one individual, however high his volume, would allow the whole thing to collapse?
22
Enough with computer trading and automatic trading. There should be a worldwide moratorium on it.
There is no necessity for either and the risks of having them are too high
There is no necessity for either and the risks of having them are too high
21
The problem is not computer trading and automatic trading in itself, but the way it is implemented. There is a kind of impedance mismatch between the high-frequency finance world and the low-frequency retiree world. A solution could be to make a rule to smear out large transactions over time, by using computer methods. More computer methods are needed, not less.
On the other hand, most wealth has already ended up in a few hands anyway, so it would not make much difference any more.
On the other hand, most wealth has already ended up in a few hands anyway, so it would not make much difference any more.
It is amazing that such a small fish can really cause the flash crash. Seems like the Government is desperate for a fall guy and found one in someone not well-connected, not part of a big bank and not having a high-priced Lawyer. Regulators, Bankers and Politicians are all falling in line with what the Lobbyist wants, and the naive voter still believes they have the power. Your rights have been gerrymandered away.
7
Not well-connected? This guy made bail at $7.5 million. Spoofing must be quite profitable, as well as illegal - or he has some very good connection, family included.
5
There has been no claim that this small fish alone caused the flash crash.
ok, lets blame the entire flash crash on one person. Does anybody see something wrong with this picture? Personally, I would like to blame the 2008 crisis on this person also.
48
Just wondering if you read the story. It was 2010.
1
And Republicans want to privatize social security. This is really disturbing news, but any financial enterprise is subject to corruption. We're all worried about China's attacks of the Internet (whom we well compensate to do so) but attacks on the financial markets occur as well.
It looks like we are dependent on statistical analyses of market behavior to identify malfeasance. Sometimes the perpetrators of the crash get away with it. Few, if any, of the perpetrators of the 2008 crash have been prosecuted. We've rewarded them. Sarao's problem was that he was too small, so they got him.
It looks like we are dependent on statistical analyses of market behavior to identify malfeasance. Sometimes the perpetrators of the crash get away with it. Few, if any, of the perpetrators of the 2008 crash have been prosecuted. We've rewarded them. Sarao's problem was that he was too small, so they got him.
38
Chasing little guy fringe players like Sarao gives the impression that UK & US authorities are cracking down on banksters, when in fact they're not touching the most important swindlers, only making the banksters' shareholders pay fines in some, not all, cases. Obama & Holder have made it clear from the start they wouldn't go after the too big to jail/break up. What about HRC, where does she stand? We know what Elizabeth Warren would do, she'd go after them. But HRC & her proxies keep it very vague indeed.
68
Outright fraud and criminality is often difficult to prove, and I don't think this story of "Obama's been easy on Wall Street" is entirely, or even mostly true. Many people have gone to jail, and while some view them as nothing more than fall-people, that's not always true. There is a big difference between a shoddy or morally questionable practice and an illegal one. Which is why the reforms are necessary, are working reasonably well, and why it is important to prevent the Republicans from winning in 2016; whereafter they will almost certainly commence dismantling Dodd-Frank and replacing it with either 1) nothing or 2) something more appealing to their paymasters.
Moral hazard is indeed a worry, but throwing every banker in jail for engaging in something that all their competitors were doing is not feasible or sensible. And despite the fact that it's been lampooned by everyone and their grandmas, Wall Street really has an important role to play. The imperative is to set the boundary conditions and enforce the rules so that it will, and to be eternally vigilant.
Moral hazard is indeed a worry, but throwing every banker in jail for engaging in something that all their competitors were doing is not feasible or sensible. And despite the fact that it's been lampooned by everyone and their grandmas, Wall Street really has an important role to play. The imperative is to set the boundary conditions and enforce the rules so that it will, and to be eternally vigilant.
6
I don't think this story of "Obama's been easy on Wall Street" is entirely, or even mostly true.
Where have YOU been?
http://www.politico.com/story/2014/10/elizabeth-warren-obama-wall-street...
Where have YOU been?
http://www.politico.com/story/2014/10/elizabeth-warren-obama-wall-street...
1
Most people in this country either aren't invested in the market at all or are invested through retirement, mutual and other third party managed funds so they have little knowledge of the day to lurches in the US and international markets. If they knew more, citizens would demand that high frequency trading be outlawed. It is dangerous, easily manipulated and in too many cases just plain criminal.
68
Options trading will destroy the world! Gambling on steroids
2
Why would they care? These daily fluctuations, as you yourself say, have little impact on long-term prices. If some guy can make a 1/10 of a cent a share on a trade, it won't prevent your stock from going from 30 to 80 in five years.
2
Jonathan, I surmise you are a trader - yes, the long term prices change little, but the minute-by-minute fluctuations make some people very rich - you, perhaps? That money doesn't some from thin air.
12
Layering and spoofing have been going on ever since the exchanges were up and running. It used to be done in the physical pits and now it is done online. The CME could not care less about the layering and spoofing - but they do care about their large HFT clients and their fat commisions.