High Frequency Trading High-tech Highway Robbery

April 22, 2010 by · Leave a Comment 

By Mike Whitney

April 18, 2010  — The Securities and Exchange Commission (SEC) knows that High-Frequency Trading (HFT) manipulates the market and bilks investors out of tens of billions of dollars every year. But SEC chairman Mary Schapiro refuses to step in and take action. Instead, she’s concocted an elaborate “information gathering” scheme, that does nothing to address the main problem. Schapiro’s plan–to track large blocks of trades by large institutional investors– is an attempt to placate congress while the big Wall Street HFT traders continue to rake in obscene profits. It achieves nothing, except provide the cover Schapiro needs to avoid doing her job.

High-frequency trading (HFT) is algorithmic-computer trading that finds “statistical patterns and pricing anomalies” by scanning the various stock exchanges. It’s high-speed robo-trading that oftentimes executes orders without human intervention. But don’t be confused by all the glitzy “state-of-the-art” hype. HFT is not a way of “allocating capital more efficiently”, but of ripping people off in broad daylight.

It all boils down to this: HFT allows one group of investors to see the data on other people’s orders ahead of time and use their supercomputers to buy in front of them. It’s called front-loading, and it goes on every day right under Schapiros nose.

In an interview on CNBC, HFT-expert Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, “Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor.”

The brash way that this scam is carried off is beyond belief. The deep-pocket bank/brokerages actually pay the NYSE and the NASDAQ to “colocate” their behemoth computers ON THE FLOOR OF THE EXCHANGES so they can shave off critical milliseconds after they’ve gotten a first-peak at incoming trades. It’s like parking the company forklift in front of the local bank vault to ease the transfer of purloined cash. Due to the impressive research of bloggers like Zero Hedge’s, Tyler Durden and Market Ticker’s, Karl Denniger, many people have a fairly good grasp of HFT and understand that the SEC needs to act. But Schapiro has continued to drag her feet while issuing endless proclamations about pursuing the wrongdoers. Baloney. She needs to stop yammering and shut these operations down.

In a recent posting, Market Ticker explained some of the finer-points of high-frequency trading, such as, how the banks/brokerages probe the exchanges with small orders in order to find out how much other investors are willing to pay for a particular stock. Here’s a clip:

“Let’s say that there is a buyer willing to buy 100,000 shares of Broadcom with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower.

So the computers, having detected via their “flash orders” that there is a desire for Broadcom shares, start to issue tiny “immediate or cancel” orders – IOCs – to sell at $26.20. If that order is “eaten” the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled.

Now the flush of supply comes at $26.39, and the claim is made that the market has become “more efficient.”

Nonsense; there was no “real seller” at any of these prices! This pattern of offering was intended to do one and only one thing – manipulate the market by discovering what is supposed to be a hidden piece of information – the other side’s limit price!

With normal order queues and flows the person with the limit order would see the offer at $26.20 and might drop his limit. But the computers are so fast that unless you own one of the same speed you have no chance to do this – your order is immediately “raped” at the full limit price!

The presence of these programs will guarantee huge profits to the banks running them and they also guarantee both that the retail buyers will get screwed as the market will move MUCH faster to the upside than it otherwise would.

If you’re wondering how Goldman Sachs and other “big banks and hedge funds” made all their money this last quarter, now you know.” (“High-Frequency Trading is a Scam”, Market Ticker)

The HFT uber-computers are able to find out the highest price that traders will pay in a millisecond and then extort that full amount millions of times to maximize profits. Clearly, this has nothing to do with efficiency or innovation. It’s high-tech highway robbery; institutional bid-rigging on a grand scale, tacitly sanctioned by industry lackeys operating from within the administration. Schapiro was picked by Team Obama for this very reason; because she was known as a regulator with a “light touch” when she headed Finra the financial industry’s self policing agency. As Finra’s chief, Schapiro managed to keep her head in the sand during the Madoff scandal and the auction-rate securities flap. She also issued far fewer fines and penalties than her predecessor. Here’s an excerpt from the Wall Street Journal which sums up Schapiro’s regulatory doctrine:

“The Financial Services Institute, a trade group, was meeting, and Ms. Schapiro addressed the crowd about Finra’s efforts to fight frauds aimed at senior citizens. Frank Congemi, a financial adviser, asked what Finra was doing to regulate “packaged products” such as complex mortgage securities. Mr. Congemi says that Ms. Schapiro replied: “We have rating agencies that rate them.” The credit-rating agencies, by this time, were being heavily criticized for having given triple-A ratings to mortgage bonds that became unsalable as foreclosures rose.” (Wall Street Journal)

If the financial crisis has taught us anything, it’s that the system is NOT self-correcting. And it takes more than just rules. It takes regulators who are willing to regulate.

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Obama to Investment Guru Buffett: Hi Cuz

December 22, 2009 by · Leave a Comment 

By Deborah Charles

WASHINGTON (Reuters) – President Barack Obama, who won political support and has sought advice from investment guru Warren Buffett, may now feel even closer to the world’s second richest man.

According to their family trees, the two men who at times shared the stage together during the 2008 presidential campaign are seventh cousins three times removed.

Genealogists at ancestry.com announced Tuesday that Obama and Buffett are related through a 17th century Frenchman named Mareen Duvall.

According to the online genealogists, Duvall — who immigrated to Maryland from France in the 1650s — is Obama’s 9th great grandfather and Buffett’s 6th great grandfather.

The discovery was made by accident when the same team of genealogists who had researched Obama’s family tree went on to investigate details about Buffett’s relatives.

“We recognized the name Duvall and it made us wonder if this was a connection,” said Anastasia Tyler, the lead researcher on the project. “So we started focusing on Duvall.”

“We’re always looking for a way to show how interesting family history is. Like this, when you start finding similarities in family trees,” Tyler said in an interview. “The tree leads you in directions you don’t expect.”

The family tree shows Obama related to Duvall through his mother Stanley Ann Dunham while Buffett is linked to Duvall through his father Howard Buffett.

Tyler called Duvall’s life a “rags-to-riches” story. He arrived in America as an indentured servant but by 1659 he had bought property in Maryland and became a planter and merchant and was considered a “country gentleman.”

“It’s quite an achievement,” Tyler said of Duvall’s rise in society. “You can see similarities to him in both (Obama’s and Buffett’s) lives.”

During the presidential campaign, Lynne Cheney said she found while tracing her family roots that her husband, then Vice President Dick Cheney, was a distant cousin of Obama’s.

Obama has also been found to have had German roots through his sixth great grandfather, and a connection to Ireland through his third great grandfather.

(Editing by Mohammad Zargham)

Farouk Shami To Vie For Democratic Party Nomination To Run For The Governor Of Texas

November 25, 2009 by · Leave a Comment 

Picture AD History was made this past week, when famous Owner of Farouk Systems (Brand: CHI-USA) Farouk Shami, a Palestinian-American entrepreneur, announced his candidacy for the Democratic Party Nomination to run for the Governor of Texas. Since James Pinckney Henderson of Democratic Party became the first Governor of Texas on February 19, 1846, Thirty-Nine (39) Governors of Texas have come from Democratic Party; Six (6) from Republican Party; One (1) Unionist; and One (1) Independent [Sam Houston]. If nominated by Democratic Party and then elected, Farouk Shami will become the 48th Governor of Texas. More details at www.FaroukForGovernor.Com

Amidst slogans of “Farouk – Farouk: Yes We Can – Yes We Can”, under the huge white tent in the parking lot of Farouk Systems, Mr. Shami announced that he will be vying for the nomination of his Democratic Party on March 02, 2010 during the Texas Primaries, to run for the Governor of Texas in November 2010. Other candidates within Democratic Party include businessman Tom Schieffer, Fort Worth; schoolteacher Felix Alvarado, Fort Worth; rancher Hank Gilbert, Tyler; and satirist Kinky Friedman, Austin.

Farouk Shami tabled his issues during the campaign to be: Spending more money to make people of other States of USA and countries look at Texas as the place with the highest standard of education (not merely on the basis of standardized examinations); Support entrepreneurship by lowering tariffs and as such creating manufacturing jobs for Texans along the Texas-Mexico border and utilizing the skills and zeal of both Americans and Mexicans; Make Texas a State that exports Food; Reforming Health Care; and Preserving the Environment.

Attendees at this event said they are supporting Farouk Shami because despite several odds against him, he has always persevered to not only succeed himself, but also bring positive change to the lives of thousands. We do not need a career politician to be the next Governor: We need a problem solver; a person who understands the grassroots issues of diverse communities of Texas; and has a track record of providing practical solutions for our problems here in Texas: Mr. Shami is that person and most interestingly the present Governor of Texas Rick Perry has publicly acknowledged that.

Based on the past experience, it is estimated that a minimum of $10 million will be needed to run this campaign (if not $20 million) and Farrouk Shami, who has pledged to take a $1/Year Salary as Governor, is planning to some of his own and some of the money as donations from individuals of various communities.

The 2010 Texas gubernatorial election will be held on Tuesday, November 02nd, 2010 to elect the Governor of Texas, who will serve a four-year term to begin on January 15th, 2011. The winning candidate need only garner a plurality of votes, not a majority, to be elected Governor (as was the case with the 2006 election).
The Lieutenant Governor of Texas is elected on a separate ticket; as a result, the Governor-elect and Lieutenant Governor-elect may be (and have been) of different political parties.

Texas does not have term limits for its governors. As such, the incumbent Governor (Rick Perry), who has already set the record for total and consecutive time served as Governor, is free to seek re-election for what would be an unprecedented third four-year term (and has announced his intent to do so).

The Republicans and Democrats will select their nominees based on the results of primary votes held on March 02nd, 2010 (the first Tuesday in March) and, if needed, runoff elections will be held on April 13th, 2010 (the second Tuesday in April).

Perry has announced his intention to run for an unprecedented third consecutive four-year term in 2010. He faces a challenge in the Republican primary election from U.S. Senator Kay Bailey Hutchison and Wharton County Republican Party Chairwoman Debra Medina.

As for Farouk Shami, he has worked for decades in the field of hair-care products development, and attended cosmetology school at the University of Arkansas. He is notable for having invented the first ammonia-free hair-color, after developing an allergy to the chemical that initially led doctors to encourage him to leave his profession.

His company, the Houston-based Farouk Systems, currently employs 2,000 Americans, and exports its line of hair and skin care products under the BioSilk, SunGlitz and Cationic Hydration Interlink (CHI) brands to over 50 countries worldwide.

Shami plans to build a hair products factory in Palestine that will employ a projected 500 people.

On July 27th, 2009 Farouk Systems announced they will be bringing back jobs to America by opening a new plant in Houston that will employ approximately 5,000 people. They plan to market the products as made in the USA. Shami is a member of the board of the American Task Force on Palestine.

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