Growing evidence, number trails and a culture of greed support a connection between high frequency program trading and market manipulation and, by all appearances, the pumping up of stocks of troubled financial companies… – Ilene
TRIN appeared to be broken because we were getting huge swings in its values from moment to moment in the market. It would swing wildly, sometimes going far above 1.0 and sometimes far below. I pointed out that, from a purely mathematical vantage point, this could only occur if a disproportionate share of NYSE volume was occurring in one or a handful of stocks.
Further inquiry revealed that this was, indeed, the case: I found that, not only were the trading volumes of such stocks as C, AIG, FNM, and FRE elevated, as noted the by Big Picture blog, but that their composite volumes (their volumes traded across all exchanges) exceeded that of all other NYSE stock trading! Indeed, I discovered that the 20-day TRIN was at its lowest level since 2000 because volume was highly concentrated in rising stocks. This was not just unusually heavy volume; it was unusually heavy to the buy side.
Since this volume was directional--all of these stocks had made spectacular percentage gains--and because the highly unusual activity was unique to troubled financial firms (not stable companies such as GS and JPM), I surmised that something might be afoot: a systematic attempt to bolster the shares of taxpayer supported companies that--for political reasons--could not return to the bailout well. Why such an attempt? Perhaps to reimburse the largest shareholder of the institutions and position these companies to raise capital on their own. They certainly weren’t going to raise their own capital as languishing two-dollar zombie…
It is now generally understood that high frequency traders (HFTs) are dominating the equity market, generating as much as 70% of the volume.
HFTs are computerized trading programs that make money two ways, in general. They offer bids in such a way so as to make tiny amounts of money from per share liquidity rebates provided by the exchanges. Or they make tiny per share long or short profits. While this might sound like small change, HFTs collectively execute billions of shares a day, making it an extremely profitable business.
Why should institutional or retail investors care? After all, aren’t HFTs adding liquidity? That’s what they and the exchanges, who court their business, say.
There’s a lot to worry about.
1. HFTs provide low quality liquidity.
In the old days, when NYSE specialists or NASDAQ market makers added liquidity, they were required to maintain a fair and orderly market, and to post a quote that was part of the National Best Bid and Offer a minimum percentage of time. HFTs have no such requirements. They have no minimum shares to provide nor do they have a minimum quote time. And they could turn off their liquidity at any time. When an HFT computer spots a real order, the HFT is not likely to go against it and take the other side. The institution is then faced with a very tough stock to trade.
2. HFT volume can generate false trading signals.
This can cause other investors to buy at a higher price, or sell at a lower price, than they would otherwise. A spike in HFT volume can cause an institutional algorithm order based on a percentage of volume to be too aggressive. A spike can attract momentum investors, further exaggerating price moves. Seeing such a spike, options traders can start to build positions, which, in turn, can attract risk arbitrage traders who believe there’s potential news that could affect the stock.
Joe Saluzzi of Themis Trading on Bloomberg TV, discussing several critical topics previously covered extensively on Zero Hedge: the real state of the economy, high frequency program trading and outright market manipulation.
To quote Joe:
"I have a feeling one day the door is gonna close, everyone is going to be running for the exits, there is going to be a major move in the market and everyone is going to wonder "what happened?"
The euro "might start to unravel" if Deutsche Bank collapses according to respected financial journalist Matthew Lynn. "It all has a very 2008 feel to it ..." he warns in the Telegraph where he outlines his growing concerns about Deutsche Bank, concerns we have written about in recent months. He writes:
Howard Marks, co-chairman at Oaktree Capital Group, discusses how clients are approaching the current market, investors continuing to act bullish, and fighting the idea of going to cash. He speaks with Bloomberg’s Erik Schatzker on “Bloomberg Markets” and also appears at the Bloomberg Markets Most Influential Summit in New York. (Source: Bloomberg)
In the wake of today’s durable goods report and last week’s housing reports the Atlanta Fed GDPNow Model for third quarter GDP ticked down 0.1 percentage points to 2.8%.
Latest forecast: 2.8 percent — September 28, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 2.8 percent on September 28, down from 2.9 percent on September 20. The forecast of third-quarter real equipment investment growth fell from 1.5 percent to 0.8 percent after this morning’s advance durable manufacturing report from the U.S. Census Bureau. The forecast of third-quarter real investment ...
A decision by the U.S. Securities and Exchange Commission may bring European Union banks a step closer to avoiding billions of dollars of capital charges on their trades in derivatives and other securities.
In early 2009, the seven largest publicly traded college operators were worth a combined $51 billion. Today, they’ve been all but wiped out.
When Barack Obama took office, America’s seven largest publicly traded college operators were worth a combined $51 billion, with more than 815,000 students enrolled at campuses spread across the country. The schools were flooded with with people seeking shelter from the recession, returning to school to pick up new skills.
Almost eight years later, the industry has been decimated. The seven largest listed operators are worth just over $6 billion, and the most valuable co...
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I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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