Here Is The City reports that a trader has been charged with fraud and market manipulation related to the Flash Crash of May 2010.
This story has been featured heavily in the press, particularly because the trader himself is so different to the usual trader stereotype (he lives in a pretty ordinary semi-detached house despite being worth £millions). He also protests his innocence and believes he was just good at his job.
I wonder if this guy will be the next subject of a block-buster Michael Lewis book?
HereIsTheCity reports that the mystery behind a Twitter account posting comments heard in elevators at Goldman Sachs has been resolved.
He said he deliberately never said in any of his tweets that he worked for the firm. “This was never about me as a person,” he said. “It wasn’t about a firm. The stories aren’t Goldman Sachs in particular. It was about the culture in general.”
Here are some example tweets from @GSElevator:
#1: I just want to be rich enough to not be motivated by money.
If someone asks you a question and you don’t know the answer, belittle them. It’s better to be an asshole than stupid.
If there’s a hot chick behind me at the ATM, I’ll always leave my receipt in the machine so she can see my balance.
Bloomberg reports that Goldman Sachs is the latest firm to suffer from a programming error in their automated trading software:
An internal system that Goldman Sachs uses to help prepare to meet market demand for equity options inadvertently produced orders with inaccurate price limits and sent them to exchanges
Participants in trades caused by error can appeal, and exchanges are reviewing and busting trades. It seems a large number of trades occurred because quotes entered the market at a price of $1:
Of the 500 biggest options trades in the first 15 minutes markets were open today, 405 of them were for tickers starting with H through L and priced at $1, according to data compiled by Trade Alert LLC and Bloomberg
Finextra reports that regulators have begun to crack down on HFT firms that employ algorithms to submit fake orders to manipulate the market.
Regulators on both sides of the Atlantic have levelled their first fines against high frequency traders who deployed computer algorithms to spoof the markets by placing and immediately cancelling bids and offers in futures contracts.
David Meister, the CFTC’s enforcement director, says: “While forms of algorithmic trading are of course lawful, using a computer program that is written to spoof the market is illegal and will not be tolerated. We will use the Dodd Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms.”
BusinessWeek published this article by Mathew Philips on high frequency trading.
He relates the rise of several HFT firms:
By 2010, HFT accounted for more than 60 percent of all U.S. equity volume and seemed positioned to swallow the rest.
Now, he predicts the end is nigh:
For the first time since its inception, high-frequency trading, the bogey machine of the markets, is in retreat.
Speed traders aren’t just trading fewer shares, they’re making less money on each trade. Average profits have fallen from about a tenth of a penny per share to a twentieth of a penny.
This could be due to increased competition and higher fees for co-location. Now there’s extra regulation:
Last fall the SEC said it would pay Tradeworx, a high-frequency trading firm, $2.5 million to use its data collection system as the basic platform for a new surveillance operation. Code-named Midas (Market Information Data Analytics System), it scours the market for data from all 13 public exchanges.
TheTradeNews.com reports that buy-side firms are turning to equity derivatives, a trend that is likely to grow when the Financial Transaction Tax is in place:
Craft believes institutional investors are increasingly looking to trade CFDs, which offer the same benefits of holding equities, without the need to own them.
Under FTT, derivatives attract a lower tax levy:
Craft said the swap portfolio rules under EMIR and the current outline of the European FTT meant CFDs would offer asset managers tax efficiencies for trading the synthetic rather than the stock.
TheTradeNews.com reports that Morgan Stanley’s HFT software re-write is promising:
“This is the first time we’ve done a full re-write of our equity trading infrastructure – it’s brand new software running on brand new hardware, and we’ve specifically brought in expertise from low latency trading firms to achieve this”
TheTradeNew.com reports on a mini-crash last month:
Shortly after 1pm on Tuesday 23 April, a tweet from the verified Twitter account of US newswire Associated Press stated explosions at the White House had injured President Obama. Within minutes, the markets had bottomed out, with the Dow Jones Industrial Average sliding 145 points, or 1%, before rebalancing pre-drop, four minutes later.
These days, even Tweets and blog posts may be polled for market sensitive content in order to inform trading strategies:
Automated news reading services scan web-based news sources and social media for breaking news relevant to markets and specific securities. This can be fed via an application program interface (API), to a trading algorithm, which may act as a circuit breaker to stop trading or accelerate participation in a certain stock depending on the news.
TheTradeNews.com reports on a mini-crash last week:
On Friday, the price of Anadarko Petroleum Corporation – which has a market capitalisation of US$45 billion – slid from US$90 to a single penny in the space of seconds, before returning to its pre-drop level.
HFT Review posted this interview with John Lowery, who it seems was there right at the start of electronic trading.
we were probably the first ever firm to offer co-location, high speed market data and a high speed transport system. I remember it was a great day when we first broke the one second barrier for an execution, we did 900 milliseconds and thought that was amazing! We were certainly way faster than anybody else on the street at that point; most firms were taking 10-15 seconds.