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Im starting this book in Barnes and Noble (yes for free - yes im a dirt bag). I just had to dive in after seeing this author on the news talking about this book and specifically about his appearance on 60 minutes.
Unlike a his books about wall street in the past which seemed to sort of glamorize the traders, this one exposes them lol. Apparently the big Wall.Street brokerages and banks play dirty and have an unfair advantage. Who'd a thought?
So new computer trading is allowing for all kinds of before unheard of moments for arbitrage. The book opens up with the secret cable laid fron Chicago to New Jersey to facilitate this practice.
25 really? Canada locked up the Japanese too in WWII?
26 The Canadian bank RBC has a "no asshole rule". If Wall Street had that, tbere would be none left to hire.
35 This Canadian trader discovers that every time he tries to initiate a big trade, the market seems to move just ahead of him as though the market can anticipate his next move. He smells a rat.
I didnt know that the exchanges went private. When the heck did that happen? Now there ard 13 or so public exchanges. Just wbat America needs. (And 44 private ones?)
35 Now that people have been eliminated from most stock transactions. Our hero finds out that the whole system is just a black box with "matching software" and that instead of selling stocks the firms now sold "algorithms designed by the banks" in a procedure "dubbed electronic trading or "HFT High-frequency trading.'" The fact that people are eliminated can now cause all kinds of brand new anomalies introduced into the system. Already there have been several "flash-crash" incidents reported. In the absence of proper regulation, they wall streeters are free to do whatever they think will make them money even if it means the destruction of the "golden goose."
They come up with a computer program called Thor which helps to sheild intentions from the system with computer code. It works. Using Thor allows them to once again take control of their own transactions at least.
40 He realizes that unlike the recent past, the image he saw on his screen was just a matrix-like illusion and not the actual picture of the market activity. So that when he actually hit the buy button most of the stocks that he was looking to buy just dissappeared. It was as though the market was "moving away from him." Behind the scenes a computer was taking note of what you wanted to buy and In a millisecond less than you, it was buying the stock ahead of you to sell it back to you.
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Ok just a side note Starbucks in Barnes and Noble is out of coffee. Is that even possible? Wow.
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45 This is rich. This Brad Kaysuyama is going to put a team togetber and catch the Wall Street banks red-handed at fixing the game. Did you roll out of your chair too laughing? Guess what Brad everyone knows they do illegal things everyday. They rig the market and rob the planet and make sure at the same to do it conspicuously. They damned near crashed the planet with their cutthroat dishonest bullshit and nonboby cared. So good luck with that Brad.
52 Brad realizes that there is about 160million dollars day being siphoned off tbe system. Who was getting that money was anybody's guess.
So this scam is called the front-run. A trader acting a few milliseconds ahead of you sees your request to buy a certain stock he purchases it ahead of you and then sells it back to you on anotber exchange with a small amount added of course.
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Holy shit!!' Dr Tighe said Hi. It truly is another spring miracle.
And heres Amanda with children in tow. Its old home week (I really dont even know what that means).
No Tony though im surprised.
Just a quiet afternoon at B&N on this beautiful spring day.
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56 Chapter Three Ronan's Problem
So, all out smackdown bitchslap debate on CNBC. BATS head Bill O'brien confronts Brad Katsuyama on national television and Katsuyama comes off as a little inept but O'brien comes off as an overly-defensive blowhard. It seems Mr O'brien takes offense to the accusations hurled at him. The funny thing is the stock market has been rigged since day one. It has always been this way. This is really nothing new. Lewis, in a different interview dares to suggest the reality that the markets have always been rigged in favor of tbe insiders and that this is really just another episode long running series. The only thing that surprises me about this is the fact that people are surprised. Are we really that naive to believe that those people on the inside are insuring fairness for the rest? Really? Wow.
23.2% "Wall Street was once again a place." Computers had taken the "place" factor out of transactions. I mean everything happens in less than a second right? Doesn't matter where you are in the world. But now we were starting to talk milliseconds and just like that place, really proximity, mattered once again.
25.7% He helped them obtain the cat bird's seat; the coveted Toys R Us cage. This cage that used to host the servers for the toy company was the closest server in line to the server that held the matching software. Talk about proximity! Ronan wanted to name his new company proximity because that's really what he was selling.
In a nutshell:
“What he said told me that we needed to care about microseconds and nanoseconds,” said Brad. The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all."
The have nots never saw the real markets at all!
27.1 % When Ronan laid out the fiber optic maps of the area it all became obvious.
This is why BATS was the most accurate:
"To Brad the maps explained, among other things, why the market on BATS had proved so accurate. The reason they were always able to buy or sell 100 percent of the shares listed on BATS was that BATS was always the first stock market to receive their orders. News of their buying and selling hadn’t had time to spread throughout the marketplace. “I was like, ‘Holy shit, BATS is just closest to us.’ It’s right outside the freaking tunnel.”
Wow here's the whole scam:
"Inside BATS, high-frequency trading firms were waiting for news that they could use to trade on the other exchanges. They obtained that news by placing very small bids and offers, typically for 100 shares, for every listed stock. Having gleaned that there was a buyer or seller of Company X’s shares, they would race ahead to the other exchanges and buy or sell accordingly. (The race they needed to win was not a race against the ordinary investor, who had no clue what was happening to him, but against other high-speed traders.) The orders resting on BATS were typically just the 100-share minimum required for an order to be at the front of any price queue, as their only purpose was to tease information out of investors. The HFT firms posted these tiny orders on BATS—orders to buy or sell 100 shares of basically every stock traded in the U.S. market—not because they actually wanted to buy and sell the stocks but because they wanted to find out what investors wanted to buy and sell before they did it. BATS, unsurprisingly, had been created by high-frequency traders."
29.7 So RBC percects Thor and begins to shop it around remaiing constantly astounded at the fact the fact that these so called sophisticated investors had no idea what was happening. Even David Einhorn did not know. (this is what the CNBC schlock couldn't believe).
And then, the inevitable; 2:45 pm on May 6, 2010 came the first flash crash. If you blinked you would have missed it. The screens returned to normal in just a few seconds, but the possibilty of what could happen was now a reality.
"Then came the so-called flash crash. At 2:45 on May 6, 2010, for no obvious reason, the market fell six hundred points in a few minutes. A few minutes later, like a drunk trying to pretend he hadn’t just knocked over the fishbowl and killed the pet goldfish, it bounced right back up to where it was before. If you weren’t watching closely you could have missed the entire event—unless, of course, you had placed orders in the market to buy or sell certain stocks. Shares of Procter & Gamble, for instance, traded as low as a penny and as high as $100,000. Twenty thousand different trades happened at stock prices more than 60 percent removed from the prices of those stocks just moments before. Five months later, the SEC published a report blaming the entire fiasco on a single large sell order, of stock market futures contracts, mistakenly placed on an exchange in Chicago by an obscure Kansas City mutual fund."
30.7% Bank of America employee John Scwall tells us that the "assholes from Merrill Lynch" who should have beenthrown out the door actually paid themselves big fat bonuses just before being bought out by Bank of America.
77.4% So after Ronan's team created the ultimate safe exchange they assumed many would join them in the practice of clarity and transparency. How many joined? "
None. Zero. There are now forty-five markets. On forty-four of them no one has any idea how they trade. Has it not dawned on anyone that it might actually be a good idea to tell people how the market works? People can look back on the financial crisis and say, ‘How can you give a mortgage loan with no documentation? It’s preposterous.’ But banks did it. And now trillions of dollars of trades are being executed on markets where no one has any idea of how it works, because there is no documentation. Does that sound familiar?”
So this new entity called a flash crash is a new and frightening reality of todays srock market.
85.4% "The same system that once gave us subprime mortgage collateralized debt obligations no investor could possibly truly understand now gave us stock market trades that occurred at fractions of a penny at unsafe speeds using order types that no investor could possibly truly understand."
88.2% so which big Wall Street bank will be the first to embrace a new "fair" system? "Goldman Sachs was insisting that the U.S. stock market needed to change, and that IEX was the place to change it. If Goldman Sachs was willing to acknowledge to investors that this new market was the best chance for fairness and stability, the other banks would be pressured to follow."
95.4% " The members of the Women’s Adventure Club had been told by a local government official that the fiber-optic line was a government project to provide high-speed Internet access to local colleges. Hearing that it was actually a private project to provide a 3-millisecond edge to high-frequency traders, they had some new questions about it. “How does a private line get access to a public right-of-way?” asked one. “I’m really curious to know that.”
Good question.
So in the end the microwave tower trumps the fiber optic cable. Whats next? Its Men Who Stare At Goats. Remote visual imaging will be the next maybe. Whatever it is, it will benefit the few and penalize the many. Is it illegal? Is it unethical? Is it immoral? I used to think that just to avoid the sleaze was enough. I thought that they could keep the corrupt shit and have at it as it made no difference to me either way. Boy was I mistaken. They can take all of us down with them as they almost did in 2008 which we are still trying to recover from. So yes, someone does have to round them up after all, but good luck with that.
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