Retail Traders Are the New Lab Rats in High Frequency Trading Schemes
Yesterday, reporters at the Washington Post provided important new information about the insidious machinations of high frequency traders’ efforts to rig U.S. markets in their favor. WaPo reporters Douglas MacMillan and Yeganeh Torbati revealed the following:
“Hedge funds have started to build algorithms or hire outside firms that specialize in scanning conversations on Reddit and Twitter for clues about what retail traders are thinking. Several of these services, with names like Swaggy Stocks, Robintrack and Quiver Quantitative, popped up in the past two years…
“Last year, prominent hedge funds including Point72, D.E. Shaw, Two Sigma and Capital Fund Management were all found to be siphoning trading data from a popular app called Robintrack, which collected information on which stocks users of Robinhood bought and sold. Casey Primozic, the programmer who created the now-defunct app, tweeted his finding in May that he had traced large volumes of traffic back to servers that appeared to belong to those firms.”
This is the latest chapter in the long running saga of how Congress, the Securities and Exchange Commission and the Justice Department are allowing high frequency traders to fleece the public under the pretext of providing liquidity to markets. It was almost seven long years ago that bestselling author Michael Lewis, a former veteran of Wall Street, went on 60 Minutes to promote his new book, Flash Boys, and told approximately 12 million viewers that “stock market’s rigged.” Lewis called high frequency trading by hedge funds “legalized front running,” where traders use high speed computers and algorithms to obtain an early peek at stock prices and what other investors are doing. News about the book and the 60 Minutes interview went viral around the world. Congress quickly assembled a series of hearings.
The question was, should high frequency traders’ ability to get information ahead of the general public be considered an illegal form of insider trading. One of the high frequency trading firms mentioned in the Lewis book was Virtu, which is currently paying for order flow from online brokerage firms like Robinhood. Lewis wrote:
“In early 2013, one of the largest high-frequency traders, Virtu Financial, publicly boasted that in five and a half years of trading it had experienced just one day when it hadn’t made money, and that the loss was caused by ‘human error.’ In 2008, Dave Cummings, the CEO of a high-frequency trading firm called Tradebot, told university students that his firm had gone four years without a single day of trading losses. This sort of performance is possible only if you have a huge informational advantage.”
During a June 18, 2014 hearing by the Senate Banking Subcommittee on Securities, Insurance and Investment, Senator Elizabeth Warren sized up what Virtu was doing as follows:
“For me the term high frequency trading seems wrong. You know this isn’t trading. Traders have good days and bad days. Some days they make good trades and they make lots of money and some days they have bad trades and they lose a lot of money. But high frequency traders have only good days.
The New York Stock Exchange, Nasdaq and others are aiding and abetting this scam by allowing high frequency trading firms to co-locate their computers next to those of the stock exchanges to gain faster access to trading data ahead of what the public sees. They charge expensive fees that the general public could never afford. Congress took testimony on this following the release of the Lewis book but has allowed it to continue.
moar
https://wallstreetonparade.com/2021/02/retail-traders-are-the-new-lab-rats-in-high-frequency-trading-schemes/
this is not new per se as it has been going on since about 2005 when these strategies were tested out in the opex markets.
San Marino hires banks for 300 million euro bond issuance
San Marino has mandated JP Morgan and Credit Suisse to sound out investors over a 300 million euro bond issue, its finance minister said on Tuesday, as the tiny state landlocked inside Italy seeks to shore up its finances.
“The banks will hold a roadshow starting this week ahead of a potential 300 million euro issue,” Finance Minister Marco Gatti told Reuters, confirming an earlier report from a trader. “They will update investors over measures we have included in the latest budget law,” he added. The banks will hold calls with investors from Wednesday to Friday on the three-year senior bond, which will be rated BB+ with a negative outlook by ratings agency Fitch, the trader said earlier on Tuesday. Credit Suisse declined to comment and JP Morgan was not immediately available for comment. San Marino, whose banking sector is struggling because of a large pile of non-performing loans, already sought to tap markets in October last year with a five-year bond but a deal did not surface after the investor meetings.
Back then, San Marino was aiming to raise 300 million euros to help reorganise the liabilities of lender Cassa di Risparmio of San Marino and repay debt to the central bank to shore up liquidity in its banking system, according to an offering document sent to investors at that time.
https://www.reuters.com/article/sanmarino-bond/update-2-san-marino-hires-banks-for-300-million-euro-bond-issuance-idUSL8N2KF5QY