shorting again, page-142

Hi shadowboxer1,

Here is the latest news from the USA on Michael Lewis' expose on HFT. Michael Lewis is a columnist for Bloomberg View.

CuDeco shareholders need to be aware of the negative effects that can occur when holding non-trading stocks like CDU.


"High-frequency traders ripping off Investors

The US stock market is a rigged game where high-frequency traders with advanced computers make tens of billions of dollars by jumping in front of investors, according to author Michael Lewis, who spent the past year researching the topic for his new book “Flash Boys”. Michael Lewis is a Columnist for Bloomberg View.

While speed traders’ strategies, developed over the past decade with help from exchanges, are legal, “it’s just nuts” that they’re allowed, Lewis said during an interview televised today on CBS Corp’s “60 Minutes”. The tactics are too complicated for individual investors to understand, he said.

“The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis, whose books “Liar’s Poker” and “The Big Short” highlighted Wall Street excesses, said during the interview.

“It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing,” he said.

Everyone who owns equities is victimised by the practices, in which the fastest traders figure out which stocks investors plan to buy, purchase them first and then sell them back at a higher price, said Lewis.

To show how lucrative the tactics are, Lewis said a technology firm spent US$300 million (RM978 million) to build a line that would shave three milliseconds off the time it takes to communicate between New Jersey and Chicago, then leased it out to securities companies for US$10 million.

The author’s comments follow New York Attorney General Eric Schneiderman’s decision to investigate privileges marketed to professional traders that allow them to place their computers within feet of exchanges and buy access to faster data streams. Officials at the US Securities and Exchange Commission and Commodity Futures Trading Commission have also said market rules may need to be examined.

Lewis is adding his voice to a debate that has obsessed the securities industry for almost a decade while only periodically surfacing in public via events such as the May 2010 flash crash, in which the Dow Jones Industrial Average posted an almost 1,000 point loss.

This latest target, high-frequency trading, comprises a diverse set of software-driven strategies that have spread from US equity markets to most developed countries as computer power grew and regulators tried to break the grip of centralized exchanges. While the tactics vary, they usually employ super- fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.

High-frequency traders account for about half of share volume in the US, a statistic that shows their pervasiveness and hints at the obstacles faced by proposals to rein them in. Exchanges rely on HFTs for profits as well as liquidity, with electronic market makers all but eliminating the old system of human floor traders who oversaw the buying and selling of equities. While critics such as Lewis see a Wall Street plot, proponents say the new system is faster and cheaper.

“We believe Lewis’s book can have a big impact on complex market-structure issues that have been simmering for years,” Joe Saluzzi, co-head of equity trading at Themis Trading LLC and a frequent critic of the status quo in markets, said before the “60 Minutes” interview was broadcast. “Hopefully this type of publicity will finally force regulators to take action on issues that they’ve been sitting on for way too long.”

One of the heroes of Lewis’s book is Brad Katsuyama, who left Royal Bank of Canada in 2012 to form a new market, IEX Group Inc, along with other former traders from the Toronto- based bank. David Einhorn’s Greenlight Capital Inc hedge fund invested in the platform, which started trading in October and was established to minimize the influence of predatory strategies, Goldman Sachs Group Inc has endorsed IEX and is the venue’s biggest broker.

IEX was established partly to address concern that technology advances and fragmentation have made the US$22 trillion US equity market too fast and opaque. The platform, a dark pool with ambitions to officially become an exchange, imposes a delay of 350 microseconds, or 350 millionths of a second, on orders -- enough to curb the fastest trading firms. IEX aims for greater transparency by making its trading rules available for public review, unlike some other electronic venues.

During his own interview with “60 Minutes,” Katsuyama described how the stock market rips off investors. While still at Royal Bank, he noticed that prices seemed to move against him when he was trading.

“The best analogy I think is that your family wants to go to a concert,” he said. “You go onto StubHub, there’s four tickets all next to each other for 20 bucks each. You put in an order to buy four tickets, 20 bucks each and it says, ‘You’ve bought two tickets at 20 bucks each.’ And you go back and those same two seats that are sitting there have now gone up to US$25.”

Katsuyama concluded that his intentions became visible on some exchanges faster than others. The most fleet-footed traders could take advantage of that by submitting bids and offers on the slower markets.

Lewis said, “I spoke to dozens of investors, big investors, famous investors who said that, ‘When Brad Katsuyama came into my office and laid out to me how the market was rigged, my jaw hit the floor. I mean, I knew something was wrong. I just didn’t know what it was and no one had told us.’

New York’s Schneiderman is examining the sale of products and services that offer faster access to data and richer information on trades than is normally available to the public. Wall Street banks and rapid-fire trading firms pay for these services, providing millions of dollars in quarterly sales to exchanges and helping ensure their markets are supplied with standing orders to buy and sell stocks.

The investigation threatens to disrupt a model that market regulators have permitted for years as high-speed trading and concerns about its influence have grown. Trading firms pay to place their systems in the same data centers as the exchanges, a practice known as co-location that lets them directly plug in their companies’ servers and shave millionths of a second off transactions.

Virtu disclosed in the IPO filing that the US Commodity Futures Trading Commission is looking into its trading from July 2011 to November 2013, examining its “participation in certain incentive programs offered by exchanges or venues,” according to the IPO filing. Virtu said it doesn’t believe it broke any laws or CFTC rules.

The practice of selling enhanced access to brokers accelerated as American exchanges evolved from member-owned firms amid a flurry of regulation and computer advances in the 1990s. Among other changes, the government-mandated compression of stock price increments to pennies from eighths and sixteenths of a dollar, a process known as decimalization, squeezed profits for market makers and specialists that had overseen stock trades.

Faced with the need to maintain liquidity on electronic platforms where profits were too fleeting for humans to capture, exchanges encouraged computerized firms to post orders for investors to trade against. Co-location and customized data feeds developed alongside the hodgepodge of fees and rebates that market operators use to keep speed traders coming back.

“Part of what you’re seeing here is people not understanding it, because they either haven’t taken the time or haven’t dug in,” Larry Leibowitz, the former chief operating officer of NYSE Euronext, said in a March 25 conference call with analysts arranged by Sandler O’Neill & Partners LP. “It’s the responsibility of regulators to show leadership to show, ‘We looked at these issues, and we think these are fair. These are areas we want to improve and fine tune.’”

SEC Commissioner Daniel Gallagher said on March 28 that individuals are concerned that high-frequency traders detract from fairness in the marketplace.

“The problem with high-frequency trading right now is that there’s a perception that for the little guy, the markets aren’t fair,” Gallagher told CNBC during an interview. “That perception to me is a reality. It’s something we need to address."



cheers,



Max