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RUSSIA, HIGH FREQUENCY TRADING, AND HIGH OCTANE

February 1, 2015 By Joseph P. Farrell

Here's an intriguing one to contemplate, shared by Mr. S.D. What if, in addition to putting into place all the steps to mount a parallel international financial clearing system, in addition to its own domestic clearing systems, Russia was also actively engaged in trying to decipher the mysteries of HFT, High Frequency Trading, for possible "intervention" in western financial markets?

Well, that's exactly what they've been trying to do, according to this article:

Russia tried to learn how to use high-speed trading to rock market, U.S. says

Now I hope you caught a couple of interesting "revelations" in this article, that suggest that Russia's intentions are somewhat different than this article's analysis suggests. One, Russia wants to learn about the whole sequence of HFT from the dark pools to the algorithms that make it possible:

"But one of the topics Russia wanted to know more about is a topic the U.S. government is also struggling to comprehend: high-frequency trading. Russia apparently wanted to use such trading to destabilize the market.

"According to the FBI, a banker, Evgency Buryakov, was told to tell a Russian state-owned news outlet to get information on three specific questions. This was a conversation he had with the Russian trade representative, Igor Sporyshev, as translated by the FBI:

"Buryakov: You can ask about ETF... E-T-F. E, exchange.

"Sporyshev: Yes, got it.

"Buryakov:How they are used, the mechanisms of use for destabilization of the markets.

"Sporyshev: Mechanism — of — use — for —market — stabilization in modern conditions.

"Buryakov: For destabilization.

"Sporyshev: Aha.

"Buryakov: Then you ask them what they think about limiting the use of trading robots... You can also ask about the potential interest of the participants of the exchange to the products tied to the Russian Federation." (Italicized emphasis added)

Now, what's very revealing about this article is that the article itself, citing Burykov's and Sporyshev's conversation, concludes that the Russians "apparently wanted to use such trading to destablize the market." But if one examines Burykov's statement more closely - "How they are used, the mechanisms of use for destablization of the markets" - what he rather seems to be wanting to know is how HFT has been used by the West's financial institutions previously to destablize markets, implying that he's really searching for potential incriminating information about massive market rigging in the West via the ability to manipulate the algorithms and trades that make up so much modern high frequency trading. His remarks seem to imply, in my high octane speculative opinion, that Russia either suspects or knows there is something drastically wrong with the western markets, and that they are being manipulated on a truly massive scale. Not such a bad assumption, given the LIBOR and FOREX rigging that have been alleged. This reading would seem to be supported by Burykov's last comments, which sound less like an espionage boss giving a shopping list to a field asset, but rather like someone trying to find out about how such manipulations would affect Russian products. Similarly, he wants to know if anyone in the West perceives dangers, and if they would be willing to entertain the idea of "limiting the use of trading robots."  This sounds very much like the shopping list of someone who not only suspects massive rigging has occurred through the use of HFT, but also of someone who knows the dangers this would pose to any potentially parallel system of international financial clearing. And if one were to establish such a system, one of the major selling points to invite participation would be to demonstrate, via incontrovertible data and proof, that the western markets and system are corrupted and manipulated.

The question is, why would the Russians suspect this, and be searching for how it was done? My guess (and here comes high octane speculation part two) is that they have been watching the banker deaths and suicides very carefully, and come to similar conclusions that we have come to here on this website, namely, that most of the deaths appear to be of people who would have had some sort of access to computer-driven trades and financial information, and secondly, that some of these deaths involved individuals connected to the other rickety scaffolding of the western financial system: mortgages and insurance. The Russians may have even entertained the type of speculations that I entertained and have repeatedly voiced regarding the 2010 flash crash: that that event, while "originating in Kansas City"(If one follows the official explanation), may actually have signaled that another player, entirely external to the "big guys" of the system, had invaded it and conducted a little "test-and-message-sending" demonstration. To put it succinctly, I am suggesting that this Russian "financial 'espionage'" is deeply connected to HFT, market rigging by the West, to the banker deaths, and to the possibility that the Russians suspect that someone or something else might have invaded the Western markets.

There is, of course, a second revelation in this juicy article, and that's this:

"In the book “Flash Boys,” author Michael Lewis says a surprisingly large number of the people pulled in by the big Wall Street banks to build the technology for high-frequency trading were Russians."

"One, former Goldman Sachs programmer Sergey Aleynikov, was convicted of stealing trade secrets, before his conviction was overturned.'

In other words, Russian programming experts helped to build the HFT systems of many western financial institutions. That raises the implications of Mr. Buryakov's shopping list - and my high octane speculations - considerably. We'll know something is up if, all of a sudden, bankers start walking off the tops of skyscrapers, or diving into spiked fences, or stepping in front of trains, or deciding to use a nail gun to drive several nails into their brains, in the company of Russian financial computer programming experts who are doing the same thing.

See you on the flip side...