Glitch Eh? Uh huh....
The Market Ticker - Commentary on The Capital Markets
Logging in or registering will improve your experience here
Main Navigation
Display list of topics
Sarah's Resources You Should See
Sarah's Blog Buy Sarah's Pictures
Full-Text Search & Archives

Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.

Considering sending spam? Read this first.

2018-02-13 07:00 by Karl Denninger
in Market Musings , 252 references Ignore this thread
Glitch Eh? Uh huh....
[Comments enabled]

It's just a "glitch", you see....

Five years ago, the world’s largest exchange operator vowed to fix a flaw in its systems that allowed high-speed traders to infer the direction of the futures market a fraction of a second before everyone else.

Now, the defect is back at CME Group Inc., traders say. And some allege it is yielding rich profits for ultrafast firms at the expense of ordinary investors.

The problem arises from the two ways that CME distributes information about a trade. One is the private confirmation messages that the exchange sends to the buyer and seller in each transaction. The other is the public data feed that reports trades to everyone active at CME, a Chicago exchange where an average of 19 million contracts changed hands daily in January.

Sometimes, a firm will receive the private confirmation of its trade just before it is reported over CME’s data feed. During that delay—called a “latency”—an ultrafast firm can deduce that the market is about to move up or down, and quickly buy or sell to profit from that information, traders say.

Even better you can actually trick it this way.  That is, you can put a "feeler" order in and learn whether the market moves before anyone else finds out if your confirm comes back first.

This then allows you to trade with or against that fact before anyone else knows it happened and effectively steal from the other market participants.

Why does this sort of thing happen at all and why isn't any firm caught exploiting such a thing, if it's a "flaw" and not intentional, result in said firm being immediately shut down and all of its executives indicted since that's a clear and obvious cheat?

For that matter, why does the SEC allow location to matter?  Why is spending millions to shave off microseconds a profitable enterprise in the first place?  Only because it privileges you by getting data before everyone else.

This would not be hard to resolve.  Have one feed, with the bandwidth delay product known to each of many distribution sites in the US.  Insert an intentional delay line so that the data comes out at each at the same instant.

End of problem -- and advantage.

There's utterly no reason to allow exchanges of any sort to run their own data feeds, and especially not to allow them to sell faster ones.  There should be one consolidated data feed and it should be emitted from all reasonable places in the United States at the same time.

Yes, I know you can't get exactly that in all places at once.  But you sure can do it in Chicago, New York, DC, San Francisco, Los Angeles, Atlanta, Miami, and a few dozen other places.  This should be a public infrastructure that is heavily policed on a second-by-second basis to insure that it's actually fair and that nobody gets the data first by paying or spending more money beyond some baseline that any modest-sized trading firm can trivially afford.

Instead of guaranteeing and policing fairness the SEC, CFTC and other regulators look the other way while various firms find ways to rip others off.  May I remind you that for every dollar some company makes by doing this sort of thing someone else loses a dollar.  That someone is probably you and while the theft is diffuse it is happening and you're the ones losing if a handful of rich hedge funds are winning.

If we had anyone who gave a crap about this the firms involved would be prosecuted and the exchanges punished.

But will either happen?

Probably not.

After all, the entire business model in this country now is scam fast, scam often and scam bigly.

Go to responses (registration required to post)
 

 
Comments.......
User: Not logged on
Login Register Top Blog Top Blog Topics FAQ
User Info Glitch Eh? Uh huh.... in forum [Market-Ticker]
Flappingeagle
Posts: 2748
Incept: 2011-04-14

Report This As A Bad Post Add To Your Ignored User List
This economy reminds me of the fake town the settlers and railroad workers built in Blazing Saddles. All good looking fronts with nothing behind but air.

Yes, it seems that all markets are nothing but scams and skims.

Flap

----------
Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Quik49
Posts: 4340
Incept: 2007-12-11

Report This As A Bad Post Add To Your Ignored User List
A five year old glitch is back...
How convenient.

----------
Long Vaseline....

Aztrader
Posts: 7930
Incept: 2007-09-10

Scottsdale, AZ
Report This As A Bad Post Add To Your Ignored User List
Nothing has happened in the past 9 years while the bankers and corporations have broken every security law through insider trading, stock manipulation via BS announcements and phony accounting. This is a flea on a Rhino's butt compared to the rest of the crap they are doing and the SEC has gone on a permanent vacation when it comes to fraud.
Nadavegan
Posts: 88
Incept: 2017-05-03

The South
Report This As A Bad Post Add To Your Ignored User List
A football team steals plays and videotapes its opponent's practice? A national outrage!

Hedge funds steal billions, in the open, by knowing the market movements before the average trader?

https://www.youtube.com/watch?v=K8E_zMLC....

Whitehat
Posts: 325
Incept: 2017-06-27

The People's Republic of New York
Report This As A Bad Post Add To Your Ignored User List
regular people know about this type of scamming and have known for decades. in more pedestrian circles you can hear them discussing it and test the depth of their knowledge. in the coastal markets, especially mine own, this is common knowledge for the white working to upper class male. the reason that it is tolerated is cultural. people like winners above the honest including honest winners. it is a way of seeing their dis-empowerment rage at the system validated as someone puts something over on said system. additionally the bad boy winning is seen as strong as he is both bad and a winner. see what appeals to people in the cinema for validation of this point. much like the cinema there is a perception based in some truth that females gravitate towards winner bad boys. many men wish to be winners in these life venues, money, power and women. seeing the actions of others that break the rules is descending into a fantasy world for many people. it is a types of escapism much like the movies provide. the men scamming the markets have the perceived lives the frustrated people of the real world wish to live. thus, there is no chance that they will censure them as they would be censuring their own fantasy lives.

many people in law enforcement are as described here, perhaps more so as many acquaintances often say that everyone is corrupt. those with firsthand observation of the human condition, even more so.

so these little people do their little acts of corruption everyday, hiring illegals, cheating on their taxes, lying in many venues and see those that do it big time as validation of their decisions and successful people to be emulated. then they can feel good about putting one over on their neighbors. so what their neighbor was put out of business due to unfair competition in violation of the anti-trust laws. they can say that life is not fair and get to sound like good conservatives too.

when the culture is finished, no one cares about the enforcement of laws.

----------
There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
snow, seasons, distance and dirt roads: SSDD
"Be not deceived; God is not mocked; for whatsoever a man soweth, that shall he also reap" (Gal. 6:7)
Emg
Posts: 141
Incept: 2012-11-20

Canada
Report This As A Bad Post Add To Your Ignored User List
"when the culture is finished, no one cares about the enforcement of laws."

Indeed. In many respects, modern society has become an iterated Prisoner's Dilemna. We all benefit from co-operation until we see the end of the game coming up, then everyone begins to default as they try to scam as much as they can for themselves before the whole thing collapses.
Eleua
Posts: 15201
Incept: 2007-07-05
A True American Patriot!
N 47.72/ W 122.55
Report This As A Bad Post Add To Your Ignored User List
Then we have this:


Quote:

How Wall Streets fear gauge is being rigged, according to one whistleblower

One of the most popular measures of volatility is being manipulated, charges one individual who submitted a letter anonymously to the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The letter makes the claim to regulators that fake quotes for the S&P 500 index SPX, +0.39% are skewing levels of the Cboe Volatility Index VIX, -1.91% which reflects bearish and bullish options bets 30-days in the future on the S&P 500 to gauge implied stock-market volatility (see excerpt from the letter below).

https://www.marketwatch.com/story/how-wa....


CBOE (of course), says it's not accurate.

Goldman Sachs doing the "Lord's work" again?smiley

----------
http://clearcutbainbridge.blogspot.com/?....
"My object in life is to dethrone God and destroy capitalism." - Karl Marx
"Destroy the family, you destroy the country." - Lenin
"Education is a weapon whose effects depend on who holds it in his hands and at whom it is aimed." - Stalin
Bjonsson
Posts: 1109
Incept: 2010-03-10

Ventura County, California
Report This As A Bad Post Add To Your Ignored User List
Price discovery in financial markets is pure fiction nowadays. Fundamental analysis as an investment strategy is being replaced by frontrunning the Fed and government policy.

----------
"If you don't have borders... if you don't have laws... you don't have a country."
Quik49
Posts: 4340
Incept: 2007-12-11

Report This As A Bad Post Add To Your Ignored User List
Then there is this

"The Federal Reserve will be on alert for risks to financial stability as the global economy recovers and the institution makes continued progress toward its goal of maximum employment and price stability" Chairman Jerome Powell

smiley

----------
Long Vaseline....

Lamarth
Posts: 1254
Incept: 2008-03-15

Sydney
Report This As A Bad Post Add To Your Ignored User List
I still say half-second bind auctions solve all these problems (or alter the time as you please). Maybe you place and cancel your order 100 times in that half second, but no-one cares, because trades happen only on the tick, and the order book only moves on the tick.

Still feels real-time to the human, but all automated systems are on equal footing time-wise. Sure, they'll game it by placing an order every half second and then cancelling it right before the tick if they don't want it... but you can always outbid, and they're taking on "connectivity risk" smiley.

----------
The Government Inequality: Total Wealth before Government Intervention > Total Wealth after Government Intervention
Those who have faith and confidence in the country and its ability to come back will profit by their foresight. This has also been the case over the past half century. - WSJ 3rd Sept 1930
Asimov
Posts: 109695
Incept: 2007-08-26

East Tennessee Eastern Time
Report This As A Bad Post Add To Your Ignored User List
Two simple things to make it go away (not that it's gonna happen.)

1) You must have margin to cover ever order you place.

2) Your trade must stay active for X seconds. I'm not sure how many seconds would be fair here, but it must be enough for a HUMAN to see it and act on it. 10? 30? Whatever.

----------
It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Tickerguy
Posts: 151650
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
Yeah, I put that forward as a proposal several years ago.

1. Must have margin for all orders outstanding at any point in time.

2. Orders cannot be canceled for 2 seconds. That is, an order is valid until either (1) 2 seconds pass or (2) it is paired and thus executed.

This would INSTANTLY stop the bull****.

----------
Winding it down.
Asimov
Posts: 109695
Incept: 2007-08-26

East Tennessee Eastern Time
Report This As A Bad Post Add To Your Ignored User List
I knew I got it from somewhere, just wasn't sure where. :P

I do remember now though, because I thought your 2 seconds was too short. If it's not long enough for a human to see it and act on it, there's no point in it.

While two seconds may technically be long enough, it just seems too fast for me. Ten is plenty long enough for people not on a hair trigger. Might be a hair on the long side for an "oops, I didn't mean to do that" but I don't think it's excessive.

----------
It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Tickerguy
Posts: 151650
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
I don't care if you're on a hair trigger or whatever -- the point is to make sure that EVERY ORDER you place is absolutely able to be hit by not just some other machine BUT PEOPLE, AND that every order you place can not only be hit but clear (e.g. margin.)

A fair market not only stops the latency arb but ALSO makes certain that EVERY person in the market CAN hit an order if they want to. That would do so.

----------
Winding it down.
Asimov
Posts: 109695
Incept: 2007-08-26

East Tennessee Eastern Time
Report This As A Bad Post Add To Your Ignored User List
I guess I'm thinking about somebody seeing it and trading on it. That's not really necessary though, as long as the order can trigger and two seconds is plenty for that.

----------
It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Tickerguy
Posts: 151650
Incept: 2007-06-26
A True American Patriot!
Report This As A Bad Post Add To Your Ignored User List
A two-second delay is sufficient to stop "Quote stuffing" since unless your order gets hit the margin pile-up on the stuffed quotes get crazy FAST when the orders are all valid for 2 seconds.

----------
Winding it down.
Login Register Top Blog Top Blog Topics FAQ