Goldman's Programmed Trading Is Back with a Vengeance

Just released NYSE data indicate a 50% ramp up by Goldman's principal Program Trading unit. Whereas the prior week saw Goldman trading only 631 million principal shares on the NYSE, the most recent data indicate a massive rise to 977.8 million. Also notable is Credit Suisse's doubling in principal program trades to 586 million from 245 million. Zero Hedge is compiling materials to demonstrate the phenomenal gamble CS is taking by being the largest holder of the ETF-underlying pair trade. The ensuing implosion, once the market loses the invisible futures bid, will likely destroy Switzerland's second biggest bank and likely take down the country with it.

Probably most notable is the screaming increase in overall program trading, from 30.7% of all NYSE volume to 40.4%! Virtually every broker saw their Principal PT operations double week over week: seems like everyone is brokering those ETF trades now. Poor SPY and IWM are being mangled 10 ways from Sunday nowadays.



Source: NYSE (Click chart to enlarge)

Comments

[F. Bradeen:]

This is what our TARP (taxpayer dollars) is for!!??

Jun 26 02:24 PM

[Roger Knights:]

"Probably most notable is the screaming increase in overall program trading, from 30.7% of all NYSE volume to 40.4%!"

That's a rare exclamation mark from the author. But rightly so, given how far out on a limb these traders are going--and creating systemic risk thereby.

(But what's their alternative, assuming they're doing the gov'ts' bidding? If the market goes down and pension funds' coffers need to be topped up, everything could unwind with a SROING!)

Jun 26 02:38 PM

[MKW:]

Interesting the end-of-day stick-save attempt failed this afternoon. I'm not quite sure what to make of that.

Jun 26 05:21 PM

[Rollerball:]

Gives credence to the saying that if you keep jerking off you'll go blind. Sooner or later, that spooze sticks and you're buried. BTW, who turned off the lights! Where'd the circle-jerk go? Someone dig (bail) me outta here!

Jun 26 07:07 PM

[Longinvestor:]

Market going on summer vacation? This week volume: 2,854.8. Last week volume: 4,849.5. That's a 41% drop in volume.

Jun 27 09:13 AM

[john s. gordon:]

yes it's perversion of the intent of our TARP taxpayer dollars.
as the vacationers do their vacationing, all trading volume will be computer programs.
> jack

Jun 27 09:51 AM

[H. T. Love:]

Being new at this, I noted the volume drop and thought maybe that facilitated "window dressing" with end-of-qtr coming. I was *guessing* this thought was supported by seeing this across several stocks I track and they all had almost identical chart/stoch/MACD/... patterns.

Anybody?

HardToLove


On Jun 27 09:13 AM Longinvestor wrote:

> Market going on summer vacation? This week volume: 2,854.8. Last
> week volume: 4,849.5. That's a 41% drop in volume.

Jun 27 10:38 AM

[dcb:]

amazing what you can do when you manipulate the markets:

U.S. commercial banks see record Q1 trading revenue
Fri Jun 26, 2009 9:46pm EDT

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NEW YORK (Reuters) - U.S. commercial banks reported record trading revenue in the first quarter of 2009, benefiting from wide trading margins and gains from interest rate products, the Office of the Comptroller of the Currency said on Friday.

Banks generated a record $9.8 billion in revenue from trading derivatives and cash instruments, compared with a loss of $9.2 billion in the fourth quarter of 2008, the OCC said.

Interest rate products, including derivatives, generated the strongest revenue, rising to a record $9.1 billion, compared with a $3.4 billion loss in the previous quarter, the OCC said. Credit trading was the only asset class to generate a loss, of $3.2 billion, trimmed from a fourth-quarter loss of $8.9 billion.

Foreign exchange revenue fell to $2.4 billion from $4.1 billion in the fourth quarter, while equity trading generated $1 billion in trading revenue compared to a fourth quarter loss of $1.2 billion, the OCC said.

Trading revenue were boosted as banks wrote down fewer losses from bad loans and recorded the declining value of their debt as a liability. Banks can book the deteriorating value of their own debt as trading revenue.

"While trading performance was strong even without the liability value changes, this source did add materially to first quarter trading performance," the OCC said.

Notional volumes in all derivatives markets increased by $1.6 trillion in the quarter to $202 trillion, as more derivative contracts were recorded by commercial banks that had formerly been investment banks.

The notional volume does not represent the actual amount of risk as it includes a number of trades that offset each other. Eighty-nine percent of derivatives exposures at commercial banks were eradicated from netting positions in the first quarter, the OCC said.

LARGEST BANKS

JPMorgan Chase & Co(JPM.N), Goldman Sachs Group Inc (GS.N), Bank of America Corp (BAC.N), Citigroup (C.N) and HSBC Bank USA, part of HSBC Holdings (HSBA.L), have the largest derivatives exposures of U.S. commercial banks and account for 96 percent of total exposures, the OCC said.

As of March 31, their notional derivative exposures stood at $81.2 trillion, $39.9 trillion, $38.9 trillion, $29.6 trillion and $3.5 trillion, respectively.

Of these banks, Goldman had by far the largest credit exposure relative to its risk-based capital, at 1,048 percent, the OCC said. HSBC, JPMorgan, Citibank and Bank of America's ratios stood at 475 percent, 323 percent, 216 percent and 169 percent, respectively.

Goldman also got the largest overall boost from derivatives and cash trading revenue, which represented 69 percent of the bank's gross revenue in the quarter, the OCC said.

Trading revenue for JPMorgan represented 13 percent of its gross revenue and contributed 8 percent of both Citigroup and Bank of America's gross revenues. HSBC Bank USA's gross revenue lost 4 percent from trading revenue.

JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley (MS.N) and Citigroup had the largest derivative exposures of all holding companies, at $81.1 trillion, $77.9 trillion, $47.7 trillion, $39.1 trillion and $31.7 trillion, respectively.

(Reporting by Karen Brettell; Editing by Padraic Cassidy)

Jun 27 11:27 AM

[dragonpaw:]

Good to know that on Wall Street it's 'back to business as usual'.
Hope all the day-traders are quick at the keyboard or have your stop-loss orders set pretty tight.
Reminds me much of all the 'index-arbitrage' trading in Oct. of '87.
The 'recovery' this time won't be so easy.
Stand by; the roulette wheel is spinning!

Jun 27 01:02 PM

[dcb:]

I thought some of you may find this funny. Today Joe Nocera of the VY times published and article about small fries who got prosecuted by the SEC for painting the tape. Yet on a regular basis we see the big guys doing it day in and day out with no action being taken. I sent him this letter

Dear Mr. Nocera,
your article would have had a much greater degree of relevance if you had decided to include the recent trading activity by the major wall street banks that are doing the exact thing almost each and every day for which those in your article were accused of and brought to trial by the SEC for. This is the real story right now, and why nothing is being done, and the fact that the SEC is aware

I will provide you with a few links, but would suggest searching tyler durden, david fry, and philip davis on the site seeking alpha. I can assure you I have written the SEC, gotten no reply, and it appears no action is taken against the bigger players just like the Madoff case.

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/news/...

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/artic...

seekingalpha.com/artic...

What a joke the media in this country has become!!!!

Jun 27 01:58 PM

[SeekingTruth:]

This article and it's comments reveal how investing in stock markets today is the equivalent of swimming with the sharks.
If you don't happen to be a shark, things can get more than a little risky.

Causing rallies and selloffs in the current environment is no big deal to the the investment houses and their fellow client instututional manipulators, they just have to get in phase with natural forces like giving a toboggan team the initial push and nature takes care of the rest for them. Rigged?
That is not the word for it, but it comes awfully close, and more than close enough.

When fundamentals don't matter anymore, investing is reduced to nothing more than a chip placed in a grand casino, and not an investment in the legitimate future growth of a well selected firm i.e. pure crap for everyone except the insiders and manipulators : future crashes and excessive unjustified rallies guaranteed, and the majority of small investors , by definition, will be on the wrong side, guaranteed , that's why they are so profitable to the big houses - heads I win , tails you lose, what could be better for them?.

Jun 27 04:28 PM

[Northstar10000:]

So you all think the market is going on a summer vacation. You mean like buyers strike followed by a fire sale. We are heading south second week of July thru Sept.

Jun 27 05:13 PM

[CLH:]

Good for you Goldman. Shove the TARP up Washingtons hinder.

Jun 27 05:46 PM

[dcb:]

Good work as usual tyler!!!

The market manipulation is just another backdoor subsidy to the zombie wall street banks, along with the fed and treasury programs, in order to avoid the dreaded "nationalization" word. The never ending subsidy that destroys the dollar, screws the tax payer, and cost trillions all in order to keep allowing the bankers go get their bonus money.

This way congress has to make no tough choices and the campaign coffers remain filled with our stolen money. great system we live in.

At least they know enough to take to the street in Iran when an election is stolen from them. what do we do when the person we elected (Obama) steals the election from those who voted for him in the first place!!!!! We the american people take it up the ass like the good sheep we are

Jun 27 07:39 PM

[Kid Dynamite:]

hey Tyler -

i wrote a post explaining why the ETF-Underlying trade doesn't have the risk you seem to think it does:

seekingalpha.com/artic...

Jun 28 10:14 AM

[bravesfan1:]

First of all, it's russell rebalance week, thus the increase in program trading volumes. By "invisible" futures bid, which you argue willl disappear, are you referring to the most liquid equity index futures in the world, S&P and Russell? Those are going to disappear? Really? Good humorous article if this was a complete joke.

Jun 29 07:03 AM

[johnbee:]

what do you want the market to do- have no support? it takes confidence rebuilding and money supply to make any market go up,
and it most definitely in the interest of the government and banksand the public for it to do so.
looks like everyone who reads your columns are irritated by manipulation that's not as they like it and wants to short the market once and for all which see only disaster for the next ten years.
If so you'd all better get it the timing right or you'll end with no market to play.

Jun 29 07:12 AM

[LoveShorting:]

johnbee - - are you kidding? we may be traders but we are also human and we care about ETHICS and FAIRNESS, don't you?
Even if you don't give a damn about ethics, how about simple self interest - - if the support is a sham, it only delays the inevitable fall.

Jun 29 10:00 AM