HFT in the Crosshairs
Doug Ashburn, John Lothian News
When Michael Lewis’ “Flash Boys” hit the bookshelves a couple weeks ago, it was as if a giant HFT target had been placed on the shooting range. Since then, the calls for HFT curbs, taxes, and other regulation have become increasingly shrill. While John Lothian News has been saying for years that the equity market structure is broken and in need of a fix, too much of the current narrative is based on misinformation and partial-truths, and its chief critics have consistently, if not willfully, misrepresented the facts.
A new round of shots was fired this weekend, this time at CME Group, by a trio of disgruntled traders who claim that the exchange is running an “unequal and two-tiered marketplace” and that high frequency traders are allowed to see orders before they are reflected in the market. The complaint is seeking class-action status.
CME Group’s Anita Liskey reminded that the exchange runs only one data feed with prices that all investors receive at the same time, and that “no trader can see any other person’s order until it hits the order book, when it is made public.” Here is CME Group’s full statement:
“The suit is devoid of any facts supporting the allegations and, even worse, demonstrates a fundamental misunderstanding of how our markets operate. It is sad when plaintiffs’ lawyers bring a suit based on a desire for publicity, and in the rush to file a suit fail to undertake even the most basic effort to determine if there is any basis for their allegations. The case is without merit, and we intend to defend ourselves vigorously.”
The plaintiffs are clearly striking while the iron is hot, regardless of the circumstances.
The remarkable thing here is how quickly people are willing to paint this issue with the same broad brush as that used to paint the equity market structure highlighted in “Flash Boys.” That issue centers around the ability of faster traders to race orders among the many exchanges and dark pools listing fungible products. It is about the relative speed of direct feeds versus the Securities Information Processor (SIP). Regardless of one’s opinion on such tactics (which represent only a small portion of HFT but that is a conversation for another day), the securities and futures markets are two separate animals. The exact same equities trade on 13 exchanges and dozens of dark pools. CME Group has one data feed for its products, and its products are not fungible with any other.
Today’s markets are complex. Admittedly, the structure is in need of improvement. But let us not forget that today’s structure is an amalgamation of rules put in place, in part, to address some of yesterday’s problems and alleged abuses. Now, as then, the goal is to achieve “fairness” – a term that is as hard to define as high frequency trading itself.
The last thing we need now is a hair-trigger mentality, whether it be from overzealous regulators, attorneys, traders left in the dust by technology, or a general public whipped into a frenzy by a media firestorm. Step one is to separate ideas and allegations without merit from those that require further study and dialogue.
If we shoot first and ask questions later, the first question may be “My God, what have we done?” And if the weapon of choice is an atomic bomb, we will decimate a lot more good guys than bad guys.
Lawsuit claims CME gives HFTs unfair advantage
By Neil Munshi in Chicago, FT
A group of traders has sued CME Group, operator of the world’s largest derivatives exchange, for allegedly selling market data to high frequency traders earlier than to other market participants.
***** The floor trader lawsuit gene emerges again in another misguided effort.
High-frequency traders are like digital piranhas
Andrew Stottman, Outside Opinion, Chicago Tribune
High-frequency trading has effectively rigged the $23 trillion stock market in favor of hedge funds and traders at the direct expense of Main Street investors. High-frequency traders typically secure the best prices for themselves by stepping ahead of all other investors in having their trades executed first. This practice makes the transactions of other investors less profitable. The activity is an insidious form of front-running, in which a broker buys or sells before execution of a client’s order to take advantage of a more favorable price.
***** This piece of simplistic, misguided bloviation was in the Chicago Tribune side by side with the piece below from Peter Nabicht.
Majority of high-frequency trading is not predatory
Peter Nabicht, Outside Opinion, Chicago Tribune
Over the last few weeks, conversation about the U.S. stock markets has reached fever pitch, in no small part because of Michael Lewis’ “Flash Boys.” The book introduced the public to market problems that we need to tackle. It also made sweeping generalizations that need to be corrected.
****** Mr. Nabicht is a paid spokesman for a small group of HFT traders, and knows of what he speaks.
SEC nixes high-frequency trading platforms
By John Aidan Byrne, NY Post
The Securities and Exchange Commission is preparing to remove some high-frequency trading firms. In a purge of computerized markets, prompted by public outrage unleashed by Michael Lewis’ “Flash Boys,” the SEC’s campaign will see numerous enforcement actions, new rules and new business practices — a sweeping overhaul that could benefit the beleaguered New York Stock Exchange, The Post has learned.
***** Changes are coming. Everyone agrees on that.
No Flash Boys in China’s Sleepy Over-the-Counter Markets
By Bloomberg News
Shanghai (SHCOMP)’s over-the-counter equity market was almost deserted on a weekday morning last week. Two cleaning ladies swept the floor of a trading hall devoid of brokers or computers, while a woman at an information desk ate breakfast and talked on her mobile phone.
***** A different kind of sweeping the market.
High-Frequency Traders Get Curbs as EU Reins In Flash Boys
European Union lawmakers are poised to approve some of the toughest restrictions in the world on high-frequency trading, the first crackdown in the aftermath of Michael Lewis’s latest book, “Flash Boys.” The curbs are part of revamped EU markets legislation ranging from commodity derivatives speculation to investor protection.
***DA: The meat of the story is not new, but rather is a summary of the MiFID II/MiFIR proposals agreed to in January. The story glossed over the fact that the most controversial part of the proposal, in which an order must hang in the marketplace for 500 microseconds, was scrapped.
High-Frequency Trades Are ‘Intense Focus’ of SEC, White Says
By Dave Michaels, Bloomberg
U.S. markets “aren’t rigged” and regulators are seriously considering allegations of unfairness due to high-frequency traders, Securities and Exchange Commission Chair Mary J
o White said today.
***** HFT is under the microscope. The question is what the heck is on the slide?
How to ‘unrig’ markets
Jon Najarian, CNBC
I have to applaud Michael Lewis for a superb read in “Flash Boys: A Wall Street Revolt” — and for sparking the conversation about high-frequency trading. I have been saying for years that there are advantages given to HFTs that are, at a minimum, detrimental to investors, and at worst, a violation of securities law.
***** Dr. J with his take on the controversy and how to fix it.
From FICC to ‘Flash Boys’: Highlights From J.P. Morgan’s Earnings Calls
By Sarah Krouse, WSJ
J.P. Morgan’s first-quarter results Friday fell short of analyst expectations, setting the stage for a rocky reporting season from Wall Street. On calls with analysts and reporters, Chief Executive Jamie Dimon and Chief Financial Officer Marianne Lake tackled topics ranging from the bank’s drop in fixed-income trading revenue to litigation expenses, high-frequency trading and Russia.
***** In other words, they hit him with the kitchen sink.
Better oversight of HFT
Pensions & Investments
Michael Lewis shocked the investing public with his charge that the stock market is rigged. He will have done investors a great service if he has also shocked the Securities and Exchange Commission into re-examining high-frequency trading and taking steps to halt it. If the SEC finds it cannot take action under current laws and regulations, Congress must step in. Institutional investors should lend their support to efforts to halt, or at least slow, high-frequency trading because they are potentially the biggest losers from the practice.
***** How is that consolidated tape coming?
The JSE Transfroms Its Brand Identity
Today the Johannesburg Stock Exchange (JSE) revealed its new brand which demonstrates the bourse’s identity as a modern African marketplace that connects investors to growth opportunities globally.
***** See the JSE video on Youtube at http://jlne.ws/1gv1VWy
Behavioural analytics takes root in hedge funds
By Margie Lindsay, Risk.net
Hedge fund managers and investors into these vehicles are increasingly turning to behavioural analytics as a way of measuring manager skill and proving investment strategies on objective criteria
***** This is a vast improvement over the Sweat-O-Meter analytics.
Facebook targets financial services
By Sally Davies, Duncan Robinson and Hannah Kuchler, FT
Not content with being just a platform to host cat photos and status updates, Facebook is readying itself to provide financial services in the form of remittances and electronic money.
***** I can’t wait to have “In your Facebook” money.
The Wall Street second-chances rule: scandal makes the rich grow stronger
By Heidi Moore, theguardian.com
For SAC’s Steve Cohen and CEOs like him, money always wins. Who needs retirement – or jail – when you can’t lose? Wall Street is a place where memories are short, profit is amoral, and money is the only thing that settles all the scores.
***** Everyone deserves a second chance.
Yes, Brad, It’s Just You (And Others Who Oversimplify and Ignore Salient Facts)
Brad DeLong takes issue with my Predator/Prey HFT post. He criticizes me for not taking a stand on HFT, and for not concluding that HFT should be banned because it is a parasitic. Color me unpersuaded. De Long’s analysis is seriously incomplete, and some of his conclusions are incorrect.
***** I love a good debate. Please continue
MarketsWiki Recent Updates
Companies, Organizations and Groups
Page views: 48,245,948; Pages: 20,488; Articles: 7,926
CME Sued on Claims High-Frequency Traders Bought Access
Andrew Harris and Matthew Leising, Bloomberg
CME Group Inc. (CME), owner of the world’s largest futures market, was sued by three of its users who alleged the company sold access to order information to high-frequency traders ahead of other market participants. Traders William C. Braman, Mark Mendelson and John Simms claimed the owner of the Chicago Mercantile Exchange and the Chicago Board of Trade perpetrated “a fraud on the marketplace,” according to a complaint filed April 11 in Chicago federal court.
Glencore to Sell Peruvian Mine to Chinese Group for $6 Billion
By NEIL GOUGH, New York Times
HONG KONG — A consortium of state-owned Chinese companies led by the China Minmetals Corporation, one of the country’s biggest metals miners, announced an agreement on Monday to buy a giant copper mine in Peru from Glencore Xstrata for more than $6 billion.
IG Extends Its Trading Hours on US Stocks
IG, a global leader in online trading, has extended its trading hours on dozens of key US stocks to help traders maximise opportunities during the US earnings season.
The UK’s leading CFDs and spread betting provider has extended hours on over 20 major US stocks, including Apple, Ford, Exxon and Goldman Sachs.
ICE Clear Europe to Introduce Western European Sovereign CDS Clearing on April 28
IntercontinentalExchange Group (NYSE: ICE), the leading global network of exchanges and clearing houses, today announced that ICE Clear Europe will introduce clearing for Western European Sovereign Credit Default Swaps (CDS) on April 28, 2014, following receipt of regulatory approval.
HSBC drawn into global currency market investigations
By Jill Treanor, The Guardian
UK’s biggest bank adds its name to the growing list of banks admitting to co-operating with financial regulators
HSBC has become the latest bank to admit it is co-operating with the global investigation into possible manipulation of the £3tn-a-day currency markets.
Tradeweb toasts the Thomson years
By Tim Cave, Financial News
A decade is a long time in any business, but in fixed-income it seems like an eternity. It has been long enough for trading to change beyond recognition. Whereas 10 years ago corporate bonds, for instance, were still mostly traded over the phone, by last year 20% of trading had become electronic, and by 2016 it could reach 37%, according to US research house Tabb Group.
Irish Stock Exchange becomes a plc
The Irish Stock Exchange (ISE) has formed a new corporate structure and has become a public limited company. The company said that all operations, services and processes previously undertaken by The Irish Stock Exchange Limited are now being undertaken by The Irish Stock Exchange plc.
Hedge Funds Wield Risky Legal Ploy to Milk Buyouts
By Liz Hoffman, WSJ
When Dole Food Co. sold itself last year to its founder for $1.2 billion, many market watchers saw just another in a string of buyouts.
A few investors saw an opportunity to squeeze the buyers for potentially millions of dollars more, using an arcane—but increasingly popular—legal process known as appraisal.
Market Abuse: EU Enacts Criminal Sanctions To Defend Market Integrity
The European Commission welcomes today’s formal adoption by the Council of its proposal for a Regulation on market abuse (IP/11/1217) and its proposal for a Directive on criminal sanctions for market abuse (IP/11/1218). This follows the European Parliament’s plenary votes backing the Regulation on 10 September 2013 (MEMO/13/774) and the Directive on 4 February 2014 (MEMO/14/77).
Dynegy founder Watson recalls dawn of deregulation
By Alexander Osipovich, Risk.net
Dynegy founder Chuck Watson talks to Alexander Osipovich about the dawn of deregulation, the fall of Enron and what it takes to be a successful entrepreneur
Nearly three decades ago, Chuck Watson had a meeting at the airport in Denver, Colorado, that changed his life.
Advocates fear sabotage of Wall St. rules
Advocates for tougher rules on Wall Street are crying foul about legislation that is rapidly moving through Congress, arguing it would unravel key protections put in place after the financial crisis. Legislation reauthorizing the Commodity Futures Trading Commission (CFTC) surged out of the House Agriculture Committee with strong backing from both parties, and could be considered on the House floor when lawmakers return from their two-week spring break.
Gary DeWaal’s Bridging the Week April 7 to 11 and 14, 2014 (Futures Law Potential Overhaul; Bank Capital Treatment for CCP Exposure Clarified)
Gary DeWaal and Associates: Regulatory Update
A surprising proposal to amend provisions of US law that govern certain exchange-traded derivatives and OTC swaps, as well as the oversight of the Commodity Futures Trading Commission, was introduced last week on a bipartisan basis by four members of the House of Representatives’ Agriculture Committee. Later the bill was passed by the full Committee. Separately, the Basel Committee on Banking Supervision issued eagerly awaited final rules telling banks how their capital would be impacted by their exposure to clearing houses, while the CBOT and CME were named in a lawsuit that could have come right out of Michael Lewis’ recently published Flash Boys.
European Commission launches consultation on FX definitions
The European Commission has launched a public consultation on the definition of foreign exchange spot and forward contracts in a bid to clarify what constitutes a financial instrument and to plug a hole in reporting regulations.
Exchanges & Trading Facilities
NADEX INCREASES EUR/JPY FOREX PAIR OFFERING WITH NEW INTRADAY CONTRACTS
CHICAGO – April 14, 2014 – The North American Derivatives Exchange (Nadex), a regulated online binary options exchange in the United States, announced today that it will be expanding its EUR/JPY intraday binaries with additional expirations for around-the-clock, overlapping two-hour options for the forex pair.
London Stock Exchange today welcomes Haydale Graphene Industries to AIM
London Stock Exchange
London Stock Exchange today welcomes Haydale Graphene Industries to an opening ceremony, marking the admission of its shares to trading on the AIM market.
SIX Financial Information supplies market data to Bloomberg’s Data Distribution Service
Zurich, New York – SIX Financial Information has integrated its real-time data feed, MDFselect, with Bloomberg’s managed market data distribution service, called Bloomberg Platform. When used for added resiliency, MDFselect ensures continuity and reliability of market data for dependent trading and risk management applications.
“Report or Explain” now encourages integrated reporting among listed companies
BM&FBOVESPA begins the 2014 “Report or Explain” Cycle with a new development: in an evolutionary process aligned to the international trend of integrating financial and non-financial information in annual corporate reports, the initiative is now named “Report or Explain for Sustainability or Integrated Reports” (the previous description was Report or Explain for Sustainability Reports or Similar).
CBOE, C2, CBSX and CFE Trading Schedule For the Good Friday Holiday
Initiatives at TSE toward IFRS Reporting
Hedge Funds & Managed Futures
Is ‘smart beta’ the latest magic money tree?
By Pauline Skypala, FT
Returns could decline as more money flows into the strategies
Investors are always on the lookout for a magic money tree. The latest candidate for that label has been dubbed “smart beta”, although some would argue it fits neither of those descriptions.
Banks & Brokers
ETrade’s new ad campaign: worse than the baby?
By Heather Long, CNN Money
Apparently, babies do get old.
ICAP launches i-Swap for Australian Dollar
London, 14 April 2014 – ICAP (IAP.L), the leading markets operator and provider of post trade risk and information services, announces that it launched i-Swap, its electronic interest rate derivatives platform for trading interest rate swaps (IRS), in Australia on 2 April.
TradeMonster Preps Mobile Futures Scanner
By Max Bowie, Waters Technology
Chicago-based online broker TradeMonster is planning to expand its mobile data and trading platform to cover futures and options on futures markets in the third quarter of this year, and will add futures to its LiveAction mobile market scanning tool next year, in response to growing client demand for access to futures markets, in addition to the equities and options markets supported by the platform when it launched in February.
Gleneagle Securities and Integral Raise the Bar for Margin FX
Built-in analytics put the broker in control, offer transparency that delights customers
One-stop solution that includes hardware, software and professional support
Flexible enough to implement Gleneagle’s vision across its varied customer base
No upfront cost and rapid deployment
Gleneagle Securities (www.Gleneaglesecurities.com), a leading financial services firm based in Australia, and Integral Development Corp. (www.integral.com), a leading service provider to FX market participants, announced today that they have significantly enriched the customer experience on Gleneagle’s margin FX platform, Global Prime (www.globalprime.com.au/forex).
UBS CEO named ‘most influential figure in wealth management’
By NY Post Staff Report
Bob McCann, the CEO of UBS Group Americas, was recently chosen as the most influential figure in wealth management by the readers of WealthManagement.com.
Citigroup Says Client Data Leaked at Korean Consumer Credit Unit
By Seonjin Cha, Bloomberg
Citigroup Inc. (C) and Industrial Bank of Korea (024110) said client information was leaked from their South Korean leasing and consumer credit units, the latest instances of data breaches at financial firms in the country.
Goldman dodges a shareholder battle that dogs rivals
By Lauren Tara LaCapra and Ross Kerber, Reuters
When Goldman Sachs Group Inc filed its shareholder proxy earlier this month, it was free of a proposal that has become increasingly popular among corporate governance activists: a demand for more disclosure about lobbying.
Citigroup cuts 200 to 300 jobs – WSJ
Citigroup Inc has cut 200 to 300 jobs, or about 2 percent of its global markets workforce, the Wall Street Journal reported citing a person familiar with the matter.
Clearing & Settlement
ECB platform, EU law to ‘revolutionise’ securities settlement
By Clare Hutchison and Huw Jones, Reuters
The European Central Bank’s new platform for settling trillions of euros of stock and bond trades will trigger a shake-up in the business, the head of one of Europe’s biggest settlement houses said.
Buy side pushes back on Aussie dollar swap clearing
By Justin Lee, Risk.net
Small firms reluctant to clear due to margin costs Large asset managers already clearing OTC derivatives but smaller managers less prepared for clearing
Indexes & Products
Euro STOXX 50 Daily Leverage 3 And Lev DAX x3 Indices Licensed To ETF Securities – Exchange Traded Products Available On Xetra Today
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today announced that the EURO STOXX 50 Daily Leverage 3 and LevDAX x3 indices have been licensed to ETF Securities to serve as the underlying for two exchange-traded products (ETPs). The ETPs will be listed on Xetra today.
Four New Equity Index ETNs From ETF Securities Launched On Xetra – ETNs Track DAX And EURO STOXX 50 With Triple Long And Short Leverage
Four new equity index ETNs issued by ETFS Equity Securities Limited have been tradable on Xetra since Monday. Exchange traded notes track the performance of underlying reference indices outside of the commodities sector.
European revenues surge at Liquidnet
Tim Cave, Financial News
Liquidnet, the US-based dark pool operator, saw its European revenues rise by 60% last year as institutional investors rediscovered an appetite for the region’s equities.
Deutsche Bank settles £6m Parmalat affair case
By Sarah Limbrick, and James Quinn, The Telegraph
Deutsche Bank has signed an out of court settlement with a former banker caught up in the Parmalat affair.
Former Royal Bank of Scotland trader linked to currency market fixing
Financial Conduct Authority reportedly looking at instant messages sent by Richard Usher, now at JP Morgan
By Jill Treanor, theguardian.com
Electronic messages that Royal Bank of Scotland handed to the City regulator in connection with potential manipulation of the £3tn-a day currency market are reported to have been sent by the bailed-out bank’s former trader Richard Usher.
Environmental & Energy
Green Bond Principles Governance Established; ICMA Appointed Secretariat
Twelve additional banks announce support for the Principles bringing total to 25
A group of financial institutions that recently created the Green Bond Principles today released its governance framework, which will allow for diverse stakeholder input into the Principles, provide effective oversight, and support their further development. The group established the principles to encourage transparency, disclosure, and integrity in the Green Bond market.
Chinese smelters squeeze Shanghai copper market
China’s copper market is being squeezed ahead of the prompt date of the April contract on the Shanghai Futures Exchange, several market sources said.
HKFE Announces Revised Margins for China Life, Esprit Holdings and Ping An Futures
Australian Website on Chinese Investment a Mystery
by Ned Levin , WSJ MoneyBeat
Seeing a 10 percent decline in Chinese direct investment in 2013—including a shift away from the Chinese mining buys which had long buoyed its economy—the Australian government is retooling to attract a new wave of investment into the country from the PRC.
Questions Cloud China’s Stock Market Plan
By Shen Hong, WSJ
The initial euphoria over a landmark decision by China to further open up its stock market to overseas investors is fading as investors look for more details on how such a pilot project could be successful.
“Mutual Recognition” Limited for Foreign Funds in China
Foreign fund managers eager to tap the Chinese market may find that a so-called mutual recognition scheme is more restricted than its name implies.
SGX aligns names of shares in trading counter and CDP statement
Singapore Exchange (SGX) will from 14 April 2014 standardise how shares of listed companies are identified on their trading counters and on investors’ Central Depository (CDP) statements.
London-based billionaire among bidders for Financial Technologies’ MCX stake
By Palak Shah, Economic Times
MUMBAI: An entity representing the interests of London-based Lord Bagri family has bid for the 24% stake of Financial Technologies (FT) in Multi Commodity Exchange (MCX), two sources close to the deal said.
FTIL to finalise bidder for MCX stake sale on April 25
Jignesh Shah-promoted FTIL has to reduce its stake in MCX to 2% from the current
Financial Technologies India Ltd (FTIL) on Saturday said it planned to finalise the bidder for its stake sale in Multi-Commodity Exchange (MCX) on April 25. The company has received 10 applications for the expression of interest invited a fortnight ago.
Trading in CSE platform will resume: Reddy
The major hurdle for the local bourse was a clause that sought unlimited liability for the clearing corporations for any of its clients taking its service
Securities transactions in Calcutta Stock Exchange’s own trading platform C-Star would begin though it was taking time, a top official of the bourse said.
Citic buys stake in US brokerage BTIG
by Enda Curran, The Wall Street Journal
China’s largest brokerage is expanding its global footprint. Citic Securities has bought a stake in US brokerage firm BTIG, the company’s latest move to grow outside of China through buying a holding in a Western investment firm.
Korean Ambassador Visits Qatar Stock Exchange And Disucsses Prospects Of Cooperation With CEO
His Excellency Mr. Keejong CHUNG, Ambassador of the Republic of Korea, today paid a visit to Qatar Stock Exchange, during which he met with the CEO Mr. Rashid bin Ali Al-Mansoori and discussed the prospects of cooperation between the two countries in the areas of capital markets and investments.
Bitcoin Mining Boom Sputters as Prospectors Face Losses
By Olga Kharif, Bloomberg
The bitcoin mining rush is sputtering. Speculators, known as miners, use powerful computers to solve complex software problems and verify transactions to unlock new bitcoins. They’re finding that the enterprise isn’t as profitable as it once was.
Tribune Publishing to take on $325 million in debt in spinoff
A report on ChicagoTribune.com on Friday afternoon said the planned Tribune Publishing spinoff company will absorb $325 million in debt.
The information was part of filings made Friday to the Securities and Exchange Commission – an amendment to December filings that details plans to spin the Chicago Tribune, Los Angeles Times and other daily newspaper holdings off into a separate company from Tribune Co.