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The Almighty Buck Crime

UBS Rogue Trader Loses $2 Billion In Unauthorized Trades 360

PolygamousRanchKid writes with this snippet from Reuters that sounds like a ready-made movie script: "Switzerland's UBS said on Thursday it had discovered unauthorized trading by a trader in its investment bank had caused a loss of some $2 billion. 'The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion,' the bank said in a brief statement just before the stock market opened." Asks the RanchKid: "I wonder how this will reopen the debate about the role of computer systems in the trading and the safeguards that are supposed to protect against these risks. But if microseconds mean millions in trading ... who has time for checks?"
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UBS Rogue Trader Loses $2 Billion In Unauthorized Trades

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  • Re:Digital money (Score:4, Interesting)

    by infodragon ( 38608 ) on Thursday September 15, 2011 @02:15PM (#37412276)

    This was a trader, not HFT. He was manually calling in trades, either through a computerized system or through UBS's trading desk. The money was lost over a period of time in which he was probably exploiting loopholes in the controls of UBS. It's really disturbing seeing the trend against HFT when there is no evidence to show how it's being perceived. The flash crash last year was not caused to to HFT but due to a fund selling $4.1bn in E-Mini S&P futures.

    From Wikipedia... []

    The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day.

    Still lacking sufficient demand from fundamental buyers or cross-market arbitrageurs, HFTs began to quickly buy and then resell contracts to each other – generating a “hot-potato” volume effect as the same positions were rapidly passed back and forth. Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.

    "a large fundamental trader (a mutual fund complex) initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position."

    --- end quoting

    I just roll my eyes... "portrayed a market so fragmented and fragile that a single large trade could..." It was a sell order for $4.1bn let me type that out... $4,100,000,000. Anybody have any idea what that does to available liquidity? No time in the history of the US markets could they have withstood this type of hit. HFTs provided liquidity during that time, higher spreads but without the HFTs the bottom would have fallen out. The drop would have been MUCH MUCH worse.

    Right now HFTs are the target of a smear campaign by the SEC, it's a scapegoat. HFTs almost uniformly lost their butts that day. Read between the lines and stop drinking the Kool-Aid.

    Two more things I'll hold your hands on... a large FUNDAMENTAL trader, this means somebody who trades on fundamentals not technical analysis, which is critical to HFT, initiated a trade for 75K contracts. HFTs passed that around for a volume of 27K almost 1/3 of that... So if you try to take the worst slant on that they provided liquidity to 1/3 of the order that started this. hmmm... what if HFTs weren't trading that day... others would have had to absorb over 33% of that hit. The result, Armageddon!

    Sometimes I don't know why I try... I guess the Kool-Aid is too tempting.

  • Re:Digital money (Score:3, Interesting)

    by TooMuchToDo ( 882796 ) on Thursday September 15, 2011 @02:57PM (#37412674)

    A whole lot of effort in that post, and I still want HFT firms and the people who work there gutted. Good luck with that. []

    The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.

    ``It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace,'' he said in an interview.

    The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.

    The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral.

    Fucking scumbags is what HFT firms are.

  • Re:Digital money (Score:4, Interesting)

    by TooMuchToDo ( 882796 ) on Thursday September 15, 2011 @03:26PM (#37412998)

    First, I almost worked at Teza in Chicago (a high frequency trading firm). I think, between the job interview and speaking to people there, I'm qualified to comment on the subject to an extent. Also, while not a professional economist, I have enough knowledge with regards to market liquidity to understand that HFT firms aren't required to provide the liquidity they so often proclaim is such a wonderful function of what they do.

    HFT firms provide no value; they are a check valve sucking cash out of whatever market they're interacting within. If you work for an HFT firm, while I can't wish ill against you, I wouldn't exactly shed a tear if you were on the street. I'm not saying they're the only problem, but proclaiming "BUT! BUT! They're are other bad guys too!" is like trying to justify being a rapist because murders still exist.

    Fuck HFT firms.

  • by DCFusor ( 1763438 ) on Thursday September 15, 2011 @07:02PM (#37415214) Homepage
    And what likely happened was something with the Swissie. Currencies are usually traded with a metric crapload of leverage, else the tiny fraction of a percent *normal* differences in the moves make them not worth trading at all, and they need to be traded some for price discovery to make the system work.

    The Swiss recently did a jaw droopingly stupid desperation move on their currency. They pegged it to the euro, in the attempt to stem their own currency's appreciation, which was ruining their trade with other countries, being thought of as "safe" in a time of turmoil, when so much cash was out of the other markets due to fear (the rest was going into gold). This resulted in a HISTORIC move of over 8.5% in something that normally moves .1% at most a day, overnight...That's a big enough move to really hurt (or help, depending on which side of a trade you're on) a normal trader. Now, with 100x leverage -- wow - even a tiny bet adds up very quickly, for or against you. With 100x leverage, everything is multiplied 100x -- except the money you have to put down to open the trade. In a gross oversimplification, you can bet $1, but lose $100 in that case. Meaning he might not even had had that huge a bet on. A lot of "safety obcessed" individuals also got hammered on this one. (and soon enough, on T bills when the bond vigilantes come out and treat us like the bankrupt jerks we are -- they'll be around as soon as BenB and TimG stop buying them in debt monetization).

    Most people figured that when that happened, the safe trade would switch entirely to gold. The thing is, the Swiss needed tons of instant dough to buy Euros with all of a sudden. So they sold tons of gold (literally) and tried to do it when the western markets weren't open. That was too much for the Asian retail investors to eat, so gold went down too -- they (for reasons that should be obvious) didn't give anyone a heads up on this, except perhaps a few special friends, so the whole deal caught everyone completely off. It will fail, but the Swiss had no choice but to try it or face ruin anyway - their currency was so overvalued that they could sell nothing to anyone else, and no country can live with that very long.

    Y'all might want to go look at zerohedge (no link, their servers are chronically overloaded as is - but a few more snarks won't hurt the place, just not all slashdot please) for some more on this. Sometimes they publish microsecond graphs of what the *headline reading* bots are doing too, they don't like HFT either, but it had nothing to do with this one. I used to think with my signal processing experience I could blow those bots off, as some of them seem pretty stupid. But they are a little ahead of most slashdotters in text understanding -- they actually can read the news tickers and adjust based on the headlines and content(!).

    The SEC is more or less completely owned by the people they are supposed to regulate. Too small, they don't care about you. Too big, they're already bribing you. Middle size is all they do, and they do little of that. It's like with drugs where the big dealer turns in the smaller competition once in awhile to the bribed cops, so everyone gets a benefit -- cops look good, getting a bust, big dealer gets rid of competition, all go home happy, well...almost all. It's a dirty game, but you can still win at poker even with a cheating dealer, if he's not after you personally.

No problem is so large it can't be fit in somewhere.