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| The Real Question For Regulators On Knight Capital in forum [Market-Ticker]
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Eaglewwit
Posts: 6054
Incept: 2007-11-30
SoCal
Banned
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This would help explain why the S&P is over 1400. It certainly isn't because of earnings.
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Donethat
Posts: 771
Incept: 2009-04-22
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Knight seems to be already well experienced at selling what (they and or their customers) don't have and can not borrow, only a small step to buying what they can not pay for.
Once the sharpsters found they only had to settle accounts at the end of the day, then intra day positions have no meaning for them, as long as they net out before the end of the day. I hear rumblings that some hedge funds high frequency trading model is to have no overnight carry positions.
Very very crooked.
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Eaglewwit
Posts: 6054
Incept: 2007-11-30
SoCal
Banned
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Donethat. I have heard that too. I could not understand how there could be several HFT that did not hold overnight. The selling at the end of the day would be tremendous. Although we shouldn't be surprised by anything that happens in this crooked casino anymore.
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Donethat
Posts: 771
Incept: 2009-04-22
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The analogy is the bank dollar clearing system, where the bank only cares about its end of day cash and net reserve positions? and then the DTC in NYC is doing 1.7 quadrillion a year in transfers. 6.8 trillion a business day in "security" clearances.
One small step from trading more than your capital per day to holding more than your capital ...
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Debtpie
Posts: 534
Incept: 2009-12-17
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Quote:How is it that a firm managed to amass $7 billion of net position when it had less than 10% of that in cash to put up for margin? If we don't allow this, then the market will tumble, the economy will fold up like a cheap tent, Obama will lose the election, Hillary will be replaced and we won't get to see her do the Lesbian Rump Rub with a plump African sister ever again...now back to that video.
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A Leader, or an Opportunist? "A leader has the capacity of vision, the ability to see where things are headed before people in general see those things." Mitt Romney --- DebtPie's definition: a leader decides where "things" should head and "leads" us there.
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Inez
Posts: 360
Incept: 2009-07-08
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May be HFTs are trading on funny money which doesn't exist but exists in the computer's memory called RAM.
Anyways buying and selling stock at the same price makes them money for adding liquidity. So why not?
Reason: text edited
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Azusgm
Posts: 2399
Incept: 2010-12-02
East Texas
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Knight is an options market maker and therefore has access to the "Madoff exemption" whereby they are allowed to naked short equities. Call it counterfeiting if you wish. I certainly do. A client can trigger this exemption by buying puts. Ostensibly to remain flat, the OMM will require the same customer to sell him the same strike call and the OMM can sell an equivalent number of shares naked short. Naked short selling by OMMs is allowed under the Madoff exemption the SEC issued several years ago. There was a locate requirement for broker-dealers, but not for OMMs. Federal Register /Vol. 68, No. 215 /Thursday, November 6, 2003 / Proposed Rules Quote:The Commission is
proposing an exception from these
requirements for short sales executed by
specialists or market makers but only in
connection with bona-fide market
making activities.49 We believe a narrow
exception for market makers and
specialists engaged in bona fide market
making activities is necessary because
they may need to facilitate customer
orders in a fast moving market without
possible delays associated with
complying with the proposed ‘‘locate’’
rule. Moreover, we believe that most
specialists and market makers seek a net
‘‘flat’’ position in a security at the end
of each day and often ‘‘offset’’ short
sales with purchases such that they are
not required to make delivery under the
security settlement system. Lame. Wouldn't be possible without the DTCC. Why would normal retail person continue to invest or trade? The put purchaser is at liberty to be the buyer of those newly-minted shares. If done in size, this can knock down the price of the underlying so that the client gets air shares on the cheap. The strategy is called a reverse conversion. |
Seven8n2
Posts: 886
Incept: 2008-04-20
SW Virginia, USA
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So, I'm confused...who was on the other side of these trades? The same computer, or other HFT's from other firms? Who was selling all the stocks that the Knight computer was buying? This is a serious question as my Dad was asking me and I can't come up with an explanation...
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O mia Patria, sì bella e perduta!
O membranza sì cara e fatal!
-G. Verdi
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Genesis
Posts: 130713
Incept: 2007-06-26
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Well someone was selling...
But the problem is that there apparently is no actual requirement that you be able to clear what you trade at the broker level. There's supposed to be, but..... there isn't.
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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
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Rvacha
Posts: 8295
Incept: 2008-10-03
Cleveland
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Quote:Why would normal retail person continue to invest or trade? Indeed. Everyone has trading rules and one of mine is that I never EVER trade financials regardless of what the b/s says. When was the last time we actually saw a finnie that was "clean"? I don't think the blame lies solely with the exchange system. A conscientious player wouldn't rely on an exchange to tell it when it is in trouble, it would have its own checks & balances, a circuit breaker and a kill switch. Clearly KCG had nothing. We don't even know if they have any of this now.
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"I suggest you panic." - Hugh Hendry
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Azusgm
Posts: 2399
Incept: 2010-12-02
East Texas
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Unless the rules have changed since the SEC put out the Madoff exemption, broker dealers are to locate shares before executing a short sale and then clear in the required timely manner. Shorting is mostly done via the options and futures markets. The OMM can naked short sell into the market or to the client or a retail client's broker dealer. According to an explanation Max Keiser gave, the cheaper tactic is to use options futures which is pretty much a synthetic bet since it is a derivative based on a derivative and requires only a few pennies on the dollar for margin.
BTW, if you are going to audit the Fed, you need to audit the DTCC at the same time. But you can't. Cede & Co. is an entity that is not accountable to anyone. Cede & Co. is to the markets what the Fed is to currency and banking. The arms of Cede & Co. are supposed to be electronic clearinghouses. They are black boxes. The DTCC arm clears trades in equities. That is where air shares enter the market. It is the same "nominee" model as MERS.
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Tallystick
Posts: 2229
Incept: 2009-09-20
Online
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Was there anything preventing pit traders from buying or selling intraday above their ability to post margin collateral?
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Genesis
Posts: 130713
Incept: 2007-06-26
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Tally, hell yes. As you trade on the floor you have to clock the ticket and trust me, the compliance people are watching.
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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
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R2judge
Posts: 574
Incept: 2008-04-13
Burbank CA
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A "brokerage bubble"?
One day i walked past the bank and saw an ad offering 5% down home loans. Then it became 1% down loans. A housing bubble followed.
It used to be that brokerage ads touted up to 100 dollars if you moved your account. Now i am seeing ads touting up to 600 dollars if you move your account.
Brokerages seem desperate to gain accounts, with those kinds of offers, just as at one time banks seemed desperate to find home buyers.
What is the implication for brokerages???
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Genesis
Posts: 130713
Incept: 2007-06-26
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Well, as I noted in my update video last Thursday, there were persistent rumors that, if true, would have meant an INSTANT market crash.
They have (thus far) been proved to be false. That's the good news.
The bad news is that it appears there are NO exchange risk controls of materiality on these firms. That's extremely serious and although it's an entirely different risk than was rumored, it's one that if it becomes realized is utterly uncontrollable.
If there's one thing that had better get fixed NOW this is it.
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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
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Mannfm11
Posts: 3539
Incept: 2009-02-28
DFW, Tx
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What if they are trading against their customers counter position overnight? In the futures, they would never need margin, if that was the case.
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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
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Genesis
Posts: 130713
Incept: 2007-06-26
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Again, netting across customers is a demonstrable evil and leads to extreme systemic risk. That has to be stopped.
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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
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