Nanex: The Market Is Rigged, With Details

"A rogue does not laugh in the same way that an honest man does; a hypocrite does not shed the tears of a man of good faith. All falsehood is a mask; and however well made the mask may be, with a little attention we may always succeed in distinguishing it from the true face."

Alexandre Dumas

The market is rigged.  Oh no, this could not possibly be correct, say the trolls, shills, revolving door careerists, media carnival barkers, and conmen's assistants. They simply do not understand it!

The analysis from Nanex, rich in details, does not only apply to very large orders in excess of 10,000 shares.  I have seen the same type of activity in smaller markets with orders of only a few thousand shares.  Anyone who has Level 2 access can observe it if they look closely enough, and have the will to look with their eyes and see.

These pampered princes of Wall Street are steadily degrading the markets, and distorting and taxing the real economy with their bias to speculative grifting rather than facilitating productive investment.

I do not agree that a 'free for all market' would be better than this.  Some of these schemes are as basically corrupt as a West Coast gangster's attempt to control all the horse racing wire services information for his own benefit.  And you don't fix corruption by firing all the police and prosecutors.

There are a few things that would go a long way to fixing this.  Fairness is not so terribly hard to establish if you do not wish to twist it with the faux complexity of a confidence racket that advantages some because.

I suspect that nothing will work until we root the big money out of politics.  Its corrupting influence touches everything and is corrosive to the common good, giving scandal to all by its shameful example. 

In some sense, this would be turning the markets back to what they were before they became utter casinos dominated by big players unleashed by the repeal of Glass-Steagall and the divestment of sound regulation in the name of a utopian market ideology that serves to promote a new level of systemic criminality.

This is analysis and conclusion below is from NANEX.

"...All this evidence points to one inescapable conclusion:

The order cancellations and trade executions just before, and during the trader's order were not a coincidence. This is premeditated, programmed theft, plain and simple.

Michael Lewis probably said it best when he told 60 minutes that the stock market is rigged.

To the High Frequency Traders (HFT) that make fantastic claims about providing liquidity, perhaps one should ask: "what kind of liquidity"? To the now obvious, ludicrous claim that "everyone's order uses the same tools that HFT uses", we'll just say, the data shows otherwise. To Mary Jo White and other officials who claim the market isn't rigged and that regulators need to look at the data before making any decisions: well, you made it this far - if things aren't clear, re-read this expose (or the nearly 3000 others pages we've published), or simply call us and we'll explain it to you. Or dust off Midas and lets us show you how to work with market data.

One more note to the SEC in particular - if you believe that the industry can fix these problems on their own, then we believe you are no longer fit to regulate, because that is not, and never was, how Wall Street works. Honestly, a free for all, no–holds–barred environment would be better than the current system of complicated rules which are partially enforced, but only against some participants. And make no mistake, what is shown above is as close to automatic pilfering as one can get. It probably results in a few firms showing spectacularly perfect trading records; it definitely results in people believing the market is unfair and corrupt.

And to CNBC and other financial media companies who say these problems have all been fixed - we think you might have been lied to. Probably by the ones doing the market rigging. A certain HFT lobbyist group immediately comes to mind - the one that presents the same tired "liquidity, spreads, costs" argument, without data to back it up. This paper shows that the liquidity claim is clearly a lie.

Academics interested in continuing the study shown on this page - we believe we know how you can find and quantify these events. Serious inquiries only please.

Note that none of this would be possible if the direct feeds weren't illegally supplying HFT with faster information than the SIP.

And finally, to our regular readers: we are taking a break. Everyone has a limit to how much corruption they can witness and digest in a given period of time and we've simply reached our limit."

You may read the detailed examination and explanation of this from Nanex here.

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....

Read the entire piece with the details here.

The 'Stock Market Is Rigged' and an Epidemic of Fraud

You have probably heard by now that the popular US news magazine style program 60 Minutes carried a segment interviewing Michael Lewis about his new book last night. In it Lewis says that the 'US Stock Market is rigged,' referring to the front running of basic price data taking place with the cooperation of 'the exchanges, the banks, and the traders' in order to regularly cheat large institutional and fund investors on their stock transactions.

You may rightly say that this is nothing new. You have heard about this new type of organized and systemically arranged 'front running' here and other places on the web many times over the past five years. And there were people who had been interviewed, occasionally but not so much of late, on some of the financial news networks complaining about it.

This morning NY AG Eric Schneiderman was interviewed about the investigation he is conducting on Bloomberg TV. Schneiderman was quite politic, praising HFT itself as 'providing liquidity' and pointing to some of the trading firms grasping for milliseconds of advantage as some sort of misguided bad apples.

The lady anchor on the show who questioned him was quite adamant that is it the fault of the regulators for allowing it to happen. She likened these Wall Street traders to her children, who are constantly looking for ways to circumvent her rules, and the shame is on her when they succeed.

I don't think the anchor really understood what she was saying in that awful comparison. These are not children, in the morally formative stage of relative innocence. They are adults, with tremendous advantages and often in positions of power, who have often taken oaths and fiduciary responsibilities. And they too often violate them, and twist the laws to escape responsibility, shamelessly.

This is the unspoken entitlement of the privileged class, the price of their naturally beneficial role in society, that is, the entitlement of being above the law, because they are so special, and so legally advantaged and well connected.   This is the twisted reincarnation of class and racial arrogance,  the one percent's burden of bringing order and direction to its social and genetic inferiors.

Well, that is the moral hazard of excusing Wall Street's criminal thefts, of giving a slap on the wrist when they are caught lying, cheating and stealing, of believing canards like the exchanges are responsible and self-regulating, and ignoring the key role that they and the Banks play in enabling widespread fraud and financial plunder.

Why do people ever listen to those apologists for financial fraud, who dismiss all accusations of market manipulation as mere conspiracy talk? Yes they are skillful in creating doubt, and since all fraud is founded on the hiding and control of information, there is always room for doubt.

Perhaps the worst of this is that 60 Minutes and other are willfully ignoring the power of money in silencing regulators, cutting their budgets, and using political influence to kill their attempts at enforcing the law by corrupting the political process.

Complicating matter, the Federal Reserve has taken the policy of shoving manufactured liquidity into the system through these very Wall Street banks and their exchanges, who are taxing the stimulus like warlords who take Red Cross aid for themselves, allowing a trickle of them to go to the intended recipients. This 'trickle down' approach by the entitled is a sick joke, because it continues robbing the public to pamper the privileged few.

And anytime a whistleblower steps forward, they are smeared and charged with crimes. What a world we are giving to our children, who we apparently teach by our words and example that breaking the rules is a fine art, and that justice is a poorly defined and highly debatable abstract concept. And the truth is merely what we say it is, if we say it well enough, and have enough powerful people and credentialed experts to back us up. Whatever 'is' might mean.

And there are other frauds still going on, like the blatant manipulation of the futures markets with large scale buying and dumping of positions in quiet markets to shove the price around, with regulators turning a blind eye to it. As long as the exchanges, the biggest traders, and the politicians are getting their piece of the action, nothing will be done about it. But such actions have real world consequences.

Old story, always with a bad ending.