Craig Pirrong, Streetwise prof and futures trading expert, delves into the case of the Hounslow Spoofer, and like us, smells a rat.
For one thing, notes Pirrong, the official complaint doesn’t offer much in the way of detail on the execution strategy. It’s all very well alleging that Sarao spoofed the market with bogus orders, but none of this explains how he actually made money from the strategy. Especially given that the numbers presented don’t seem to add up. Read more
Bloomberg on Wednesday brought us the exclusive story that currency traders may have been manipulating benchmark foreign-exchange rates, which are used to set the value of trillions of dollars of investments, for more than a decade.
From Bloomberg: Read more
Courtesy of Glencore’s intention to float filing on Thursday an insight (finally!) into the previously shy commodity powerhouse’s closely held trading strategies.
From the document: Read more
FT Alphaville moderated a panel on “The rise and rise of Delta One” at the FOW European equity options conference in Amsterdam on Friday.
There was an excellent range of speakers representing a good slice of the Delta one industry in Europe, from market-makers to providers, to derivatives strategists. Read more
Ivan Glasenberg has broken a decade-long silence ahead of the launch of Glencore’s initial public offering this week, saying that the flotation will give the world’s top commodities trader the financial firepower it needs as consolidation gathers pace, the FT reports. Mr Glasenberg told the Financial Times that the launch of the offering – the largest ever in London – was “imminent” after it received robust support from big institutional investors. Glencore plans to sell a 20 per cent stake worth about $10bn-$12bn, valuing the whole company at around $60bn, bankers said. Bankers close to the deal said the intention-to-float document will be filed on Thursday, although Mr Glasenberg declined to specify the day. “The interest from the cornerstones was a lot stronger than we envisaged,” Mr Glasenberg said. “Markets are in our favour too. We have a strong commodities market.”
Technologically speaking all is still not well at the London Stock Exchange, reports FT Alphaville. Prices were being disseminated on Monday morning but anyone trying to enter the LSE website via Google was getting hit with a “reported attack” message. Still, the LSE is not the only exchange with a red face this morning. The Australian Stock Exchange, which like the LSE is merging with a rival, has also suffered an outage. Quotes on Nasdaq’s OMX Nordic exchanges were also failing to update. While this is probably nothing more than coincidence (and note the ASX did install a patch over the weekend), it does make one wonder if there’s something in these industrial sabotage theories. Read more
Something’s afoot in the Mortgage-Backed Securities (MBS) market.
After this week’s drop-off in secondary market trading for private-label residential MBS, comes Friday’s news that MBS trade settlement failures reached a record: 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.
Deutsche Bank has revealed a big downturn in trading and has warned of an expected quarterly net loss following a €2.3bn ($3bn) writedown over its offer for its rival Deutsche Postbank, the FT reports. Germany’s largest bank said on Tuesday that its biggest and most profitable investment banking operations had suffered a marked downturn in July and August and would report third-quarter profits “substantially below the level” of last year. Last year Deutsche made net income of €1.4bn in the third quarter. The warning from Deutsche, one of the leading global banks in the trading of fixed-income products and foreign exchange, provides further evidence of a downturn in the sector.
Global shares finished a day of volatile trading in negative territory in spite of a last minute rebound on Wall Street, the FT reports. US data on goods orders and home sales added more evidence of a slowing economy and pushed US stocks down for most of the session. Traders had started the global session by halting the yen’s rise to 1995 levels after Japanese officials stepped up their so-called verbal intervention to stem the currency’s ascent. Yoshihiko Noda, finance minister, said he was considering “appropriate action” on what he described as “one-sided” moves in the yen. After choppy trading in the US markets, with the Dow Jones Industrial Average at one point struggling to hold the 10,000 level, a late day rebound left Wall Street closing in positive territory. The S&P 500 index closed up 0.3 per cent, paring the losses on the FTSE All-World stock index, which is now down 0.5 per cent.
Rick Bookstaber has a fascinating post about “physics envy”, which is how he describes the affliction suffered by those who would explain activity in financial markets according to sophisticated mathematical models (and base decisions on them).
Building on research by Andrew Lo and Mark Meuller, Bookstaber writes that this is not a new phenomenon, and adds: Read more
Goldman Sachs and Morgan Stanley each suffered at least 10 days of trading losses in the second quarter, underlining how turbulent markets have cast a pall on Wall Street since April, the FT says. The banks’ trading results deteriorated sharply from the first quarter of the year, before uncertainty about the US economy, European sovereign debt and the fate of new financial industry regulation sapped investors’ confidence. In particular, NYT DealBook says, losses on Goldman Sachs’s trading desks were over $100m on three days during the period that ended on June 30, exceeding the bank’s own VaR estimate.
Does anyone remember Goldman Sachs’ 2010 Outlook?
The bank’s year-ahead piece, which carried the title “The Outlook for 2010/11: Exciting, with risks!”, is being given a second life after its December 2009 publication. But not in a good way. Read more
The New York Times reports how the prospects for BP’s trading unit are looking uncertain following the Deepwater Horizon disaster, especially as the resources the division once took for granted become threatened. There are already signs, the NYT says, that trading partners are becoming wary of BP’s financial outlook with one market participant, Bank of America Merrill Lynch already halting long-term contracts with BP. The paper says the secretive unit earns the company between $2bn and $3bn annually and has long inspired fear and envy among rival traders.
Oil trading houses and large banks were watching their exposure to BP closely yesterday but said they continued trading as usual in spite of the company’s woes, the FT reports. “No change but watching carefully,” said an executive at one of the five largest oil trading companies. A senior trader at another big company added: “We are monitoring it closely, but trade remains as normal.” BP is central to commodities markets such as oil, gasoline and natural gas. It is the largest trader among the big oil companies, with far more complex activities on physical and derivatives markets than rivals such as ExxonMobil.
Roguish trader turned novelist – ‘L’Engrenage, Mémoires d’un trader’ – Jérôme Kerviel has some advice for his peers on the all-important annual review.
In an extract from his book featured on eFinancialCareers on Thursday, Kerviel opined thus: Read more
Both Goldman Sachs and JP Morgan were able to boast of having made money every single day in the first quarter of 2010. An impressive feat? Sure – but certain high frequency traders have made money every single day for four years. FT Alphaville has the details. Read more
Goldman Sachs’ Q3 daily trading revenues from the bank’s just-released 10-Q filing:
$100bn — that’s the daily figure for trading volume in the retail foreign exchange market, where amateur plungers play the dollar and the like.
The IPO prospectus for Gain Capital, one of the scores of firms tapping into this area of explosive growth, sets out the juicy business on offer (emphasis FT Alphaville’s): Read more
Or the Emotion Mirroring System for Online Traders.
This stylish bracelet and bowl are the fruits of a joint venture between Dutch electronics group Philips and ABN Amro, and were designed to help online traders make better decisions.Here’s how the system works: The Emobowl ™ acts as an emotion mirror, in which the intensity of the user’s feelings is reflected. Read more
The Office of the Comptroller of the Currency has released its quarterly report on bank trading and derivatives activities for Q2 2009, and as usual, it makes for interesting reading.
Some highlights: Read more
Further to that NYT story….
13:58 RTRS-MERRILL LYNCH IN LONDON SAYS HAS DISCOVERED AN IRREGULARITY DURING RECENT EVALUATION OF TRADING ACTIVITIES
13:58 RTRS-MERRILL LYNCH IN LONDON SAYS WORKING CLOSELY WITH AUTHORITIES TO INVESTIGATE MATTER
13:59 RTRS-MERRILL LYNCH IN LONDON SAYS SENIOR MANAGERS SAY RISKS SURROUNDING POSSIBLE LOSSES UNDER CONTROLRelated link:
BOA MER due diligence, trading edition – FT Alphaville
The New York Times has an article out on Friday examining the dealings of Merrill Lynch traders; in particular one Alexis Stenfors, a London-based currency trader at the bank, currently under investigation for losing $120m, according to the story.
Here’s the general thrust of the article: Read more