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Manipulation by high-speed rogue traders may have been behind the May 6 flash crash, a...

  • Monday, August 30, 2010, 5:45 PM ET
    Manipulation by high-speed rogue traders may have been behind the May 6 flash crash, a stock-quote programmer alleges, and he doesn't stop there - those traders deliberately slow the market's consolidated tape every trading day, he says, to create fleeting price mismatches and profit from the differences.
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This news story has 29 comments:

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    No, say it aint so. You mean to tell me that HFT rig the market and pocket the difference??? Why, that should be illegal... Wait we are talking about wall street, right? Illegal only counts if you can prove it in a court of law. And then they will admit no wrong doing and then pay a fine that is 1/100000 what they have made from performing the illegal activity.
    30 Aug 2010, 05:55 PM Reply Like
  •  
    so the old adages are true

    "It aint what you know but who you know"
    &
    "Crime pays"
    Oh and there is a third one, concerning why so many allow it to go on

    "You dont shit where you eat"
    30 Aug 2010, 06:35 PM Reply Like
  •  
    The computer did it, sir...
    30 Aug 2010, 10:56 PM Reply Like
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    Big surprise..the system is rotten down to its very core. The exchanges in their rush to become public companies and maximize revenues (to maximize share price and bonus pools), made a deal with the devil and have actually designed their systems to the flash traders specs. This 'controlled chaos' normally allows the flash traders to profit while not being noticed by the average investor (with the exception of enhanced market volatility) but for these cretins it's not enough...they have to rig the game so far in their favor that straight shooting investors lose it all. Shame on all of these gentleman. Here is a clear case where intervention is required by a public advocate...and we need it soon. If confidence is not restored quickly we are in for a long winter's night.
    30 Aug 2010, 05:56 PM Reply Like
  •  
    Delayed reporting, out of sequence trades, volume, price reporting and other shenanigans have been going on for years now and it has never been limited to the HFT crowd.
    The exchanges are where the blame goes.
    30 Aug 2010, 06:01 PM Reply Like
  •  
    Don't forget quote stuffing after hours, as laid out perfectly, and beautifully, by Nanex.. Way 2 go Nanex..
    30 Aug 2010, 09:22 PM Reply Like
  •  
    If someone wants to make a case for manipulation, simply watch an overall market chart for a few months. Take note of the following: one, the number of days that start with a great deal of selling early in the morning that stops about 8:45 EST and then rebounds to nearly where the market opened. Then, the market usually remains fairly flat until 1:30 or 2 EST and then it either rockets upward or drops. Or, two, there is a big spike in the morning and then trading remains fairly flat for the rest of the day.

    I am not heavy chart watcher but I have just noticed these trends developing since the crash of 2008. Perhaps I am making a mountain out of a molehill but it does appear odd to me.

    I guess one of the HFT must have installed an upgrade that screwed up the system on May 6th. Oops...their bad.
    30 Aug 2010, 06:35 PM Reply Like
  •  
    Re: "...Then, the market usually remains fairly flat until 1:30 or 2 EST..", it could be my imagination, but I also happened to observe that the market is usually in a bit of a daily douldrum during the lunch time hours from 1200 to 1315. Traders go out to lunch. So if you are bottom fishing a particular stock, you might want to catch it during this period.
    30 Aug 2010, 10:08 PM Reply Like
  •  
    I call them Dr Zeus days. Pop-en-dropalous and the reverse Drop-en-popalous. Then there is the 3 to 4pm express elevator. Somedays it goes up and some days it goes down. Basically all the little retail investor is left with is the crumbs......
    30 Aug 2010, 07:32 PM Reply Like
  •  
    I think that a minimum holding period of 1 second should handle a lot of the problems in this area.
    30 Aug 2010, 08:07 PM Reply Like
  •  
    How about a minute?

    Or maybe even a day?

    I would say as high as a whole quarter, but that would take us far too close to actual investing and not gambling -- can't have that, can we?
    30 Aug 2010, 08:16 PM Reply Like
  •  
    The computers can't handle the trade imbalances and this should be banned until it can be.

    Also the buy and hold retail bag holders aren't coming back after all the games they played. They've ruined the market.
    30 Aug 2010, 08:22 PM Reply Like
  •  
    I withdrew all my money from this market a year ago. I won't be back. Bonds and forex are much more rational
    30 Aug 2010, 08:40 PM Reply Like
  •  
    C'mon.... didn't you see the "lead" to this story months ago when it was revealed that G/S had a plug into the line on which every trade is communicated prior to the official execution site, thereby giving them nanoseconds worth of "advance" notice?

    If G/S has this, one might ask if they are the "rogue" traders.

    If not, there is another leak between the traders and the execution point?

    How many rogues do we need to spoil the barrel that is already filled with bruises from being pushed around, hither, thither, and yon?
    30 Aug 2010, 08:50 PM Reply Like
  •  
    It's not just Goldman...it is every major bank, investment bank and brokerage. They all have these connections to the exchanges. Another great bastion of free market capitalism ruined by a bunch of greedy scumbags where being a billionaire is simply not enough...they want to be own your house, your car, and your future.
    30 Aug 2010, 10:42 PM Reply Like
  •  
    Oh, and remember in the story it was a "may be behind...."

    Lots of certainty, there. We're supposed to go off chasing our tails, again?
    30 Aug 2010, 08:52 PM Reply Like
  •  
    What is the effect on an investor who buys and sells infrequently? He/she may lose something in the execution of the purchase or sale, but if this takes place no more than quarterly, is it likely to have a material effect on investment performance.

    While having illegally manipulated markets is criminal, and should be treated as such, as a practical matter does this affect investors who are not trying to out-trade the brokerage houses on a day to day basis?
    30 Aug 2010, 09:10 PM Reply Like
  •  
    whoever THEY are... we retailers are gamed... look at the large spikes on the intraday quote charts that usually goes away within a few minutes... or those executed trades I get back daily as they are listed as 32.2299 (rounded up as 32.23) or 16.0399 (RU as 16.04) for example, of course THEY pocket the small difference like the banks that round off the 1/100 which makes no difference to the individual retail customer but it's still robbery when it involves millions of transactions.
    30 Aug 2010, 09:19 PM Reply Like
  •  
    Giant skimming operation, aided, abetted and encouraged by the SEC who defends their "constituents", the various exchanges, HFT trading operations, Goldman etc. Anyone except the individual investor who doesn't generate enough volume for the SEC to be concerned.
    30 Aug 2010, 09:33 PM Reply Like
  •  
    What I want to know is why TYP, the 3x Tech Bear ETF printed .15 on May 6th, down from the $8 I paid for it that day when it should have been a moonshot. I believe QID also saw similar action.

    It's little wonder why the average retail investor is saying "screw the markets, I want return OF capital over return ON capital" and running to bonds, cash, and gold.

    The fact that 70-80% of all trading volume is "black boxes" trading with one another is indicative that on that fact alone the equity markets are overvalued.

    HFT needs to be heavily regulated, especially with regard to how they send fraudulent orders never intending to have them filled.

    And while they're at it, they need to outlaw (or refuse to provide legal cover for) naked CDS transactions. If you don't have an interest in the underlying asset, you shouldn't be able to bet on it's default.

    That's so blatantly, and obviously, simple that the British learned that lesson in 1746 when they passed the Maritime Insurance Act that prohibited naked insurance contracts on maritime shipping.

    Until these two factors are resolved/eliminated, I doubt I'll ever again find myself becoming a long-term investor. I'll stick to day-trading so I can sleep at night.

    Scrutinizer
    30 Aug 2010, 10:12 PM Reply Like
  •  
    On the subject of naked CDS', you are absolutely correct. In essence these are illegal insurance contracts. You have to have an insurable interest for example to purchase any insurance contract on a house or someone's life...why ? Because if you did not...it would give any unscrupulous scoundrel a reason to bump you off or burn down your house. AG Cuomo was going to go after these as illegal insurance contracts but got cold feet once he realized his running for governor money would be cut off from his Wall Street buddies if he did...end of story. These things will once again bring the capital markets down...within the next 3 to 5 years IMHO.
    30 Aug 2010, 10:38 PM Reply Like
  •  
    Someone wake up the SEC ... or at this point, maybe an SOG unit.
    30 Aug 2010, 10:14 PM Reply Like
  •  
    Its time to end the Dungeons and Dragons crowd's effect on the markets with their Atari geek squad software.

    This rerun of Revenge of the Nerds is getting old. Time to smash their IPad on the ground and piss on the circuits.
    30 Aug 2010, 10:23 PM Reply Like
  •  
    Well, well well...been saying this for a long time....to many ill replies of "conspiracy theorist" mind you.
    30 Aug 2010, 10:55 PM Reply Like
  •  
    MarketGuy, when it comes to computers, I assume programming error rather than conspiracy every time.
    30 Aug 2010, 11:32 PM Reply Like
  •  
    Angel,

    I'm a firm believer a computer is only as good/smart as it's programmer. To that, you make a great point (thumbs up click). However, in this case, the computer (aka-HFT) is functioning fine as an evil, corrupt, capital sucking greed box...like its programmers.
    30 Aug 2010, 11:39 PM Reply Like
  •  
    the 'fault' clearly is with the exchanges. i will bet within a year or two, there will be some actually advertising they DON'T all ow HFT, and the gov't will force them to advertise how much activity and payments go to thee entities. once the gov't goofs figure out mom and pop have left the rip off casino, they'll force those skmbg azzholes who run the TSX et al to put in print how it actually runs. once that happens , the jigs up.
    31 Aug 2010, 01:02 AM Reply Like
  •  
    I think a big reason that the government can't/won't crack down on HFT is that they're afraid that people that trade in milliseconds won't trade in seconds so volume will plummet and so may the prices.

    As was mentioned earlier, HFT dominates the volume but they've also scared out a lot of retail investors which gives them more power.
    31 Aug 2010, 07:08 PM Reply Like
  •  
    Hold on a sec - hasn't one of the hallmarks of the last 18 months been strangely low volumes for the amount of movement we've seen? Particularly, strange days when the market went in reverse of what the current news would have expected.

    If so, that means according to your reasoning that this phenomenon is wielding highly disproportional power to swing the market - meaning that the market is functioning for the profits of the few irrespective of the natural market flow that may be normally contributed by the many, so to speak.

    Someone noted a while ago that the market movements often "smell" and another asked the question about the government running the market trends...

    Put that all together.... and one has to ask who is controlling the market.
    31 Aug 2010, 08:39 PM Reply Like
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