To think all it took to wake up not only the FBI (which generously provided a phone number to all interested parties so others could do its work for it) but the porn-addicts at the most corrupt, complicit and clueless, not to mention bought and paid for, “regulator” in US history, the SEC from a five year slumber – yes, we started warning about HFT in April of 2009 – was one Michael Lewis book. Moments ago we learned that the SEC, with a five year delay, has opened several investigations into HFT.

Below is an artist’s rendering of just what these probes look like:

From the WSJ:

Ms. White, testifying before a House Appropriations subcommittee, said the SEC currently has “a number” of ongoing investigations regarding “market integrity and structure issues, including high-frequency traders.” She declined to provide specifics about the investigations, but said they have been under way for “quite some time.”

And now, please hold for laughter:

“We’re very much focused on any abuses in that space,” she said.

Ok, now you can laugh. And laugh some more:

The SEC and the Commodity Futures Trading Commission are looking into ties between high-speed traders and major exchanges, examining whether the firms are getting preferential treatment that puts other investors at a disadvantage, people familiar with the probes said Monday.

Since we feel generous, here is a place to start: several hundred articles covering precisely what you should have been investigating 5 years ago! And since we know you are budget strapped, we won’t even ask for our finders fee for having been the first to expose the scam that is HFT – we realize that all those porn subscriptions cost a pretty taxpayer penny.

Then again, not even we are dumb enough to fall for the lie that the SEC is actually going to finally do something about HFT:

Ms. White acknowledged the SEC is in the midst of a policy debate on whether the speed and complexity of trading in stocks and other securities pose risks to markets. She said the SEC’s approach on the issues would be “data-driven and disciplined.” She stopped short of embracing any policy shifts.

 

The review of the guts of the stock market follows a string of market breakdowns, such as last year’s failure of the Securities Information Processor, a computerized link that transmits market orders to the public and is overseen by the Nasdaq Stock Market.

Why? Because since hundreds of current SEC employees can’t wait to quit their job in the glorious tradition of the SEC revolving door just so they can find a much higher paying job doing nothing at the same HFT firms they were supposed to be policing, and because it is the HFT lobby itself that controls the SEC (recall that SEC Uses HFT Firm-Designed Tool To Find That HFT Doesn’t Cause Flash Crashes), only an idiot would fall for the same lie again and again. Especially since Mary Jo White will have to promptly recuse herself from this investigation: after all the bulk of her former clients at Debevoise, especially Morgan Stanley, are some of the most flagrant abusers of HFT.

As for retail investor “confidence” in capital markets, that ship sailed long ago. Because no matter how high the rigged market closes day after day on increasingly worse economic news, they are never coming back, period.

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-04-01/sec-has-opened-several-hft-probes

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Update: within minutes of publishing this article news hit that the FBI is launching a probe into HFT. QED

For all the talk about how High Frequency Trading has rigged markets, most seem to be ignoring the two most obvious questions: why now and what happens next?

After all, Zero Hedge may have been ahead of the curve in exposing the parasitism of HFT (anyone who still doesn’t get it should read the following primer in two parts from Credit Suisse), but we were hardly alone and over the years many others joined along to expose what is clear market manipulation aided and abeted by not only the exchanges but by the regulators themselves who passed Reg NMS – the regulation that ushered in today’s fragmented and broken market – with much fanfare nearly a decade ago. And yet, it took over five years before our heretical view would become mainstream canon.

One logical explanation is the dramatic and sudden about face by none other than Goldman Sachs, which from one of the biggest proponents of quant trading strategies including algo trading, and which used to make a killing courtesy of HFT (who can possibly forget Goldman’s charges against Sergey Aleynikov’s code theft which alleged “there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways“), has in recent weeks unleashed a de facto war on HFT, first with the Gary Cohn HFT-bashing op-ed, and then with the implicit backing of the IEX pseudo dark pool exchange, whose employee just mysteriously also is the protagonist of the Michael Lewis book that has raised the issue of HFT to a fever pitch.

So does Goldman know something the rest of us don’t that it is now ready to give up on the HFT goldmine which lost money on just one day in 1238? Why of course it does. And one would imagine that judging by the dramatic turnaround exhibited by Goldman that said something is very adverse to the ongoing future profitability of the HFT industry. The amusement factor only rises by several notches when one considers that Goldman also happens to be lead underwriter on the Virtu IPO offering: one wonders what they uncovered and/or what they know about the industry that nobody else does, and just how the VRTU IPO will fare now that Goldman is so openly against HFT.

But what does all of that mean for the big picture? We hinted at it yesterday, on twitter when we had the following exchange.

Could it indeed be that the only reason why HFT – which has constantly been in the background of broken market structure culprits but never really taken such a prominent role until last night, is because the market is being primed for a crash, and just like with the May 2010 “Flash Crash” it will all be the algos’ fault?

This is precisely the angle that Rick Santelli took earlier today, during his earlier monolog asking “Why is HFT tolerated.” We show it below, but here is Rick’s punchline:

Are regulators stupid when it comes to high frequency trade? Well, i think that there was a time where they were a bit slow to the party. But i don’t think it’s stupidity or ignorance or not paying attention. So let’s wipe that off. So the question i’m asking is, why do they let it continue?

 

Why is it that anybody would want HFT to be unchallenged or at least not challenge it now? My reason, this is just my reason, when i look at the stock market it’s basically at historic highs. When i look at what the federal reserve is doing, it’s mostly to put stocks on all-time highs. When i look at all the debt and all the programs that don’t seem to be making a difference except for putting stocks on all-time highs, i see that you have this tower of power with regard to the stock market. And nobody wants to challenge or alter hft because it is good to go that many days without having a loss. So my guess is when the stock market eventually deals with reality and pricing, which will come at a time when there’s not a zero interest rate policy and we’re long past QE, I think they’ll address it.

Rick’s full clip:

Precisely: when reality reasserts itself – a reality which Rick accurately points out has been suspended due to 5 years and counting of Fed central-planning – HFT will be “addressed.” How? As the scapegoat of course. Because since virtually nobody really understands what HFT does, it can just as easily be flipped from innocent market bystander which “provides liquidity” to the root of all evil.

In other words: the high freaks are about to become the most convenient, and “misunderstood” scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following…

  • Frontrunning: needs no explanation
  • Subpennying: providing a “better” bid or offer in a fraction of penny to force the underlying order to move up or down.
  • Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
  • Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
  • Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
  • Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.

… will become part of the daily jargon as the anti-HFT wave sweeps through the land.

Why? Well to redirect anger from the real culprit for the manipulated market of course: the Federal Reserve. Because while what HFT does is or should be illegal, in performing its daily duties, it actively facilitates and assists the Fed’s underlying purpose: to boost asset prices to ever greater record highs in hopes that some of this paper wealth will eventually trickle down, contrary to five years of evidence that the wealth is merely being concentrated making the wealthiest even richer.

Amusingly some get it, such as the former chairman of Morgan Stanley Asia, Stephen Roach, who in the clip below laid it out perfectly in an interview with Bloomberg TV earlier today (he begins 1:30 into the linked clip), and explains precisely why HFT will be the next big Lehman-type fall guy, just after the next market crash happens. To wit: “flash traders are bit players compared to the biggest rigger of all which is the Fed.” Because after the next crash, which is only a matter of time, everything will be done to deflect attention from the “biggest rigger of all.”

So, dear HFT firms, enjoy your one trading day loss in 1238. Those days are about to come to a very abrupt, and unhappy, end.

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-03-31/high-frequency-trading-why-now-and-what-happens-next

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After over two years of over 200 posts discussing the dangers of High Frequency Trading on Zero Hedge, the mainstream media (and its comedy-finance fusion Comcast offshoot) has finally made its goal in life to destroy HFT. The only reason for that, of course, is that HFT, by definition, tends to accentuate moves. And while it did so to the upside, nobody but Zero Hedge and a very few other blogs, most notably Themis Trading, cared (and a whole lot of other “experts” ridiculed our views of HFT as liquidity extracting, because yes they are, rebate chasing, sub penny frontrunning parasites). Now that the tables have turned, everyone, up to and including that caricature Jim Cramer can’t get enough of bashing it. Which is why for anyone still relatively new, and thus unjaded, to the topic, we present this informative and succinct six-part videoclip series just released by Securities Technology Monitor titled “High Frequency Minutes” discussing all the latest paradigms in the world of modern cutthroat, nanosecond trading.

HIGH-FREQUENCY MINUTES: Do Microseconds Matter?

Why trading that occurs in microseconds should not matter to Aunt Minnie in Lenexa, Kansas.

Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fednysnky, New York correspondent for the Voice of America.


 

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HIGH-FREQUENCY MINUTES: How Microseconds Matter

What is a millisecond? Why does it matter? Particularly, when what really counts is the microsecond — and a distance of 20 miles could mean your exchange is in the wrong place.
 
Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fednysnky, New York correspondent for the Voice of America.


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HIGH-FREQUENCY MINUTES: The Hidden Story of High-Speed Trading

It takes no time to create a trade. But three days to settle it.  Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fednysnky, New York correspondent for the Voice of America.

 

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HIGH-FREQUENCY MINUTES: Preventing the Runaway Algorithm

Why a runaway algorithm that wreaks havoc on volatile markets may be inevitable — and whether algorithms should be tested before put in use. Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fednysnky, New York correspondent for the Voice of America.

 
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HIGH-FREQUENCY MINUTES: High-Speed Regulation

The sooner the SEC gets on with instituting a system for monitoring all trading at the same speed that it takes place, the better. Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fedysnky, New York correspondent for the Voice of America.


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HIGH-FREQUENCY MINUTES: The Next Second

This final segment of this six-part series looks at how algorithmic trading is about making a profit in the next second. Not the long haul. What is the implication? Securities Technology Monitor editor-in-chief Tom Steinert-Threlkeld is interviewed by Peter Fedysnky, New York
correspondent for the Voice of America.


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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/high-frequency-minutes-hft-explained-6-short-video-clips

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