“These are proprietary trading shops that are masquerading as market makers,” said Tim Quast of Modern IR, a consulting firm that advises corporations on market structure issues. – NYT1
Maybe Doomers should start paying attention to the Optiver Inquiry.23 The write-up1 in the NY Times is both detailed and fascinating. While the immediate issues seem to be limited to some species of flash options strategy on commodity markets, the Commodity Futures Trading Commission (CFTC) appears to be delving into low-latency, co-location and the whole High-Frequency Trading (HFT) package.
Indeed, this little gem could have come right out of the Aleynikov Affair / Teza playbook.
… And [Optiver] is so careful about preserving its secrets that when some traders and engineers left for a rival operation recently, Optiver hired private investigators and subsequently sued the former employees on charges of making off with intellectual property.
Perhaps the SEC can go to school on this one. Is it possible that there may be players right at the center of the equities markets who bear a passing resemblance to Quast’s characterization?
LATER: OK, here’s the short version,4 (hat tip MoneyShow)
Why the little guy keeps getting killed:
High-Frequency Trading
Flash Orders
Dark Pools
………………………………………………
UPDATE (9/4): Jesse’s on the job (see the Doom repost) and ZeroHedge is all over it,5 including this wacky Optiver Australia recruiting video.
Van Kempen concealed Optiver’s real profit motive from trading the futures and instead falsely stated that its profit motive is “the spread, capturing the spread” and that “anywhere where we trade, we make a bid and an ask spread and we believe we get paid on buying on the bid and selling on the offer.”
“I believe that we must effectively utilize all existing powers to ensure that futures markets remain free of manipulation, fraud or other market abuses,” said CFTC Chairman Gary Gensler, in a statement. “Achieving this goal requires a coordinated international response. The CFTC will work closely with the United Kingdom’s FSA to respond to these challenges in a coordinated manner.”
During last year’s escalation of diesel and fuel prices, many oil futures experts said that the price per gallon of fuel was driven by traders who never actually took possession of a product.
In July 2008, the U.S. Commodity Futures Trading Commission filed a civil suit against Optiver Holding, alleging the company manipulated the prices of crude oil and gasoline over 11 days in 2007 by “bullying” the price of oil upward to sell it at or near the close of the day’s trade.
After all, when the entire economy is based on Ponzi principles, it is only fitting that the "free and efficient market" is also another pyramid construct. And do not for a minute make the gullible assumption that the SEC, which years ago was acquired in a less then merger-of-equals transaction by Wall Street, will ever do anything to moderate the blatant market manipulation that provides billions in profits to the few sophisticated enough to profit from it, whether it be firms like Optiver, or their much, much bigger peers, many operating out of the southern tip of Manhattan (and other places including famous New York university towns, as well as, of course, Chicago).
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