High Frequency Trading Gets Villainized (Again) and US Markets Spin Wildly Out of Control
The robots are getting shit again, this time because (allegedly) some Citigroup trader fucked up and put billion instead of million, sending the entire US market into a tailspin. If you believe that, I have a bridge to sell you.
Anyway, it's not the humans' fault (as usual) but robots that are to blame. Really it's the evil ass system that allows for these pricks to play video games with fake money all day without any capital behind it, not necessarily the high-frequency trading itself, that is to blame. But let's blame it anyway, shall we?
Blankfein: High-Freq Trading Important Liquidity Generator (Barron's):
CNBC’s David Faber was hanging out this morning with Goldman Sachs (GS) at the firm’s annual shareholder meeting, and caught up with CEO Lloyd Blankfein for a one on one.
After going through the routine questions about the SEC suit and the firm’s defense — they’re always having meetings, so nothing to say about whether there’s a settlement, or whether they’ll eventually settle before anything goes to court — Faber turned to “high-frequency trading,” the focus of the day after yesterday’s market implosion.
Faber asked his theory on what happened, but Blankfein protested he’s been tied up with the shareholder meeting. “I’ve been presented with lots of theories. Because I can’t tell you, doesn’t mean people don’t know what was going on.”
What about high-frequency trading, asked Faber.
Blankfein, declining to comment on speculation high-frequency trading was at the heart of the collapse, “I think that business in and of itself is a good business for Goldman Sachs, and it’s an important liquidity generator for the market. I have no opinion, because I haven’t heard any connection made to the …” and then he trailed off as Faber moved to the next question.
What Blankfein is essentially saying: high-frequency trading is important for making up money that doesn't exist to fund more speculation. How dare we try and interfere in that delicious process? The nerve of some people.
NYT's DealBook offers a little insight on yesterday's trading clusterfuck (call me crazy but I don't see "Lord Blankfein's Magical Quants and Their Evil HFT Machinetoys" listed among "causes"):
After great pain, the formal statements come. Regulators, stock exchanges, banks and senators rushed to address the causes and possible solutions of Thursday’s show-stopping market volatility in the wake of a 1,000-point drop and rapid, partial rebound.
The Securities and Exchange Commission and its sister agency the Commodity Futures Trading Commission said in a joint statement that they were working with exchanges to protect investors and looking into “the unusual trading activity,” which one source told The New York Times had started in Chicago.
The Chicago Mercantile Exchange, for its part, went against its own policy not to comment on rumors, and issued a statement saying “activity by Citigroup Global Markets Inc. in CME Group stock index futures markets does not appear to be irregular or unusual in light of market activity.”
The exchange’s statement matched Citigroup’s denial, as unconfirmed reports were circulated of an error by a Citi trader, and as markets more generally sought to pin the blame for the brief and death-defying dives of certain shares on Thursday afternoon.
Nevertheless, one or more mistakes may have been at the source of the sudden sell-off. Rich Adamonis, a spokesman for NYSE Euronext, said “there were a number of erroneous trades,” according to Bloomberg News. “Our guys just told me Nasdaq is investigating the erroneous trades. What happened today in P&G for instance, the bad print was on Nasdaq, not here,” he said, referring to Procter & Gamble, whose stocks were among those hit.
The Nasdaq said in a statement that there had been “no technology or system issues associated with the trading that occurred between 2:00 and 3:00 p.m.” and that there was “no indication at this time that a Nasdaq market participant experienced a technological failure.”
Here's a really bizarre suggestion: maybe that was the market trying to squeeze out the poison? Hahahaha yeah right, no no, it was some dude from Citigroup who fucked up a single trade, yeah, mmm hmm, got it.
The reality is this: it is our goal to seduce investors to our markets, our companies, our infrastructure, our way of life. We're scaring the shit out of investors. The only ones we have are TBTF banks who are loving this idea of free Dirty Fed money to stuff into mind-baffingly still-safe US Treasurys, it's not like anyone believes our financial statements anymore. Mark-to-Disneyland pretty much assured this, and now we're groveling to the IASB hoping paying for a US influence on global accounting standards will somehow legitimize the joke our markets have become.
Yesterday only proves that the gears are falling off, the curtain is pulled back, and the weaknesses have long been exposed in US markets. We do not have control anymore. That is not Greece's fault, nor is it an HFT problem. HFT should have been addressed quite some time ago, that the SEC has no understanding of how it works proves the point that we are not in control of our own markets.
By the way, while there is a laundry list of stocks affected by yesterday's freak out, Overstock was not among them and maintained a nice fuzzy $21.60 through the market melee. We'll get into them later.