Is the Stock Market Rigged?

[JourneyOfLife]

Did anyone see the 60 minutes piece on Sunday? The 60 minutes piece indicates that High Frequency trading companies front-run others in the stock market.

Is the U.S. stock market rigged? - CBS News (http://www.cbsnews.com/news/is-the-us-stock-market-rigged/)

Take a look at this article. Its about time... Since it began about 10 years ago, people have been very suspicious of high-frequency trading enabling some to manipulate or get an unfair advantage in the markets.

FBI & SEC To Probe High Speed Trading - Business Insider (http://www.businessinsider.com/fbi-and-sec-to-probe-high-speed-trading-2013-3)

it appears the practice go a pass a few years back.... "in the bag" the usual way!

http://blogs.rollcall.com/moneyline/lobbying-and-contributions-by-high-frequency-traders/

http://www.bloomberg.com/news/2010-11-09/high-frequency-firms-accelerate-lobbying-donations-to-head-off-u-s-rules.html

Backgorund: http://en.wikipedia.org/wiki/High-frequency_trading

If it is not found to be criminal is should be made criminal to do certain things with the intention of gaining an unfair advantage.

If the allogations are true; How many will cry for those high frequency trading companies, if massive class-action law suits are filed against those that profited?

I hope they have to disgorge every cent!

[justjim]

There is a difference between a Trader and an Investor. As a long term investor the high speed frequency trading doesn't mean much, if anything, to me.

When $$$$$ are involved you will always find "some" who find ways to cheat or do whatever to make more of them $$$$$!

[2BNTV]

I watch the 60 minutes piece last night.

In a word, NO. The 60 miniutes piece stated that someone, ( I forgot his name), found a legal way to beat the high traders, in their unfair advantage scheme. I believe they said this accounted for, a very small percentage of trading.

The regular stock market is not rigged, and doing quite well for regular investors. :smiley:

White collar crime is, alive and well. Their are always some people always looking, to beat the system. :(

I found more amazing, the stories of the man, who is building the Tesla car and the blind pianists. WOW

[collie1228]

I've always believed that the stock market is rigged to the advantage of those who have the best information and act the quickest, so the high volume traders using computers are probably the best at taking advantage of those traits. But I only buy widely held index funds like the S&P 500, never individual stocks, and I believe that I get some advantage from those traders as well.

[JourneyOfLife]

If the front-running allegation is true, I think you are missing the bigger picture.

The question is; the degree to which you might be impacted individually as a small investor versus all of us as a community of investors as a whole (basically retirement money).

Think about an S&P 500 index fund or etf that has a position in a company that is being added to the S&P 500! A huge number of shares are transacted!

Think about a pension fund that decided to buy or sell stock or Mutual Funds, etc. Then multiply that time who knows how many trades.

Those temporary increases in price are not permanent either! There and gone in a flash!

One commentator called it skimming off of stock trades.

[billethkid]

NO!

[JoelJohnson]

If it is rigged, then those that rigged it did us all a favor, the market has doubled in the last 5 years.

Then again, I don't trade in nano seconds, I invest in good companies that really make money and pay dividends.

[JourneyOfLife]

Here is a short explanation of how they front-run transactions.


Wall Street responds to Michael Lewis' Flash Boys - Mar. 31, 2014 (http://money.cnn.com/2014/03/31/investing/high-frequency-trading/index.html?iid=HP_River)

CNN:
Here's how it works: Critics say some traders use high-frequency technology, HFT for short, to allow them to see a slower trade request coming through the system. The HFT firm then sells shares to the pension or mutual fund at a higher price. This all takes place in a matter of nanoseconds and may only result in a penny or so additional cost, but it adds up.
...

The New York Attorney General, Eric Schneiderman, has described high-frequency technology as "insider trading 2.0."

Last week, Schneiderman told law students at NYU that his office "will continue to shine a light on unseemly practices that cater to high-frequency traders at the expense of other investors."

He singled out certain stock exchanges, which he said enable high-frequency firms to "co-locate" their computer servers in the same data center used by the exchange, giving them the ability to execute trades a fraction of a second faster than other investors.

...

"Mutual funds and 401(k)s are losing a slice of some amount on literally every single trade," said Kelleher. "We're talking about vast sums of money traded by those entities on behalf of investors and retirees. That's how Wall Street rips off Main Street every day."



Because it is done with technology, they claim it is legal. However front-running is illegal! They will argue the letter of the law, not the spirit of the law!

But... the laws and regs did not keep up with the technology for a reason!!!... you can see the lobbying links in my previous post about regs being squashed.

If it is not illegal, it soon will be.

Of course those engaged in it, making the money, claim it is all just a big misunderstanding... In effect, the public and others are just too dumb to understand it, they are actually helping everyone out...

It will be interesting to see what the Justice Dept, FBI and SEC uncover.

[JourneyOfLife]

Here is the author explaining his book and the controversy about the markets.

Michael Lewis: Rigged markets an 'accidental conspiracy' (http://www.cnbc.com/id/101544758)

[Bucco]

Here is the author explaining his book and the controversy about the markets.

Michael Lewis: Rigged markets an 'accidental conspiracy' (http://www.cnbc.com/id/101544758)

Suggest a visit to the CNBC network web site. Interesting debate on this subject, since CBS did not allow or invite any dissenting views and it was a one way street.

Michael Lewis: HFT traders exploit system - CNBC (http://video.cnbc.com/gallery/?video=3000263240)

[PennBF]

First there were ticket tapes, then there was the phone, then moved to banks of phones, Traders used a pipeline of input to size options for buy/sell then the market moved to computer systems then to higher speed technology and then to more sophiscated trading assumption and bingo we are at today. There are two basic requirements for Trader's, (a) knowledge and (b) speed. having a better set of business assumptions for buying/selling and then being able to execute these is not illegal and in fact it is the basic of trading. All the fuss about the way Trading Companies have been successful in building systems and data bases to determine the fastest way to execute is not wrong. This new system of the market started in early 90's and progressed to today. Some did not see the benefits of new systems and they are now ticked off because they are being beaten. I think the fuss on 60 Minutes and the article in the WSJ is bogus. :read:

[waynet]

if a certain select few get information before the rest of us and use it to make themselves wealth that they may not have gotten of course the system is fixed.

[JourneyOfLife]

if a certain select few get information before the rest of us and use it to make themselves wealth that they may not have gotten of course the system is fixed.

One commentator ask for clarification about the word "rigged"

Do you mean it is "Illegal" or "Infuriatingly Legal"

In an interview, Lewis, the author of the book, was not sure the legality of it. But he indicated that he thought that some of it may be legal and if so, that reform is needed.

However, the FBI and SEC investigating certain practices. State Attorney Generals are beginning to weigh in on it too.

[PennBF]

I have a hard time thinking it may not be legal? As regards some not being able to act as fast as others, that has always been the case. This just took it up a notch. Historically, a Trader was never more than 3 feet from a phone was an old statement. They had phone in the Room, in the Bedroom, in the car and were awake when the Tokyo, London and New York markets were open. By the age of 35 most were burned out. The purpose of keeping the phones near was in the end to "beat the other guy" (e.g. speed). The Trader's (95%) used a software system marketed by the Rich Corp. This provided them with a pipeline
of input which they used as knowledge for buy/sell. One of the most private rooms on Wall Street was the Trader Room. It was hard to get in and watch the Traders at work. This is one of the most competitive business's in the world and the one who has the fastest system, (including business assumptions, et al) will have the edge on buy/sell. One last point..The target for a good Trader is to be able to trade $100M in stock without effecting the price. There are many tricks to do this and too long to go into detail. :024:

[JourneyOfLife]

I suspect some clever people lobbied for certain things to be legal.

Plus, smart opportunist probably got legal opinions from law firms.

But, sometimes there is a thin line between certain activity being legal or not.

Likewise, it might not be reasonable assume all operators involved are on the right side of the law with their activities. Even the people (that I have seen interviewed) that made the most staunch rebukes of the book and the allegations recognize there could be some operators that have blurred the lines a bit.

Then there is also the accountabilty and responsiblity to act fairly in those markets to customers. If certain exchanges (by that I mean the entry to exit mechanism for trades) are completely fair, then what is the controversy about?

If the front-running method is legal, it probably will be made illegal soon... or at least clarifications made about what is acceptable and what is not in light of the way it is allegedly being exploited.

But, that will not stop the law suits, if individuals and legal entities (pension funds, mutual funds, etc) believe they have been harmed by unfair practices... especially if they were not informed of the potential hazard.

At issue will be the fact that many of those financial insitutions bear a degree of responsiblity in exchange (no pun intended) for being allow to operate those types of businesses.

[Bucco]

I just wonder how CBS, or any network, decides what book they want to push on various "news" shows

[ivanhoe]

if a certain select few get information before the rest of us and use it to make themselves wealth that they may not have gotten of course the system is fixed.

...actually that's the definition of "insider trading" and it is against the law

[JourneyOfLife]

I just wonder how CBS, or any network, decides what book they want to push on various "news" shows

I don't think they are pushing a book.

Some people, serious people, have made allegations of a serious problem with financial markets on the heels of the worst global financial crisis mush of the world has experienced since the great depression.

If it is not news, I don't know what would qualify as news.

Besides... The FBI and SEC are investigating HFT.

Bloomberg:

Federal agents are making an unusual public plea for the financial industry to bare its secrets.

The Federal Bureau of Investigation has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.

FBI Seeks Help From High-Frequency Traders to Find Abuses - Bloomberg (http://www.bloomberg.com/news/2014-03-31/fbi-said-to-probe-high-speed-traders-over-abuse-of-information.html)

[PennBF]

Being able to gain knowledge through public sources does not, in my opinion and by default the SEC "insider trading". I am sure the SEC has more than studied these processes and since they have not charged the users as in violation of Trading Laws they are currently legal. I personally believe the 60 Minute piece was smoke and just used to attrack viewers. I have no "dog in the hunt" but do have some experience on the market and trading and just expressing my opinion. I would just add that I am positive there have been a large number of Attorney's who have examined the practices and are feeding the SEC all sorts of information and justifications in support of the Clients using these systems to byb/sell. :wave:

[JourneyOfLife]

Being able to gain knowledge through public sources does not, in my opinion and by default the SEC "insider trading". I am sure the SEC has more than studied these processes and since they have not charged the users as in violation of Trading Laws they are currently legal. I personally believe the 60 Minute piece was smoke and just used to attrack viewers. I have no "dog in the hunt" but do have some experience on the market and trading and just expressing my opinion. I would just add that I am positive there have been a large number of Attorney's who have examined the practices and are feeding the SEC all sorts of information and justifications in support of the Clients using these systems to byb/sell. :wave:


Noooooo... it is not public information... not in the way you are describing it and probably thinking about it!

Rather than try to describe it in a post and not do a good job of it... you should read about it.

But it could be the unintended cosequences of technology speed increasing and placement of certain technology that enables "certain" HFTs to use the data they "buy", to front-run trades. It may be one of those things that was discovered, first started small, and then became common place.

But that data that is made available (apparently for a fee) appears to be part of the controversy.

It is complicated. Put it like this.... technology has changed, the rules have changed and some small group of those entities labeled as HFTs (not all of them) appear to be exploiting the market. Other market participants believe to to be unfair.

[Bucco]

I don't think they are pushing a book.

Some people, serious people, have made allegations of a serious problem with financial markets on the heels of the worst global financial crisis mush of the world has experienced since the great depression.

If it is not news, I don't know what would qualify as news.

Besides... The FBI and SEC are investigating HFT.



FBI Seeks Help From High-Frequency Traders to Find Abuses - Bloomberg (http://www.bloomberg.com/news/2014-03-31/fbi-said-to-probe-high-speed-traders-over-abuse-of-information.html)


Oh my comments were not to defend or criticize anyone. I simply see so many "expose" books coming out...many of which over time become news worthy and wondered how the networks pick which book to push because, whether right or wrong, the writers viewpoint was the ONLY viewpoint given on that telecast.

I learned more from listening to BOTH SIDES yesterday on CNBC....both sides well represented and well articulated.

[PennBF]

I am very familiar with the methodology and systems that have and are being used for Trading. As long as the Trader is not involved in receiving business knowledge from an employee or executive it would be hard to prove he/her are in fact doing "inside trading". If the information is gained by very leading state of the art accumulation of intelligence no problem. A comment was made that if some gained information before someone else then that is insider trading? Actually, the objective of Trading is to get information before the other guy (legally) and use it to execute trades. In a trading room you would see terminals with real time market feeds, latest CNN business News, latest WSJ business news, Current key financial date from Corp Reports, 10K's, etc etc. Each room wants their input to be faster than the other guy. Where in the past this use to be feeds from different sources and now they are, in some cases the results of preset financial data, through statistical models, etc.etc. on nano fast computers. (One nano second is like one second over 33 years). Hundreds if not thousands of Attorneys are evaluating these process's and making sure they don't violate the SEC Rules. I would guess if they did a lot of Executives would be in Court as we speak. Unfortunately becasue of time it is not possible to provide very deep details and therefore some support comments are not included or very summarized and that leaves the comments open to being exposed to challenges. :024:

[JourneyOfLife]

Here is a inteview with Michael Lewis about his book and the issues with Jon Stewart. It is broken up into 3 5min videos... with a simple explanation of the problem.

At the bottom of the page is a link to the CNBC debate between Lewis, Katsuyama and William O’Brien, president of BATs Global Market.

Watch Michael Lewis Explain 'Flash Boys' with Jon Stewart on 'The Daily Show,' CNBC and '60 Minutes' - Speakeasy - WSJ (http://blogs.wsj.com/speakeasy/2014/04/02/watch-michael-lewis-explain-flash-boys-with-jon-stewart-on-the-daily-show/)

Here is a link to an interview with William O’Brien, president of BATs Global Market.

In essence O'Brien attempts to make the case that they HFT are just market makers and that new technology is being vilified.

It’s a shameful vilification of the entire industry, says BATs O’Brien on Lewis’ HFTs allegations (http://blogs.marketwatch.com/thetell/2014/03/31/its-a-shameful-vilification-of-the-entire-industry-says-bats-obrien-on-lewis-hfts-allegations/)

Here is an interview with the NY Attorney General about it.

Why New York AG wants curbs on high-frequency traders - MarketWatch (http://www.marketwatch.com/story/schneiderman-on-the-speed-bumps-he-wants-for-hfts-2014-03-19)