4/01/2014

High-Frequency Traders Ripping Off Investors

High-Frequency Traders Ripping Off Investors, Lewis Says
2014-03-31 00:09:27.261 GMT


By Nick Baker and Sam Mamudi
March 30 (Bloomberg) -- The U.S. 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.”

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. The new book comes out tomorrow.
“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 victimized 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, a columnist for Bloomberg View. To
show how lucrative the tactics are, Lewis said a technology firm
spent $300 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 $10 million each…..
 

His latest target, high-frequency trading, comprises a
diverse set of software-driven strategies that have spread from
U.S. equity markets to most developed countries as computer
power grew and regulators tried to break the grip of centralized
exchanges….

There are no surprises why this rigging of the stock market could go on for so long as the lawmakers were mostly paid by the big boys to shut up and look the other way. But to write about front running by a few milliseconds to make profits is just skimming the surface of this devious criminal activity. It is the privy of market information on who is buying/selling what, the volume, price, the short positions etc etc that is ripping the innocent investors through the act of plugging their computers into the exchanges that is doing more damages than just high speed trading. They are not telling the host of advantages of having super computers attached to stock exchanges to make trading an almost sure win bet.
 

The criminals must be brought to justice, the stock exchanges sued and compensations be paid to the innocent investors who have lost their pants trading in the market. Anyone or govt bodies approving its practice are complicit to the crime.
 

Below is a Wall Street Journal report dated 1 Apr 14.
 

‘The Federal Bureau of Investigation has launched a wide-ranging investigation into high-speed trading with an eye on whether some firms are acting on fast-moving market information that isn’t available to other traders.
 

The investigation, launched about a year ago, involves a range of trading activities and is still in its early stages, according to a senior FBI official and an agency spokesman. Trading ahead of other investors based on information about orders that other investors can’t see could violate insider-trading laws, the spokesman said….’

16 comments:

Anonymous said...

PAP does not discriminate against poor people.

Anonymous said...

Tiok. That is why rich or poor, CPF must be kept for as long as possible.

Anonymous said...

But there are no high frequency traders in Sinkie Stock market, tio bo?

Or else how can Sinkie remisiers like RB still surviving, u tell me lah?

Anonymous said...

HFT provides liquidity to the financial market. The spread is basically the fee for providing this service.

SGX has been trying to attract HF traders to Singapore for the past year. See:
Why SGX seeks high-frequency traders.

Anonymous said...

The market is now so liquid that all the investors have fled leaving the HF traders to trade among themselves and swimming in their own liquidity.

Anonymous said...

Please stay awake.
Straits Times Index has broken out of a falling price channel.

Meaning:
Short term price trend (last 3 months) is UP.
Long term price trend (last 12 months) has stopped falling.

I'm sick and tired of cursing PAP.
Must say something positive instead.

Anonymous said...

SIAS should get all the investors to contribute to a fund to sue the exchange for operating an unfair platform.

Matilah_Singapura said...

One thing about Michael Lewis...he is a gifted writer, and one helluva self-promoter. And he writes about the people who "control" or try to control money. There is nothing like self-interest to propel the chase and hunt for money. People do silly things, and insane things, and highly questionable things. Of course there are those who do the right things and get their money honestly -- but this is BORING. To make great stories -- which in turn bring out the muse in artistes like Lewis, you need grit and grime; you need to plumb the depths of depravity, of greed and narrow self-interest, and ego. Then you have an exciting narrative.

I remember reading "Liar's Poker" back when it came out in 1989. I couldn't put it down. I was aghast, and I was rolling on the floor laughing. And I've read every single book Lewis has written since, and have been following him on Vanity Fair.

HFT is not going to go away. Many "average folks" are going to get slaughtered. That is a given. If you think you can out-fox a bunch of computers, you are welcome to try. If you think your maths skills can match some of the best physics and maths Phds in the world -- go ahead and try.

Me? I'll e sitting by the beach, drinking beer and reading "Flash Boys".

b said...

Most of the system in this world are invented to benefit the elite class and fix the general population.

Chua Chin Leng aka redbean said...

"I think it is reversible but I think these values and this system is fairly well entrenched. The expectations from the public are there, so if something is not quite right you can be sure that somebody will sound the alarm. And in this day and age, there is no possibility of these things - something wrong being kept secret for very long. Within the system there are mechanisms to make sure that if something is suspicious, it is investigated, and if something indeed is wrong, then consequences will have to follow.

"It doesn't mean that the system runs by itself. In the end it is still people and you must have very capable, honest and very resolute people who will operate the system and follow through and keep it clean even when it's politically inconvenient.

The above is Hsien Loong's reply to Rifkind in Chatham House when the latter posed a question on the incorruptibility of the govt and whether it will last. The part about people raising the alarm when they find things are going wrong can be applied to the stock market. And since no one is raising the alarm, the stock market must be fine, very fine.

Anonymous said...

The FBI is investigating high speed trading? Is this an April fool's joke?

The pigs, the wolves, the hyenas, the farmer himself are all drinking from the same trough.

Anonymous said...

Just hope the FBI arrest them, including the stock exchange administrators and regulators for allowing it to happen and put all of them behind bars.

Anonymous said...

And so the circus goes around. Like the banking sector, after ripping off investors, the culprits just got a slap on the wrist, pay a pittance in fines, got the blessing of the Government, that is their partner in crime, and are on their merry old ways again.

You can never get rid of the old evils as long as greed remains the cornerstone of human behavior.

Anonymous said...

Let's hope our MAS wakes up and not be accused of being partners to this crime. Would they?

If not they cannot runaway this time like they did in the toxic bond case.

Eddie Leong said...

I have made good profits over many years, outweighing the losses.

- Be a Contrarian...Sell when others are buying and vice versa

- Sell on the Ask and you will definitely sell it. And vice versa.

- Better to make smaller profits than be stuck. We cannot outsmart the Big Boys or the fast moving experts.

- Never hold on to stocks if you are making profits. I am not a big gamble and only buy with cash reserves and will hold if I am stuck with it...just wait, the turnaround often comes around if you have not bought at the peak.

Chua Chin Leng aka redbean said...

Hi Eddie, good for you.
In all gambling, there will be a few that made good or struck the first prize in the lottery.

The issue is not just about a few persons playing smart and live to tell their stories. That is a different issue.

What we have now is a scam that is being perpetuated to cheat the innocent traders. When a system is unfair, it is criminal and has to be stopped.

That is the reason why the FBI is investigating the HFT. That is why the exchanges pledged and are bound by regulations to provide a fair trading system, to be legally and morally right.