Somebody Stole 7 Milliseconds From the Federal Reserve 740
An anonymous reader writes "Three to seven milliseconds before the fed moved interest rates, billions of dollars of trades were input that took advantage of the changed rates, reaping huge profits. According to a report at Mother Jones, 'Last Wednesday, the Fed announced that it would not be tapering its bond buying program. This news was released at precisely 2 pm in Washington 'as measured by the national atomic clock.' It takes 7 milliseconds for this information to get to Chicago. However, several huge orders that were based on the Fed's decision were placed on Chicago exchanges 2-3 milliseconds after 2 pm. How did this happen?'"
What, you thought this was a fair market? (Score:5, Funny)
It was the Dukes! (Score:3)
Looking good, Billy Ray!
Re:It was the Dukes! (Score:5, Funny)
Feeling good, Louis!
Re:It was the Dukes! (Score:5, Funny)
Which of you stole 7ms to post at exactly the same time as the other?
Sorry, couldn't resist... :)
Re:What, you thought this was a fair market? (Score:5, Insightful)
Markets are never 100% fair, or 0% fair. So instead of focusing on perfection, we should be focusing on improvement. An obvious way to have made the market more fair in this case would have been to make the announcement after the markets were closed for the day. Another possibility would have been to halt trading for a few minutes before and after the announcement, for the news to settle. I suspect that the person responsible for making the decision to announce in the middle of the trading day was also someone who, directly or indirectly, benefited from the cheating. Cui bono?
Re:What, you thought this was a fair market? (Score:5, Insightful)
Far more likely, some group created a series of methods for intercepting internal communications (NSA) and passed this information onto another group (CIA) with deep links with major contracting firms (the whole global military industrial complex and it's financiers). Insiders risk getting caught and actually being punished where as, thanks to a whole range political communications interceptions, the other groups will blatantly commit crimes with no fear of prosecution.
Re:What, you thought this was a fair market? (Score:4, Insightful)
Or better, not have a federal reserve bank controlling monetary policies and creating endless inflation at the cost of the wealth of the middle and lower class.
I love a good conspiracy theory, but this Tea Party nonsense is just stupid. First, inflation hurts the wealthy (who tend to be creditors) far more than it hurts the poor (who tend to be debtors). Traditional champions of the poor, such as Williams Jennings Bryan [wikipedia.org], understood this, and fought against tight money policies that actually benefit the wealthy and hurt the poor, but that is exactly the opposite of what is happening today. Second, both interest rates and inflation have been near zero for years, so your assertion that they are inversely correlated is weak. Third, what do you suggest as an alternative to our current monetary policy? European style austerity? Several years ago America and Europe both had about 10% unemployment. Today, America is at 7.5% and Europe is near 12% ... and the euro has fallen against the dollar (again, the opposite of what your conspiracy theory predicts).
I do not understand why this is a story (Score:5, Funny)
Or why it is framed as 'banks break physics' rather than 'someone talked and then fraud happened'.
Re:I do not understand why this is a story (Score:5, Insightful)
If someone talked, why would they need to wait until 2? They could "speculate" ahead of the curve.
Re:I do not understand why this is a story (Score:5, Insightful)
That would give away their predictive edge to other traders.
Re:I do not understand why this is a story (Score:5, Informative)
Re:I do not understand why this is a story (Score:5, Informative)
By waiting until the information was public, they weren't engaged in insider trading.
LK
Re:I do not understand why this is a story (Score:5, Interesting)
Re: (Score:3)
"This is an interesting situation where the speed of light may factor into the legality of their action."
I don't see what's "interesting" about it. They broke the law. Physics proves it pretty clearly.
Re:I do not understand why this is a story (Score:5, Informative)
Did they really? The information was, at the time the trade was executed, already announced and public. I do believe that, if a person has insider information, the restriction on them is that they cannot use it until it becomes public information.
So maybe they broke the law in how they got the information, but by waiting until its public to execute the trade, they seem to have, in actuality, complied with at least a lay understanding of the relevant regulations. My own company sends out reminders at various times to be wary of making statements because of worries about insider leaks, but as far as any training I have ever had to take has said, once the information is public, trading based on it is fair game.
So how about this.... trader came about insider information, knew when it was to be announced, and timed his trade for as soon as possible after the announcement in an attempt to profit while still being in compliance?
Does the law/regulation take into account information travel time from the point of announcement in determining the order of events?
Not saying its wrong to, clearly its right by any understanding of physics that I have, but, isn't expecting people to understand such nuances a bit unrealistic?
Special relativity solves your problem (Score:5, Insightful)
If (and only if) the trade occurred before the light-travel time from Washington, then (by special relativity) there exists a reference frame in which the trade occurred before the information was released in Washington.
It would be so fun to see this argument play out in court.
Re:I do not understand why this is a story (Score:5, Insightful)
Re:I do not understand why this is a story (Score:5, Insightful)
The information was, at the time the trade was executed,
Not in Chicago. Chicago was not in the light cone of the information release at the time that the trades were executed and hence, the information wasn't public. I must admit to being a bit surprised that there is a non empty intersection of relativity and finance law.
But if they had waited those few more milliseconds, they would have been in compliance and yet still most likely beating anyone who had to process the Fed announcement first.
Re:I do not understand why this is a story (Score:4, Informative)
Chicago was within the light cone from the Washington DC disclosure when those trades were made.
You're talking network latency and not relativistic reality.
LK
Re:I do not understand why this is a story (Score:5, Interesting)
"This is an interesting situation where the speed of light may factor into the legality of their action."
I don't see what's "interesting" about it. They broke the law. Physics proves it pretty clearly.
Washington to Chicago is 596 miles via a great circle, however the Earth's curvature will reduce that, but only by about a mile.
Light travels at 186 miles per second, thats 3.2ms
In the case of antipodes, you certainly see the effect
Auckland to Malaga, 12392 miles (67ms) as the great circle goes, but dig a hole through the earth and you can do it in under 8,000 miles (42.5ms)
Physicists will claim that an event occuring at 1400UTC in Auckland will not have occurred until 1400+42.5ms in Malaga, however there's no way for anyone in malaga to receive data until +67ms at the earliest. If I executed the trades at +50ms, technically it's happened. At +40ms, we have arguments about whether it's happened or not (an impartial observer who is equidistant from both points will agree that the rate changed, then my trade was executed). Even at -40ms there's no way for me to impact the event.
However on a more practical scale, as we can't encode data in neutrino bursts, the only way for a trade at +60ms in Malaga would be to have pre-knowledge of what happens in Aukland. But from a physics point of view, you could theoretically know.
So you've got the following key points
135959+933ms last time I can practically* do something in malaga to affect the auckland release
135959+957.5ms last time I can do something in malaga to affect the auckland release
140000+0 event occurs in Auckland
140000+42.5ms theoretically I could know about it
140000+67ms I could know about it
Re:I do not understand why this is a story (Score:5, Informative)
"Washington to Chicago is 596 miles via a great circle, however the Earth's curvature will reduce that, but only by about a mile. Light travels at 186 miles per second, thats 3.2ms"
Wrong in several respects.
(A) Curvature doesn't reduce the distance. Communications lines are on the surface.
(B) As someone else mentioned, it's 180,000mps.
(C) Electricity does not travel as fast in wires as light does in a vacuum. In a coax cable, it's only about 2/3 the speed of light. And even if it were fiber, not wires, you then have the speed of the circuits that do the conversion and switching... still adding significant delay. So you can't use light speed as a measure, unless you're trying to establish a ridiculously unachievable lower bound.
"In the case of antipodes, you certainly see the effect Auckland to Malaga, 12392 miles (67ms) as the great circle goes, but dig a hole through the earth and you can do it in under 8,000 miles (42.5ms)"
As already mentioned, this is a specious argument, since the communications are not traveling in a straight line, but on the surface.
At 596 miles, the speed of light is indeed 3.2ms. Add in switching delays, etc. and you get closer to 5ms, and that's assuming fiber.
But ALL of this is really beside the point. The knowledge that they were going to do it was presumably public. And even if not, and it was "insider" knowledge, it's still beside the point. Because they traded too early. 7ms advantage today is a significant advantage for HST.
Re:I do not understand why this is a story (Score:4, Informative)
It's not that interesting. They can be committing "insider trading" even if they'd waited until after the information had arrived, because they'd still have had an unfair time to decide what to do with it. As others have pointed out, in this case someone probably prepared an order plan ahead of time, and sent it off just ahead of everyone else. Even today's computers still take some time to process the incoming data.
Re:I do not understand why this is a story (Score:5, Insightful)
Re:I do not understand why this is a story (Score:5, Insightful)
Re:I do not understand why this is a story (Score:5, Insightful)
Lets list the facts:
This type of insider trading is illegal.
The leak that allowed this is a firing offense and also illegal.
Trades were executed in Chicago after the change was announced in Washington D.C. in a classical physics sense.
Trades were executed in Chicago before the change was announced in Washington D.C. in a relativistic physics sense.
What does all that imply?
Someone at the Federal Reserve leaked the information before it was announced.
Someone else wanted to use this information but also not get caught.
That someone doesn't understand relativistic physics.
Re: (Score:3)
That someone doesn't understand relativistic physics.
It's quite possible they do understand the physics, it's just that a massive financial gain clouded their judgement and they overlooked the delay.
Re: (Score:3)
It's quite possible they do understand the physics
Or, their lawyers advised them that it's legal in some really devious way because they didn't actually look at what was stolen until the "legal" time.
Re:I do not understand why this is a story (Score:4, Insightful)
It's quite possible they do understand the physics
Or, their lawyers advised them that it's legal in some really devious way because they didn't actually look at what was stolen until the "legal" time.
Or, they're an organization such as Goldman Sachs, and know that they're above the law.
Re: (Score:3)
...But it happened in Chicago.... The boss says nothing happened, so nothing happened. I know that analyst said something happened, but he's an idiot. Look how dumb he is now! He's trying to swim with concrete shoes! You're not that dumb, are you?
Re:I do not understand why this is a story (Score:5, Informative)
Trades were executed in Chicago before the change was announced in Washington D.C. in a relativistic physics sense.
Actually, in relativistic physics sense, the trades in Chicago where outside of the light cone of the Washington event (neither in the future cone nor in the past cone). That being said, since Washington and Chicago do not move at relativistic speed with respect to each other, the trades are still at a later time than the announce, even if there's no possible causality.
Re: (Score:3)
This is I think part of it. If someone knew... 15 minutes in advance, they could have places a series of bets that looked like well, bets.
Knowing a small number milliseconds in advance is a very very odd thing (in this case 4-5). It's possible someone knew very well in advance, and was able to try and program the trades to beat everyone by a small number of milliseconds and hoped no one would notice, and that seems the most likely case.
Any other scenario creates a lot of very tricky technical problems whi
Re:I do not understand why this is a story (Score:5, Insightful)
The information was widely available about 5 minutes in advance:
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it [zerohedge.com]
Someone had the order all queued up, and was waiting for word. He got word of the interest rate move, and keyed in his order, which his computer would execute at 2:00:00:002, forgetting that such an order was impossible without giving away he was cheating by having gotten the announcement early.
Re:I do not understand why this is a story (Score:5, Insightful)
The fed announces the decision at 2 pm (EST). But press people are taken to a safe room ten minutes in advance and told the contents of the Fed release. They have 10 minutes to prepare their brief. Them and the editors are banned from communicating this to the outside world before 2pm.
Probably what happened is that a press guy communicated the announcement with his editor with the understanding that the news will not be released until 2pm. The editor probably spread the news to multiple locations, again with the 2pm restriction. The editor held his side of the agreement, and released it at 2pm (EST) in Chicago.
The news was legally released at 2pm, but just location shifted. They probably did not break the letter of the agreement. Of course, the slobs on Wall Street got creamed, if they were hoping that they could trade faster than Chicago by a millisecond.
This is one rare case in real life where the agreement should have used the relativistic definition of time-space and have the agreement describe the time co-ords for release for each location. But then, since New York is closer to DC than Chicago (an Philly even more so), it would be advantaging some locations more than others.
They might have only barely had enough time. (Score:5, Informative)
From: http://www.cnbc.com/id/101056168 [cnbc.com]
"Inside a room on the top floor of the William McChesney Martin, Jr. building, Fed officials instructed reporters not to send information about that decision to the outside world before precisely 2 p.m. as measured by the national atomic clock in Colorado.
The doors were locked at 1:45 p.m., and Fed staffers handed out copies of the statement at 1:50 p.m., allowing reporters a few minutes to digest the complicated document before reporting on its contents. At 1:58 p.m. television reporters were escorted out of the room to a balcony where cameras had been prepositioned. The Fed's security rules dictated that television reporters were not allowed to speak before precisely 2 p.m. Print reporters were told they were allowed to open a phone line to their editors at headquarters offices a few moments in advance of the hour, but not allowed to interact with people on the other end of the line until exactly two p.m."
So many hacked communications channels are still possible from this. The print writers can signal the editors when making phone calls before 2pm, without talking to them. For example, the editor can instruct the reporter to call them on landline if it's a sell, or his mobile number if it's a buy. The TV reporter can wear a jacket if it's a sell, or remove it if it's a buy, so someone across the building can monitor the balcony for pre-release signals... etc.
Also, from the http://www.nanex.net/aqck2/4436.html [nanex.net]:
"It wasn't just gold. It was everything that traded. In fact, the 1/100th of a second after 2pm was the most active 10 milliseconds in the history of the U.S. Stock an Futures markets."
This was a major, major hack, and they waited as late as they could wait, without signaling their competitors.
But.... (Score:5, Funny)
they STILL didn't get first post, did they?
Re: (Score:3)
No, but all your base are belong to them anyway.
LOL (Score:4, Informative)
Re:LOL (Score:4, Informative)
This. To give a few more details as to what the article says though. Basically, even assuming they have some genius computer that can parse the announcement made at 2pm and execute these trades within 1 millisecond or less, it would be physically impossible for the news to have been received that quickly. The trades in Chicago were executed 2ms after 2PM. The speed of light dictates that the news (assuming no barriers or other latency) would take at least 7ms to actually reach Chicago from where it was announced.
So, in summary, no matter what these crooks try to say to fool a jury with favorable circumstances, it is physically impossible that they did not know about this news before 2PM
Re: (Score:3)
"Everyone else" has this information too. It wasn't a secret among well informed sorts.
"Everyone else" just waited until after 2:00:00:002 to execute their orders.
Once again (Score:5, Funny)
I'm pretty sure it was Billie Ray Valentine and Louis Winthorpe. They did this previously and managed to bankrupt Mortimer and Randolph Duke in the commodities market.
Re:Once again (Score:4, Funny)
I hope that the guys who did this made more than one dollar.
can I once again point out... (Score:5, Insightful)
...that if the timing is down to milliseconds then the system is broken. It's automatically an unfair playing field tipped towards the largest competitors that have the computing power and programing to operate on that time scale.
Of course nothing about Wall Street is about fairness anymore and usually they don't care about the law, either.
Re:can I once again point out... (Score:5, Insightful)
They consider that a feature not a bug.
Re:can I once again point out... (Score:4, Interesting)
Also, keep in mind that they produce nothing except destabilizing factors to the economy. High time to make long-term stock investments the only option. Randomized delay in the minute ranges for trades, no way to cancel trades, significant transaction tax.
Re:can I once again point out... (Score:5, Insightful)
Just put a small, fraction of a penny, fee on every trade executed. It won't even be noticed by people using the market for its intended purpose; long term bets on a company's quality. It would stop the high frequency trading nonsense since that relies on, of course, high speed trades and the fact that an essentially unlimited number of trade orders can be made.
Obvious answer: (Score:4, Informative)
Information was leaked and the whole thing setup to look somewhat legitimate. 3ms is the absolute fastest anything can get from Washington to Chicago, so the information was there before the official announcement.
Possible explaination (Score:5, Insightful)
Several large orders betting the other way may have been placed a few milliseconds after 2:00 PM as well. But there is a 'feature' in on-line trading that allows high frequency traders to cancel or abort trades that they claim were made as a result of 'system errors'.
Another Possible Explanation (Score:3)
The info was already distributed (Score:5, Informative)
Who is on the other end of that trade? (Score:3)
It would seem foolish to trade within milliseconds of 2pm without knowledge of the Fed decision, since the other party could be in DC and in legitimate possession of the information. So it is surprising that the criminal got a counterparty to accept the trade. This trick will probably only work once. There was a time when this sort of information was released after the close of markets.
Seven milliseconds? (Score:3)
Did they use TCP/IP over neutrinos?
Re: (Score:3)
You meant "tachyons," No?
Re:Seven milliseconds? (Score:4, Informative)
Actually a neutrino beam could make the trip faster than photons can in practice. One, because neutrinos could travel through the crust of the earth and thus avoid having to go around the curvature. Two, they would be traveling much closer to the speed of light than the photon-based signal, because that signal will be slowed by the index of refraction of the medium in which it travels, be it fiber optic cable or air (for radio waves).
Here's a link to an actual demonstration of an ASCII message sent via neutrino over 1035 meters [arxiv.org]
Just the tip of the iceberg (Score:5, Insightful)
There is a revolving door between Wall Street, Corporate board rooms, and the Fed. Not only do people go through that revolving door but so does information, so does hits about what might happen in the markets or what might come out of the Fed. Go watch Wall Street, either one, it's dramatic but its accurate enough for the average person to get a idea of what goes on behind those closed doors.
Original article and data (Score:5, Informative)
http://www.nanex.net/aqck2/4436.html [nanex.net]
Here's how they did it (Score:4, Informative)
It sounds as if news services could have released it at exactly 2pm in Chicago without breaking the Fed's rules. The rules say "public use."
I often work with material under a press embargo. If I get something on Tuesday with an embargo of 2pm EST Wednesday, that means I can send it to my editor in Chicago (or anywhere else) on Tuesday. That's not public use. My editor will wait until 2pm EST and release it (for public use) at that time in Chicago.
FTA:
Transmitting them to the news service's own computer system in Chicago isn't "public use."
"No public use" means you can transmit your story to your editor in Chicago, who holds it until 2:00:00 pm EST and releases it immediately in Chicago.
That would be an unusual news story. It would consist of 1 machine-readable bit meaning "buy." But that's all their readers need.
Quick, everybody, you've got 7 milliseconds to mod me up to +5 insightful.
Misinformation... (Score:5, Informative)
1) There is no such thing as "insider trading" in treasury bonds or their futures (or commodities futures or foreign exchange or options on any of the above). The reasoning is that the majority of the participants in those markets are knowledgeable insiders. Corporate bonds are a grey area but no one has ever been prosecuted and numerous people have openly traded on insider info. The SEC brought one case related to trading on credit default swaps, but it didn't go anywhere. Insider trading on stocks and stock options is illegal by case law.
2) if you had information about the Fed's future rate policy, you could make you bet in the spot or futures markets well ahead of the announcement. You would get a better price on your bet by doing so assuming it was a large bet, because markets tend to thin out before announcements (for technical reasons irrelevant to this discussion - just know it happens reliably).
I would guess the most likely explanation here, as with most apparent violations of the speed of light, is poor clock synchronization or other measurement issues.
This is not insider trading! (Score:5, Insightful)
In the U.S. of A. the term "insider trading" applies only to share/stock trading, where it is illegal.
Those not trading stocks - such as commodities, bonds or spot FX need not concern themselves with such nonsense. Trading on material non-public information is perfectly legal in those markets.
Re:This is not insider trading! (Score:4, Interesting)
Indeed, if it's criminal, it'll be wire fraud... and that's the big IF here, since I don't know whether the Fed's embargoes are criminal to breach... But if a reporter releases embargoed information before the agreed time, and you as a trader should know that the information is embargoed (you did get a license, right?), by trading ahead of release you and the reporter have likely engaged in a conspiracy to commit wire-fraud, which is actually a much easier deal to prove than insider trading.
Re:Uh... (Score:5, Insightful)
Can someone explain this to me in idiot? I don't see what the problem is, nor why I should care.
If you don't see a problem, then no amount of idiot will make you care.
Comment removed (Score:5, Insightful)
Re:wrong two words (Score:4, Insightful)
Re:wrong two words (Score:5, Interesting)
Sure it's plausible. Atomic clocks. What the exploiter did was try to time the leak so that it happened exactly after the fed announced its decision before anyone else had a chance to react on it. They performed the trades at exactly 2:00 so that it all looked kosher. The problem was that they did it faster than what is physically possible and thus what was a plan to give plausible deniability backfired and thus exposed that they had insider knowledge.
Re:wrong two words (Score:5, Insightful)
Apparently the great minds of the Masters of the Universe aren't familiar with the speed of light. No matter for them though - the head of any major financial institution could rob the president at gunpoint on live TV, and still not be prosecuted for it.
Re:wrong two words (Score:4, Insightful)
Does it even make sense to discuss this in terms of ms? Once the Fed decision was announced, someone had to read or listen to it, digest it, and then make a decision. A purely non-thinking reflex in humans is measured in the order of 100 ms-- e.g. light goes on, push a button, no thought involved. Is someone trying to suggest that if the press release was given at 2:00:00 in a machine readable format, a computer parsed the information (it presumably was not given as a buy or sell recommendation) and made a decision to trade without human interaction/vention, it would have been kosher?
Even if this was 100ms after 2pm, this was almost certainly a criminal act. I think a human making a decision involving billions of dollars would probably like to take a second or two to make sure they weren't misinterpreting the press release before investing even if they were in a hurry.
Re:wrong two words (Score:5, Informative)
Ummm, what? That's exactly how most trades originate.
Here: [bloomberg.com] "Today, when Bloomberg releases a market-moving headline, on average it takes 4 seconds for the markets to move after the news story hits. Bloomberg machine-readable news can help you get ahead of that window.... Bloomberg's Event-Driven Trading feed offers clients instant, machine-readable delivery of Bloomberg's world-class news and data, including breaking headlines, exclusive worldwide market-moving coverage, structured financial data from company releases, news analytics, and global economic data."
Trying to compete with these guys by websurfing is really no different than reading the evening paper.
Well, here's a recent article [businessweek.com] that says the percentage of trades that are automated has been falling and may only be slight majority now.
Re:wrong two words (Score:4, Informative)
These sort of announcements are generally written by computer, sent by computer, received by computer (over quite expensive lines), parsed by computer, and acted on by algo trading, generally in less than 1 ms these days. There's a whole industry around it. (Or should I be expecting a Whooshing sound any minute now?)
I suspect the answer is: the "Chicago Exchanges" have nodes on the low-latency Wall Street network.
Re:wrong two words (Score:5, Interesting)
you do realize that 50% of all current trades last less than 100ms right? That is right folks 50% of the current volume is nothing but hot air. that is why the stock market has had 10-15% growth but the economy is barely doing 1-2%.
The fact this happened shouldn't surprise anyone. this is the problem of HFT.
Re:wrong two words (Score:4, Informative)
Please don't listen to Truthers.
The 9/11 Comission did trace the orders back the investors and figured out what information motivated them to place the orders and what motivated the source of the information in the first place.. [911myths.com]
Re:wrong two words (Score:5, Insightful)
Well, yes, yes it would. Did the fed time their release for exactly 2:00 and slave their clocks to the naval observatory (as many modern computer systems do)? Does the financial community know this? The financial community has hyper-accurate knowledge of timing in their own systems as well as exactly how many milliseconds it takes to complete a trade.
Suppose you have information leaked an hour ahead of time. You can't act on it then because it'd be obvious that you had leaked information and you know they're looking for that. So, you have to wait until everybody else has it. But if you wait until everybody else starts to react to the news, your leaked information is worthless.
You also only have an hour to think about what to do, so you can't change your IT system and whatever plan you come up with you have to either act immediately or not. So, you tell your existing IT system that is already capable of hyper-accurate timing to execute a trade just after the announcement.
Later on you realize that everybody has hyper-accurate timing, not just you.
Seriously, I've been contacted by maybe a dozen financial company recruiters who want me to squeeze another quarter millisecond out of their trading network. I'd sooner flip burgers. Millisecond trading is theft. Period. Even when it happens enough milliseconds after receiving information to have broken no law.
Re:wrong two words (Score:4, Insightful)
No leak would allow someone to time those trades so precisely. there may have been a leak, but there was also something done to make it possible.
Oh come on.
You know what the fed is going to do in advance. (whispers and leaks)
You know it will be done precisely on time so as to avoid all appearances of favoritism.
You arrange for your trades to appear after the precise time of release, but fail to take into account the time for the announcement to get to Chicago.
Your trades go in after the announcement but before the notice arrived in Chicago.
A leak is the most obvious answer. A leak of several hours notice makes more sense.
Errors in atomic clocks invoke Occam's Razor.
Re:wrong two words (Score:4, Insightful)
Huh?
The executive branch nominates the Fed president but that person doesn't report to the POTUS.
My guess is that someone with an inside connection to the Fed leaked the information (over cocktails or a golf outing the day before) to one of their hedge fund buddies who made the billion dollar bets. They jumped the gun because they figured that John Q. Public isn't going to believe that trades made a few thousandths of a second too early can really be that big of a deal. Even if they get caught and wind up paying a fine, they will still make out like bandits. Tax these millisecond trades and they'd go away or, at least, the volume would drop significantly. Instead of the paltry fines that the SEC levies on the cheaters, they ought to take the entire transaction away from the guilty party. That'd stop the practice. In a heartbeat. Third strike and you go directly to jail.
Re:wrong two words (Score:5, Informative)
No need to concoct such a nefarious plan.
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it [zerohedge.com]
Plenty of people knew and could leak the information early.
Re:wrong two words (Score:5, Insightful)
This wasn't high frequency trading, this was a big trade, made intentionally to take advantage of a presumed market movement, and whoever made the trade would still have made it if there were a tiny transnational tax on top of it. This wasn't some computer constantly submitting prices and making hyperfast trades, it was probably a trading decision made by a real live human--it just happened to be very time dependent and was scheduled with millisecond accuracy (maybe too much accuracy if the story is correct).
A per-transaction tax would do absolutely nothing about a trade made based on information acquired over golf (which would already be illegal).
Re:wrong two words (Score:5, Insightful)
Or alternatively to a tax, introduce a random delay on the order of 1 to 5 seconds to each order. That way, a ms advantage will be lost in the "sea" of 5 seconds. And for those who say that ms level trading provides important liquidity to the market, I say that if 5 seconds makes such a big difference, to a trade, it is cheating or at best gaming the system rather than investing. And investing is in my humble opinion the true value and purpose of the stock market.
Re:Uh... (Score:5, Informative)
Can someone explain this to me in idiot? I don't see what the problem is, nor why I should care.
FTFA
There would seem to be three possibilities: 1) Some trader was extraordinarily lucky, placing a massive bet just before a major announcement that would make that bet highly profitable. 2) There was a leak, either by a media organization with early access to the data or even someone at the Fed. Or 3) The laws of physics have been violated as the information traveled from Washington to Chicago faster than the speed of light.
Re:Uh... (Score:5, Funny)
I'm pretty sure it was a speed of light violation. We should announce to the rest of the world this marvelous discovery.
Re:Uh... (Score:5, Funny)
Another possibility (Score:5, Interesting)
Another possibility is that it was a big player like Buffet or Sachs, counting on profiting one of two ways: a) precede the market b) bet wrong but cause the market to reverse, triggering massive losses to those who told their broker to trade according to the news, with a stop-loss protection.
To carry out B, you have to be able to place a second bid greater in magnitude but opposite sign to the first, about ten minutes after the news breaks. You also have the liquid assets to do it. since the bailouts doubled the national debt and gave it to banks in interest free loans with no set date of repayment, then yes, itmay be possible that investment banks did it.
Beeks? (Score:4, Funny)
The Count of Monte Christo Hack (Score:5, Interesting)
Of course, this hack isn't even new. There's the value of delaying a radio broadcast was documented in the movie The Sting. And before that there was the Count of Monte Christo who did a man in the middle injection of fake tweets into France's Semaphore packet system to ruin a banker.
I would assert that High frequency trading is simply parasitic. Many people have suggested a transaction tax could fix this. It would damp the frivolous trades yes, but it would not fix these mega scale singleton trades that can happen like this.
my proposal: What one should do I think is fix this by injecting random delays into the trading system itself. That is you would queue up all trades for the last 100 milliseconds into a block. Then randomize their order. then execute the trades in that new order. This would erase any value of a trade that depended on beating another trade by a few millisconds. You'd still have some edge cases to worry about (i.e. racing to be in the block before the next block). But you could fix that too (dither the interval size between 80 and 120 milliseconds at random, so no one would know where the block boundaries were.
For this to be viable enough people would have to agree that HF trades have no actual value added. Additionally, one would have the potential problem of exchanges popping up that did not honor this. But those would not likely have enough liquidity to matter.
Re: (Score:3)
Or, more likely, 5. The clocks weren't quite synchronized and the trade actually occurred several milliseconds later.
Re:Uh... (Score:5, Interesting)
The clocks weren't quite synchronized
Yes, it's so difficult to synchronize clocks these days. A GPS receiver will only get you a time reference accurate to within tens of nanoseconds.
Re:Uh... (Score:5, Funny)
If a packet leaves Chicago heading east and a packet leaves New York at the same time, which state will they meet at?
Re:Uh... (Score:5, Funny)
If Comcast is doing the routing, Oregon.
Re:Uh... (Score:5, Insightful)
Utah, at the new NSA data center.
Re:Uh... (Score:5, Informative)
Big money interests are engaged in insider trading.
In idiot: Bad men do bad thing. Touch you in bad place.
Re:Uh... (Score:5, Funny)
When did we start talking about airport security?
Re: (Score:3)
Someone had inside information, and placed trades in order to gain a profit using that information that others didn't have access to.
GREAT SCOTT!!!
Re:Uh... (Score:4, Funny)
Perhaps this is evidence that the Higgs is getting more subtle.
And a lot richer.
Re:Uh... (Score:4, Interesting)
No, not at all. The first link mentions another possibility a grey area.
3) CNBC is suspected of transferring the information before the 2pm to chicago, but not releasing it to the outside world until 2pm. No faster than light speed needed. The rule was stated as disclose from the room to the public. Is a server in chicago public? No. Is it outside the room ? , yes. So my understanding is that CNBC might be in trouble, or might not if the rule was ambiguous enough.
Never break laws or regulations that can simply be bent to your will.
Re: (Score:3)
Yes, because when I have insider information, I act with only milliseconds of warning compared to the public.
Re:Corruption (Score:4, Insightful)
Perhaps they thought it would make it less likely that they would be caught?
Re:Corruption (Score:5, Interesting)
Re: (Score:3)
yes it is news (Score:3)
This isn't high frequency trading, this is either a violation of physics or insider information.
No. And it shouldn't even come as a surprise that corrupt government officials provide insider information to greedy businesses.
But while it may not be a surprise, it is still an outrage.
Of course, the deeper problem is that the fed attempt
Re:7ms? less than 3.6ms. (Score:5, Insightful)
Light doesn't propagate through fibre as fast as it does through a vacuum.
Re:7ms? less than 3.6ms. (Score:4, Interesting)
(I am not a physicist...)
How about a couple quantum entangled particles?
Is the Fed going to increase the rate? This is a question with two possible answers, yes and no. You get the answer in D.C. and mark a particle there. The entangled particle in Chicago would get the appropriate mark at the speed of light (or instantly?) where it is read and triggers a buy or sell appropriately.
Re:7ms? less than 3.6ms. (Score:5, Informative)
Re:"based" on the decision (Score:5, Interesting)
Of course there is a story here.
And of course it doesn't have to involve breaking the speed of light. It has to do with the Fed failing to properly enforce a supposedly very complex information lockdown and the information likely being either leaked or pre-loaded on remote servers, resulting in (according to the article) over $600M in trades via high-speed computer trading in the few milliseconds after the information was released - and now the Fed is investigating.
It's both related to technology and possibly involving criminal activity (or at the very lease a failure in information security). Sounds like a relevant story to me...