HFT: Rise of the Machines

HFTNo one has ever claimed that the financial markets are a level playing field. Equities, bonds, currencies, options and futures are not arenas that operate by equivalent standards for all parties. Great fortunes were built not by chance, but on superior information, known to the few.
Professional traders are not risk gamblers, but operate on the premise of special advantage. Through advance and proprietary techniques that reduce exposure hazards and provide exclusive head start triggers, which virtually guarantee profits, the elite firms dominate Wall Street.

Submitted by BATR:

Business Week states in the article, Is High-Frequency Trading Insider Trading?, that

Classically defined, insider trading means having access to material, non-public information before it reaches the rest of the market; it’s like getting a heads-up about a merger before it’s announced, or maybe a phone call from a Goldman Sachs (GS) board member saying that Warren Buffett is about to invest $5 billion in the bank.”

With the introduction of super computers and Financial Algorithmic Trading, the era of generated trading strategies emerged that fill automatically, when predetermined prices are reached. Some would argue that exchanges were simply applying the latest technology to the time honored system of flipping positions.

Now we live in the High-Frequency matrix, based upon millisecond reactions, which activates on information that is not offered to everyone at the same time. Forbes explains accordingly in High Frequency Insider Trading – And It’s Completely Legal!

“According to a team of Wall Street Journal reporters from an article on June 12, the practice works to the advantage of professional traders. “Economic reports from public universities, trade groups and other nongovernmental organizations can move markets as surely as official data from the U.S. government,” according to the Journal’s team of four reporters: Brody Mullins, Michael Rothfeld, Tom McGinty, Jenny Strasburg. “But unlike government reports, where pains are taken to make certain no one gets them ahead of time, few rules control release of nongovernmental economic reports. Unknown to many investors, selling early access is routine.”

Access to this highly valuable information is the key. And such access comes at a price. Rapid traders pay information companies like Thomson Reuters thousands of dollars each month for a look at such reports, moments before they are widely disseminated. And it’s in those few key seconds, that they make their killing.”

Seemingly, this high-tech access to supercharged information is the newest version of insider information. The following assessment is also from the same Business Week account.

“New York Attorney General Eric Schneiderman has called HFT “insider trading 2.0″ on a number of occasions. His office is looking into the relationships between traders, brokers and exchanges and asking whether it all needs to be reformed. The FBI spent the last year looking to uncover manipulative trading practices among HFT firms; the federal agency is now asking speed traders to come forward as whistleblowers.”

Chicago is not much different from their Wall Street exchange cousins. Litigation over this practice is referenced in the report, CME Sued For Giving “High-Frequency Traders Peek At Market” Since 2007.

“In a lawsuit that was just filed by lead plaintiff William Charles Braman, seeking class-action status, and filed on behalf of all users of real-time futures market data and futures contracts listed on the CBOT and CME from 2007 to now, the CME is alleged to have sold order information to high-frequency traders ahead of other market participants.

Apparently it took the general public a Michael Lewis book to reread out post from October 2012 in which we showed that an estimated over 30% of CME revenues were made from HFT – in other words from selling proprietary data in direct feeds to high-paying subscribers, that hits collocated servers ahead of the consolidated tape.”

Well, what the layman would see as obvious, influential security lawyers see as neat ambiguity. The Forbes story continues.

“But it is legal, and so is trading on the advance peeks,” the Journal reported. “Even as securities rules bar companies from selective data disclosure, and as authorities vigorously pursue insider trading in all its forms, no law prevents investors from trading on nonpublic information they have legally purchased from other private entities. Trading would be illegal only if the information was passed through a breach of trust, said securities lawyers.”

It should be clear that the financial system is designed to accommodate creative and innovative methods of price manipulation. The defenders of “Crony Capitalism” see such stratagems as a 21th century sophisticated version of robber baron corporatism, in the fine tradition of Jay Gould and James Fisk. Clipping an ensured few cents on billions of transactions is surely a slick system.

Fabricating automatic returns is bad enough, but what is the public risk of producing a real panic when High-Frequency momentum turns into a full propelled blow off?

When a robot computer generates buy or sell orders, the difference between winning and losing is based upon the speed of the information used to place and execute orders. If your algobots taps into info, not available to the entire market, the game is rigged.

Matthew O’Brien in Everything You Need to Know About High-Frequency Trading, makes a valid point.

“Every HFT strategy depends on not only being faster than ordinary investors, but being faster than each other too. Anytime somebody comes up with a new way to cut a few microseconds—that is, a millionth of a second—off of trading time, they have to spend whatever it takes to do it. Otherwise, they’ll lose out to their competitors who do.”

Imagine this disconnect with real economic reality that place trades, with little concern if it is a long or short. Only the speed matters. The conclusion from the Negotium essay Financial Algorithmic Trading, holds true. “Banning the interconnect of proprietary programs that amalgamate directly into the systems on the floor of the exchanges is the only way to prevent the integration of systemic collusion among the 1 and 0 computer programs.”


  1. There are two “Stock Markets”:
    ONE:  The NY Stock Exchange that we all see on CNBC
    TWO:  The real Stock Exchange that the “Big Boys” play on and move power and control
    Now, you can rest assure that HFT machines do not exist when Buffet and Soros trade under the table. What? You didn’t know about that? Oh yeah, the average ignorant AmeriKan thinks that EVERYTHING that happens on this planet is told to them within seconds on their TV’s!  I’ve always said that according to the General Public that if they didn’t hear it on FOX or CNN, it didn’t happen or it doesn’t exist and all else is Conspiracy Theory. Pretty slick, eh?

  2. Metallic money gains value over time because of population increases exceeding mine recovery. That’s how people retired for millennia before this current banknote boondoggle was foisted on mankind. Therefore, equity investment for additional gain at high risk and volatility is, for most folks, almost completely superfluous. In a proper world monetary environment, set up for dignified human life to flourish, that makes ‘stock markets’ … nowhere … for ordinary people to be involved, anyway. It’s just another ‘fleecing’ mechanism dreamed up by the paper-boyz.

  3. The desolation mans carnal reasoning brings his soul to is the expected end or turning back to the garden he came out of  
    We will all turn back to our first love, be it by hook or by crook

  4. And they will ban HFT and then they will find another way to bypass that. The little guy is screwed unless we have a revolution and the bankers need to be the first to go.

  5. Trading in this cess pool is for fools.  
    Hey Fool—Trade!

  6. HFT is a tool and like any other tool it can be used for good or for evil.  Personally, I do not care for it as I see it as a wealth extraction mechanism and not as a way to “add liquidity to the market”.  Bank robbery also adds liquidity to the areas where the stolen money is spent but that does NOT make it a good thing.  Those using HFT to front-run legitimate traders and investors should be charged with criminal conspiracy to defraud under the RICO statutes.  Put some of these thieves in jail for several years and it will take the shine off of this activity.  Not that this is likely, however.  When one has a LOT of money and spreads it around generously, one encounters VERY few legal problems in life.  That was Bernie Madoff’s REAL crime:  he did not share his ill-gotten gains… unlike Corzine, who was and probably still is, a BIG Obama donor.  Other than this, Madoff’s and Corzine’s activities were basically indistinguishable.  But the results could not be more different.

  7. Our righteous White Throne Judgement being  a refining of our souls in The Lake of Fire is a consuming by The  ONE  Truth we will all come to the knowledge of and a Second Death back  unto Life which has bean ours from before the beginning. 

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