Posts Tagged ‘CFTC’

Inside the Flash Crash Report

Pam Martens points out that in patching up May 6th’s market meltdown by breaking certains trades, “busts” only applied to trades occurring between 2:40 p.m. and 3 p.m. when the stock had moved 60% or more from its 2:40 p.m. price.  "The busts that were allowed covered 5.5 million shares and two-thirds of these trades had been executed at less than $1.00…  half of the share volume in these bizarre trades came from just two firms and half the time they were exclusively trading with each other."  The report – amazingly – never names these firms which had their own bad trades undone by that controversial decision that left average investors with large losses. - Ilene 

Inside the Flash Crash Report

By PAM MARTENS, originally published at CounterPunch

high frequency trading The breathlessly awaited government report that promised to shore up public confidence by explaining why the stock market briefly plunged 998 points on May 6, with hundreds of stocks momentarily losing 60 per cent or more of their value, was released last Friday, October 1.  Its neatly crafted finger-pointing to a small Kansas mutual fund firm which has been around since 1937, was immediately embraced as mystery solved by the stalwarts of the corporate press.  This was done with only slightly less zeal than bestowed on the story of Saddam Hussein’s weapons of mass destruction spun out of the George W. Bush administration.

The New York Times headlined with “Single Sale Worth $4.1 Billion Led to Flash Crash.” The Washington Post went with “How One Automated Trade Led to Stock Market Flash Crash.” The Wall Street Journal led with “How a Trading Algorithm Went Awry.”  Hundreds of similar headlines followed in similarly expensive media real estate.  But as with the rush to war on bogus intel, the corporate press may be further damaging its credibility with the American people by ignoring the dangerous market structure that emerges in a closer reading of this report.

The so-called Flash Crash report was the product of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) and consists of 104 pages of data that is unintelligible to most Americans, including the media that are so confidently reporting on it.  It names no names, including the firm it is fingering as the key culprit in setting off the crash.  Earlier media reports say the firm is…
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HFT Firm Faces Charges For Causing “Oil Trading Mayhem”

HFT Firm Faces Charges For Causing "Oil Trading Mayhem"

Courtesy of Zero Hedge 

high frequency trading

Could the tide finally be turning on the high frequency churners-cum-manipulators? In an exclusive report, Reuters informs that "a big high-frequency trading firm faces possible civil charges by regulators after its computer ran amok and sparked a frenzied $1 surge in oil prices in February, according to documents obtained by Reuters and sources familiar with the continuing investigation."

The firm in question is Infinium Capital Management, which confirmed that it is the company at the center of a six-month probe by CME Group Inc into why its brand new trading program malfunctioned and racked up a million-dollar loss in about a second, just before markets closed on February 3. And yes, once all is said and done, it will be precisely this kind of algos gone wild that are found to have caused the much more devastating move on May 6, as we have been claiming all alone, and which the HFT lobby has been fighting tooth and nail to bury under the rug.

More from Reuters:

The glitch explains for the first time the lightning-quick oil-trading surge of that day — and it may have been a catalyst for the abrupt and largely unexplained $5 slide amid record volumes the following two days.

The firm’s buying frenzy also reveals how faulty computer codes, known as algorithms, can spark sharp volatility and send electronic markets spinning all in the blink of an eye.

Futures exchange operator CME Group is looking into the incident, which occurred at the New York Mercantile Exchange and highlights some of the same electronic-trading concerns raised by May’s "flash crash" in the U.S. stock market.

The specifics on the actual trade:

Infinium, a household name in Chicago’s burgeoning trading community, relies on computer horsepower and quantitative models to earn razor-thin profits from short-term trading. It uses its own money to make markets and capitalize on tiny imbalances, a common high-frequency strategy.

The documents, dated March, reveal that Infinium used an algorithm that was less than a day old to execute a "lead/lag" strategy between an exchange-traded fund called United States Oil Fund, which tracks oil prices, and the U.S. crude benchmark future, West Texas Intermediate.

The algorithm was turned on at 2:26:28 p.m. (Eastern) on February 3, less than four minutes before NYMEX closed floor trading and settled oil prices. It


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As Broken Market Limps Along, SEC And CFTC Conduct Worthless Hearing: Watch It Live Here

As Broken Market Limps Along, SEC And CFTC Conduct Worthless Hearing: Watch It Live Here

Courtesy of Tyler Durden

Watch the highly conflicted trading industry representatives, and the highly corrupt regulators try to convince each other that the May 6th events were totally unique, will never happen again, why there is no need to change anything, and why the joke of that is single stock circuit breakers (another reactive not proactive "solution") is all that is needed to return investor confidence. We wish them all the best as they continue to buy and sell stocks from each other, now that everyone else is out of the market permanently. Readers can watch the "Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues Meeting" here. (click here if stream does not show up).


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Release the Kraken: Silver Market Price Rebounds After Sharp Price Drop for Options Expiration

Release the Kraken: Silver Market Price Rebounds After Sharp Price Drop for Options Expiration

Courtesy of JESSE’S CAFÉ AMÉRICAIN

The silver market is rallying strongly today, after the recent dip in price below $18 with respect to the options expiration and delivery dates for the May contract earlier this week. When futures options are filled, one is not paid in cash, but instead they receive active futures contracts at the strike price.

The market game is to either get the front month price below the key strike prices before the expiry to make the options worthless, or to take the price down below the strikes the day after to run the stops of the contract holders. The market makers can see the relative levels of holdings in market in near real time, privileged information not permitted to the average investor.

Three or four banks are short more silver on the COMEX than can easily be attributed to legitimate forward sales or hedging for all the miners in the entire world, for years of production. Granted, it is hard to determine what the truth is because they are allowed to hide their actual positions and collateral, so as to be able to make their leverage and risk difficult to determine. It’s the obsessive secrecy for improbable positions and returns that is the tell in most market manipulation and schemes such as Madoff’s ponzi investments.

Goldman Sachs was able to obtain the exemptions of a hedger in the markets through contrivance, for the purpose of their proprietary speculation. But if Goldman is the vampire squid, then J. P. Morgan is the kraken of the derivatives markets, having less leverage than the squid as a percentage of assets, but significantly more reach and nominal size, positions which seem almost impossible to manage competently against value at risk in the event of a very modest market dislocation. And of course the risk which a miscalculation presents could shake a continent of counterparties. These oversized positions appear to be integral to the misprision of legitimate price discovery that is at the heart of derivatives frauds in other markets.

The 4Q ’09 report from the Office of the Comptroller of the Currency reports that "The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2%, to $212.8 trillion." J.P. Morgan alone has a total derivatives exposure…
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Regulations Alone Are Never Enough, But Here’s How They Can Easily Be Made Pointless

Regulations Alone Are Never Enough, But Here’s How They Can Easily Be Made Pointless

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Obama holds a naturalization ceremony at the White House in Washington

Mr. Obama’s speech at the Cooper Union today was remarkably unsatisfying. It seemed to be given from weakness, and almost obsequious as the American President politely asked his largest campaign contributors to please stop flouting the law, defrauding the people and their customers, and spending millions per day lobbying the Congress to buy changes in the reform legislation to provide them with the ‘right regulators’ of their choice and convenient loopholes to render it ineffective.

The reform making its way through the Congress is unlikely to be effective given the process in place, despite the political kabuki dancebeing conducted by the Congress and the Banks.

The solution is to put simple and effective regulations in the hand of stronger, independent, ad highly capable regulators to bear on the financial services industry, and to understand that the regulations must evolve with a dynamicly evolving business. The idea that you can erect some impregnable and unchanging Maginot line against bank fraud is laughable, a farce.

As William K. Black disclosed in his testimony the other day, the regulators always had the power to shut down the frauds, and to resolve the financial crisis without having to give away billions. They lacked the will, and the motivation.

Banking CEO's Testify Before House On Use Of TARP Funds

You want to wipe that smirk off Lloyd Blankfein’s face? Nominate Eliot Spitzer or Elizabeth Warren to be the head of the SEC, or the CFTC, and provide them with a adequate budget and a staff of financial experts and a few experienced prosectors.

Even with strong regulations, unless you have capable and motivated regulators, there are always ways to evade the rules, especially if they are complex and provide exceptions. The simpler they are, the stronger the regulations will be, provided they are flexible enough to be amended and expanded efficiently to match the changing and dynamic nature of the industry that they are overseeing.

This is not that difficult, and these jokers are not that smart, although part of their con is to paint themselves as the smartest, the best, and practically unstoppable.

The root of the US financial crisis is always and everywhere regulatory capture, political cronyism, and fraud. It really is that simple.

Barack Obama should to listen…
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Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Here’s Karl Denninger’s must-read take on the gold market rigging story. –  Ilene 

Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.

….

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the "gold" to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the "gold" custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not "allocated" to a particular investor. Since this is an "exchange traded" gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

That could be a problem, right?

Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.)  This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are "financial" (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false.  They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)

However, the elements of a scam – which could be the intended…
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CFTC to Begin Releasing New Commitments of Traders Reports on US Futures Markets

CFTC to Begin Releasing New Commitments of Traders Reports on US Futures Markets

cftc step in right directionCourtesy of Jesse’s Café Américain 

A step in the right direction for sure.

A much needed enhancement would be to report the five largest position holders in key markets, on the long and short side over a certain size limit on a weekly basis.

Release: 5710-09
For Release: September 2, 2009

CFTC Implements New Transparency Efforts to Promote Market Integrity

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it will begin implementing new transparency efforts outlined in a July 7, 2009, statement by CFTC Chairman Gary Gensler. Starting Friday, September 4, 2009, the CFTC will begin disaggregating the data in its weekly Commitments of Traders (COT) reports and begin releasing, on a quarterly basis, data collected from an ongoing special call on swap dealers and index traders in the futures markets.

“A core mission of the CFTC is to promote market transparency,” CFTC Chairman Gary Gensler said. “Last September, the CFTC recommended disaggregating our weekly Commitments of Traders reports. In July, I announced that we would also periodically release data on index investors’ participation in the commodity futures markets. I am pleased that as of Friday, September 4, we will be able to take these steps toward increased transparency. For the first time, we will break out managed money and swaps in our COT reports and release information on index investment to give the public a better of view of trading activity in the futures markets.”

Commitments of Traders (COT) Reports

For decades, the CFTC has provided the futures industry with COT reports consisting of aggregated large-trader position data to shed light on the changing composition of the markets. The reports are based on a request by Congress for an annual report, upon passage of original enabling legislation in the 1920’s, and have been intensified over time into weekly reports in several formats and a weekly Commodity Index Supplement for 12 agricultural markets, begun in January 2007.

Beginning Friday, September 4, 2009 (for data as of September 1, the CFTC will publish additional COT data for 22 contract markets, including major agriculture, energy and metals markets. The COT reports currently break traders into two broad categories: commercial and noncommercial. The new reports will improve upon the existing reports by breaking the data into four


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Breaking news: Regulators are (re)discovering that maybe speculation CAN be excessive

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Breaking news: Regulators are (re)discovering that maybe speculation CAN be excessive

BubblesCourtesy of TIME, by Justin Fox writing at the Curious Capitalist Blog

The announcement this morning (pdf!) by Commodity Futures Trading Commission chairman Gary Gensler that his agency is considering imposing limits on the size of trades by energy futures speculators may amount to something of a landmark (or turning point, or whatever portentous phrase you prefer) in Washington’s relationship to financial markets.

Gensler justified the move as part of the CFTC’s duty "to eliminate, diminish or prevent the undue burdens on interstate commerce that may result from excessive speculation." This is a big deal because, for the past 40 years, financial regulators have increasingly gravitated toward the position that speculation can never be excessive. As an official in the Clinton Treasury Department in the late 1990s, in fact, Gensler helped fight off efforts by then-CFTC chairman Brooksley Born to rein in what she felt was excessive speculation in over-the-counter derivatives markets. Yet now here he is proposing new rules to rein in oil and natural gas speculators.

The roots of the benign attitude toward speculation that prevailed in recent decades can be found (among other places I’m sure, but those places aren’t on my bookshelf) in a famous 1953 paper by Milton Friedman on "The Case for Flexible Exchange Rates" (which in turn can be found in his book Essays in Positive Economics). The basic thrust of the paper—that anything but a permanently fixed exchange rate or a free-floating one is inherently destabilizing—still holds up reasonably well. But I’m not so sure about this passage on speculation:

People who argue that speculation is generally destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on the average sell when the currency is low in price and buy when it is high.

Maybe it’s the "in general" that’s the problem here. On average and over time, the argument may be right. But there are surely extended periods during which price bubbles persist—as in the oil futures market last year—and speculators make lots of money by betting on further price increases, thus destabilizing markets. So Gensler is proposing rules that would


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Zero Hedge

BBC Claims Iranian Government Is Lying About Outbreak: Real Death Toll Is 210, Not 34

Courtesy of ZeroHedge View original post here.

Given the Iranian regime's recent history of brazenly lying to the public despite its obvious culpability, we were certainly intrigued when a local lawmaker in Qom told reporters that at least 50 people had died from the coronavirus in his city alone.

Iranian authorities denied these ...



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Phil's Favorites

Don't fear a 'robot apocalypse' - tomorrow's digital jobs will be more satisfying and higher-paid

  Don't fear a 'robot apocalypse' – tomorrow's digital jobs will be more satisfying and higher-paid

Tomorrow’s good jobs will require digital skills like programming. alvarez/Getty Images

Courtesy of Christos A. Makridis, Massachusetts Institute of Technology

If you’re concerned that automation and artificial intelligence are going to disrupt the economy over the next decade, join the club. But while policymakers and academics agree there’ll be significant disruption, they differ about its impa...



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Kimble Charting Solutions

Financial Crisis Deja Vu: Home Construction Index Double Top?

Courtesy of Chris Kimble

Most of us remember the 2007-2009 financial crisis because of the collapse in home prices and its effect on the economy.

One key sector that tipped off that crisis was the home builders.

The home builders are an integral piece to our economy and often signal “all clears” or “short-term warnings” to investors based on their economic health and how the index trades.

In today’s chart, we highlight the Dow Jones Home Construction Index. It has climbed all the way back to its pre-crisis highs… BUT it immediately reversed lower from there.

This raises concerns about a double top.

This pr...



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Insider Scoop

A Peek Into The Markets: US Stock Futures Plunge Amid Coronavirus Fears

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. South Korea confirmed 256 new coronavirus cases on Thursday, while China reported an additional 327 new cases. Data on U.S. international trade in goods for January, wholesale inventories for January and consumer spending for January will be released at 8:30 a.m. ET. The Chicago PMI for February is scheduled for release at 9:45 a.m. ET, while the University of Michigan's consumer sentime...



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Biotech & Health

Could coronavirus really trigger a recession?

 

Could coronavirus really trigger a recession?

Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. AP Photo/Ng Han Guan

Courtesy of Michael Walden, North Carolina State University

Fears are growing that the new coronavirus will infect the U.S. economy.

A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; ...



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The Technical Traders

SPY Breaks Below Fibonacci Bearish Trigger Level

Courtesy of Technical Traders

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

Some recent headline articles worth reading:

On January 23, 2020, we ...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Chart School

Oil cycle leads the stock cycle

Courtesy of Read the Ticker

Sure correlation is not causation, but this chart should be known by you.

We all know the world economy was waiting for a pin to prick the 'everything bubble', but no one had any idea of what the pin would look like.

Hence this is why the story of the black swan is so relevant.






There is massive debt behind the record high stock markets, there so much debt the political will required to allow central banks to print trillions to cover losses will likely effect elections. The point is printing money to cover billions is unlikely to upset anyone, however printing trillions will. In 2007 it was billions, in 202X it ...

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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship

 

Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...



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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

 

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...



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ValueWalk

What US companies are saying about coronavirus impact

By Aman Jain. Originally published at ValueWalk.

With the coronavirus outbreak coinciding with the U.S. earnings seasons, it is only normal to expect companies to talk about this deadly virus in their earnings conference calls. In fact, many major U.S. companies not only talked about coronavirus, but also warned about its potential impact on their financial numbers.

Q4 2019 hedge fund letters, conferences and more

Coronavirus impact: many US companies unclear

According to ...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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