It’s bad enough finding out that you’ve been made redundant when your pass fails to let you in to the building. But finding out that you’ve been sacked and replaced by a computer (which has more or less made your skills redundant)? That’s even worse.
So spare a thought for David Gallers, former head of CDS index trading at UBS, who was let go last week, to be replaced by snazzy new algo. Read more
Here’s a tip — if you’re naming a memorable event, try not to put the day of the week in it. It’s awkward when it comes to anniversaries. Let us nonetheless take a moment to pause and reflect, with Deutsche Bank’s Jim Reid:
25 years ago today the financial world went into paralysis as Black Monday struck stock markets around the globe. For context the DOW dropped 22.61% that day (the biggest % down day in history) or 508 points to 1738.74. I wish I’d have invested my paper-round money in the market at the close. Instead I was saving up for a new shiny Walkman
Market cap (at yesterday’s close): $681.5m
Cash (as of 30 June 2012): $365m Read more
Shares in Knight Capital Group, market maker in US stocks par excellence, were down as much as 26 per cent at pixel time.
The attack diagram is shown in Figure 2. The diagram shows the various high-level attack paths an adversary might use to achieve the nightmare consequences. The adversary is assumed to be an external attacker (non-insider) for all the attacks considered in this assessment (as per the red team constraints and ROE)…
Tabb’s latest statistics on US equity volumes are really raising some eyebrows, and not just because of the share of trade heading to the old bogey man the “dark pool”.
Nope. We’re talking about the share being gobbled up by banks and broker dealers direct. Something known as “internalisation”, and discussed at length on FT Alphaville before — something we’ve referred to as dark inventory. Read more
BIS is joining the HFT scrutiny party with a paper (PDF) on high frequency trading bots in foreign exchange markets.
It’s a comprehensive study of automated trading in forex, although we’ve already seen several incidents that could be attributed to high volume trades. Read more
Energy traders remain puzzled by a fleeting plunge in natural gas futures late in Wednesday’s trading, the FT says. While some have blamed a ‘fat finger’ trade for the July natural gas contract’s sudden 8.1. per cent drop — which resolved in seconds — the evidence is growing for an algorithm glitch triggered by low volume. Having revealed the role of algorithms in the May 6 2010 Flash Crash, data specialist Nanex believes the natural gas market was taken over by algorithms ‘running backwards’ and causing bid prices to spiral, FT Alphaville reports. Read more
It’s not an earthquake. It’s last night’s mini-crash in natgas futures, via Zero Hedge:
… how might they be mis-valuing equities?
So asks Themis Trading on Tuesday after discovering this curio of a story from CNN about algo-bots gone wild on Amazon. Read more
A block trade, born in a US-based pension fund, is traveling the electronic execution highway.
The trade — let’s call him Benny — is sent to the fund’s broker for execution. That broker, now sitting in his office in New York, has a number of options when it comes to Benny. He can send Benny to an exchange like the NYSE or attempt the trade over-the-counter. Or he can send it to another division of the brokers’ own firm, to be filled using the company’s own inventory. He can internalise little Benny. Read more
Low market volumes and stiff competition have led to a sharp fall in “high-frequency” trading as industry experts warn that the past two years of rapid growth may be coming to a halt, the FT reports. Instead, high-frequency traders are flocking to emerging markets such as Russia, Brazil and Mexico where exchanges are beginning to revamp their systems to attract such players. High-frequency traders use automated trading systems to dart in and out of markets at high speed with holding periods of a fraction of a second. The practice has come under scrutiny by regulators in the US and Europe who want to know whether it provides liquidity to markets – as its proponents claim – and whether high-frequency trades increase or reduce volatility in markets. The practice has come under scrutiny by regulators in the US and Europe who want to know whether it provides liquidity to markets – as its proponents claim – and whether high-frequency trades increase or reduce volatility in markets. Read more
Several of the world’s biggest computer-driven hedge funds have been hit hard by volatile Asian markets after the Japanese earthquake and tsunami, reports the FT. Graham Capital in Connecticut saw its $4bn flagship fund lose around $300m, down just under 8 per cent, over the first two weeks of the month. The firm’s other funds also suffered steep losses of around 5 per cent each, according to an investor. Read more
You hardcore financial types might have missed the below FT story, given it was in the Film & Television section of Friday’s paper and concerned a Hollywood starlet.
But wait! It’s financially relevant. We promise: Read more
The FT reported on Wednesday that an industry body representing big sugar traders has launched an attack on their high-frequency and algorithmic-based counterparts — along with the New York-based futures exchange that hosts both groups.
The attack came in the form of a letter from the World Sugar Committee to the ICE Futures US exchange. We’ve reprinted it below courtesy of the FT’s Javier Blas. Read more
The world’s top sugar traders have attacked “parasitic” computer traders, criticising the New York-based exchange that hosts the main sugar futures contract for failing to clamp down on their activities, the FT reports. In a strongly worded letter to the ICE Futures US exchange, the chairman of the World Sugar Committee said the presence of high-frequency and algorithmic-based speculative funds “only serves to enrich themselves at the expense of the traditional market users”. The letter is likely to provide ammunition to politicians seeking to clamp down on speculative activity in commodities. Read more
You’ve heard of dark pools, right?
Well meet their opposite. On Tuesday, Credit Suisse announced it was launching a ‘light pool’ aimed at institutional investors wary of the shadowy, murky dark. Read more
As most European investors would have noticed, Euronext markets suffered a 45-minute outage just ahead of the close on Wednesday.
According to the FT’s Jeremy Grant, the halt was due to a “human error”. Read more
Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker, the FT reports. The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks. The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks. Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine. But prosecutors said Mr Larsen and Mr Veiby “gave false and misleading signals about supply, demand and prices” by manipulating several Norwegian stocks through Timber Hill’s online trading platform. Read more
We don’t like to gloat, but err, in this case we can’t help ourselves.
That’s because from the moment commodity ETFs like the USO and the UNG began acting weirdly in 2009, FT Alphaville speculated they were probably being arbitraged in some fancy fashion by a new breed of index arbitrageur, who had shrewdly spotted a fresh cross-asset opportunity. Read more
Two Norwegian day traders who apparently outwitted the electronic trading systems of a US broker have sparked a debate in the country over the growing influence of machines in financial markets, reports the FT. The two men have been indicted in Norway on charges of market manipulation after allegedly tricking the electronic trading system of a big US broker into raising the price of shares on the Oslo Stock Exchange. Norwegian police said the men had worked out a pattern of trading that caused the system to jack up prices, allowing them to sell at a profit. Many small investors have leapt to the defence of the accused men, lauding them for striking a blow against the automatic trading software that increasingly dominates global financial markets. Read more
Zero Hedge draws attention to a remarkable little study by a group called Nanex.
The datafeed company’s research shows that high frequency players approach trading in an almost ‘paint by numbers‘ way. That is to say, when broken apart and analysed, their algorithmic order sequencing displays patterns which verge on cyber art. Read more
Alternate title: The end of valuation.
And this is why. Read more
A possible culprit has been found for Wednesday’s sharp movement in cable — which saw the GBP/USD exchange rate drop to 1.5181 and recover in the space of a few minutes. A(nother) tradebot. To be specific, says FT Alphaville, some market participants are blaming an algorithm gone wild at a Dutch bank. Read more
So says JP Morgan’s Michael Cembalest, who might well take an interest in the events of May 6.
As protectorate for “several hundred billion dollars in client assets,” the JPM private banking chief investment officer says he’s very interested in anything that might “detract” from market confidence. Which would be a rather reserved way of describing the May 6 ‘flash crash,’ which erased about $1,000bn in US equity in the space of minutes and for no apparent reason. Read more
Here’s something for critics of high-frequency trading (HFT) to pull out for their next dinner party conversation, FT Alphaville writes – a new academic paper analysing the correlations of NYSE and Nasdaq stocks. Surprise: correlations are up, especially for smaller share trades. Read more
The House Financial Committee on Financial Services, via the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (whew) will host an inquiry into “the stock market plunge: what happened and what is next?”.
Among those scheduled to testify on Tuesday afternoon from 3pm New York time are SEC chair Mary Schapiro, CFTC chair Gary Gensler and senior executives from NYSE Euronext, Nasdaq and the CME Group. Read more
Regulators, politicians, media types, investors and exchanges are still trying to figure out just what happened to cause that sharp, sudden and scary plunge on Wall Street last Thursday. Now analysts at Barclays Capital have weighed in, arguing that a ‘perfect storm’ of events precipitated the plunge. FT Alphaville has more. Read more
Joint statement out of US regulators on Friday regarding Thursday’s Flash Crash. Operative pars:
…We are devoting significant resources and expertise to this effort. Read more