Babylon's Bankers

OH, BY THE WAY, THERE WAS ALSO A FLASH CRASH IN SILVER, TOO…

Earlier this week I blogged about the unusual climb in the number of "glichtes" being reported in our markets as more and more, stocks seem to be sent tumbling until the "circuit breakers" kick in and trading is halted. I'm referring, of course, to the NASDAQ "flash crash" earlier this month. But, in case you missed it, there was also a "flash crash" in silver on July 7, in this story shared by Mr. G.B.:

http://www.zerohedge.com/news/2017-07-07/silver-flash-smash-was-glitch-skg-comment

Once again, we're told it's a "glitch", and the "glitches" seem to be marrying, and propagating their species, faster than humans can keep up with them. Now, when Mr. G.B. shared this article, he very kindly highlighted a couple of sentences, but he needn't have for they leapt off the page at me and I suspect they did for the reader as well.

However, just in case they didn't, for those regular readers who have been following my high octane speculations about the inhumanity of algorithmicly-driven trades and markets, I've been speculating for sometime that the increasing frequency of flash crashes due to "glitches" might be telling us one of two things (possibly both), namely, that (1) someone is using these events to probe the architecture of cyber-markets and dark pool networks; or that (2) these events are manifestations, perhaps, of an artificial intelligence that has "woken up". As I pointed out in my blog about the NASDAQ crash, these events increasingly raise difficult questions not only about market activity, but about whether or not the markets are reflecting anything really human.

With that in mind, contemplate Zero Hedge's speculations on the silver flash crash:

Was it a predatory algo(s) that sold faster than CME's own servers could react by putting up bids on its own electronic book? That would be a predatory entity that is now expanding its abilities to overload the very servers that update order books. Perhaps inadvertantly(sic), but there you have it. If that were the case, then the weapon is now bigger than the market.

And further on:

Imagine a Citadel, DeShaw and Six Sigma algo fest where one triggered the others own sell signals. The  resultant race to the bottom could be  enough to make any exchange order book struggle to update itself to absorb the nanosecond deluge of selling.

What we do know is that CME announced it was adjusting all trades below $15.54 to be raised to that price. This is an admission of either an electronic glitch likely exposed by a predatory algo or algos  intentionally stop fishing, a new algo that was tested and failed miserably, or a human who typed in the wrong price, ignored repeated terminal safeguards and sold down to $1434.

In 2 of the above possibilities, the glitch would be  the result of prices being distorted  faster than CME's own servers could rebalance. And raising the flow of the selloff would seem  to indicate that is likely. This would  be the right thing to do especially if resting orders did not get filled between the low of $14.34 and the new adjusted  low of $15.54. We applaud  CME for doing this.

But equally troubling is what that in turn implies. Specifically, that predatory algos are either indifferent to the collateral damage they do the very bourse that supports them, gives them a way to make a living, and likely rebates them for volumes. Or something worse we do not speculate on here.

Assuming it is the former, then CME  must protect its franchise. For this type of increasing activity is undermining the integrity of its markets. And while the physical is good, paper is bad crowd would rejoice at this as further confirmation of the lack of claim futures has on the  pricing mechanism of metals, it would be tragic; for the integrity of all markets in precious metals  would then be in trouble as all transparency would be suspect.  (All emphases added)

It's interesting to note that all these comments are from someone who views all this from the standpoint that all this technology is good and that those of us, like me, who speculate on "something worse" are just luddites, and that market confidence has been restored:

Otherwise you may be a luddite hoping for fat middle aged men on the LME with flags and cigars determining prices for your Gold. it is a capitalistic and a moral imperative for this to be addressed and stopped. This is a war of escalating arms. And when there is no one left to spoof on exchanges because people are afraid to leave resting orders because those orders will get filled surreptitiously or traded through unfilled, then the exchanges are at risk of being destroyed from the inside out.

From a zerohedge commenter who is obviously experienced in the way of the Algo.  He may not be right in this case, but he is spot on in how the mechanism works.

No one "dumped" 450mm notional. When a large stop was triggered the algos immediately went to work and ran the weak handed bids and overnight stops..... they sold it and bought it the whole way down, fighting each other the entire way. Citadel, two sigma, and deshaw etc... it's not a level playing field.... look at CL tonight! Two stop hunts triggered but not enough

And there you have it. in a matter of seconds thousands of contracts traded electronically, much of the price action was removed, and  there may have been a glitch somewhere but with whom we do not know. Confidence restored.

In any event we cannot know what happened. This  is because we are not privy to facts. And that encourages  speculation. So, if one wants rumours to stop,  one must give unvarnished truth as to what happens. To not do so is to risk market integrity.

Well, fair enough, because I just made the same point about market integrity a couple of days ago in respect to the NASDAQ flash crash. I would simply add the point made so often by former Housing and Urban Development Assistant Secretary Catherine Austin Fitts: the systems themselves have no integrity; that's the fundamental problem.

The problem here, from my goat's perch on the end of the twig of high octane speculation, is that two such events happening within mere days of each other, in very different types of markets - equities vs. commodities - cannot, in my opinion, be merely coincidental. It appears to me, rather, to be a signal, perhaps, that vulnerabilities are being probed and tested, by whom - or, even worse, by what - we do not know. My bet is, however, that we'll see more and more such incidents, and that, as we do, a pattern will become more evident. In any case, these two events have all the disturbing feel of a certain episode from the fourth season of the CBS television series Person of Interest, and that's what is so disconcerting about the latest rounds of flash crashes.

As I said a couple of days ago, we're not being told the whole story here; but now, apparently, I'm not the only one sensing this, for to recall the words I highlighted above, "...predatory (algorithms) are either indifferent to the collateral damage they do to the very bourse that supports them, gives them a way to make a living, and likely rebates them for volumes. Or something worse we do not speculate on here." (Emphasis added, again).

That's about as close as anyone else has come to saying it, especially someone in the business, so I won't say any more.

See you on the flip side...

 

 

 

12 thoughts on “OH, BY THE WAY, THERE WAS ALSO A FLASH CRASH IN SILVER, TOO…”

  1. Everything’s rigged, of course. Sigh.

    One thought I had come-up while reading the article concerned the algos. Everything ‘connected’ is subject to hacking. What if third parties (human or not) no longer cared anything about the market but were ‘dealing’ in algos? Algos as the new ‘currency’. Any flashes/glitches in the market might just be minor ‘proof runs’ before the suitably-modded (grin) algo is sold-on…

    1. I’m reminded of 9/11 whistleblower Richard Andrew Grove saying how the software industry is basically the Wild West, where pricing can be so arbitrary and flexible that it makes software an ideal vehicle for money laundering. He experienced this shortly before 9/11 in his capacity as sales broker for a deal between his software company, Silverstream and reinsurance giant Marsh & McClennan. The software was meant to provide a novel type of transactional connectivity between Marsh and AIG, both run by the Greenberg family at the time (The elder Maurice “Hank” Greenberg , longtime head of AIG, having been a former NY Fed chair and director, and CFR vice-chair). Grove realized they were overbilling Marsh by millions of dollars, and yet the higher-ups at both Marsh and Silverstream were uninterested in resolving the issue. He was soon thereafter dismissed without payment of his anticipated over-$1 million commission. The employees at Marsh who knew of the issue and sought to resolve it were all killed in the WTC. Grove was supposed to be in a meeting with them that morning but was still stuck in traffic. The meeting was to question a particular Marsh executive who had agreed only to attend from home via video conference.

      Quoting Grove: “SilverStream had built internet transactional and trading platforms for Merrill Lynch, Deutsche Bank, Banker’s Trust, Alex Brown, Morgan Stanley; to name a few. I was responsible for these accounts at one time or another. Coincidently, several of these companies purchased space in the World Trade Center and simultaneously completed disaster-recovery and business continuance implementations just prior to 9-11.”

      If algorithms are a currency to some, then what is the value of said currency based on? And what are they exchanged for? And what might be hidden or facilitated via said exchange? The ‘proof run’ concept is interesting. What is the algo then ‘sold on’ and how does this relate to what the full implementation of the algo entails? Is the algo ‘paid back’ via its use? Is it ever fully paid back? Is this a step beyond laundering? Rather opaque to me. Just thinking out loud.

      1. Chris P: “The employees at Marsh who knew of the issue and sought to resolve it were all killed in the WTC. Grove was supposed to be in a meeting with them that morning but was still stuck in traffic. The meeting was to question a particular Marsh executive who had agreed only to attend from home via video conference.”

        Cold. Reminds me of the Navy intel people in the section of the Pentagon that was struck on Sep 11th by the 757 or cruise missile. Those good people were investigating the $2.3 trillion missing under Dov Zakheim’s ‘money management’. Wiped out, ‘coincidentally’, while Rumsfeld was in the opposite side of the Pentagon. Also, Cold.

        On ‘algorithms are a currency’, I was moving-up a step or three in the chain. Beyond a certain level, I am assuming the perps are not even concerned-with money or commodity gain. They are in service of some agenda. Everything would be valued in terms of its worth to furthering that agenda. If you think of an algo in those terms, you could build a case for an algo ‘market’ based on agenda-utility. And, of course, you’d want a ‘proof run’ before handing-over whatever you were swapping in return…

      2. And now I am thinking ‘aloud’ about bitcoin and aetherium or is it etherium which I bought as an experiment which are of course both crypto currencies which are crashing quite drastically.

        Is this also an assault on the Don for making the economy function so prosperously for only 6 months?

        My 401k under Trump has grown exponentially. That must be stopped!

        Student loan (my only debt) must be enlarged!

  2. The precious metal market is, for anyone with working “little grey cells” is beyond suspect: It Is rigged.[Period]!

    And for AI to finally unmask itself means:
    It’s Too Damn Late for Humanity To Put the Genie Back In The Bottle!

  3. A yes the golem from JRR Tolkien The Hobbit and Lord of the Rings he make a fine Wall Street trader. These idiots think life is a video game well in the real world there are consequences for wrong moves and mistakes.

  4. Well knock me over with a feather! Dubious goings-on with the precious metals markets! I’m shocked! Shocked, I tell you!
    /s

    All markets are today rigged. By algos, QE, bots, margins, derivatives, and direct central bank intervention — either overt or occult. There is no longer any such thing as price discovery or true market value.; the markets are nothing more than a gambling den and a Ponzi.

  5. It is typical of reseachers – I have experienced it myself – that when you start looking for something you suddenly find traces of it everywhere; which might be fun but you still need to be prudent. This is the case of the suggestion that practically EVERYTHING in cyberspace can be attributed to a murky, elusive monster called AI. While this may be actually be true, the case needs further substantiating.
    While today publicly traded share prices seem to be algo-determined, stock markets have historically always been manipulated; this is why key controlling equity is kept in unlisted holding companies and NOT usually traded on the exchanges.
    Anyway I am still convinced that gold, silver and probably other commodity markets are watched 24/7 by “human” manipulators with an agenda of price suppression and with unlimited central bank funds – recalling that you don’t need much cash “up front” for derivatives scams.

    1. I would also think that the broader control is based on what human manipulators intend. I imagine AI could be programmed to adhere to particular agendas, such as metals price suppression, and play with that in ways beyond what humans could do directly. But a danger with the “AI is in control” idea is that it could be used as a scapegoat — false flag the AI, in effect — a mode of deception which could conceivably be used in any arena where such systems are involved.

      Speaking of finding something everywhere, I see people doing that with the meme that “all terror is a hoax and nobody is ever killed or injured” — an idea that seems to have been mainlined as a psy-op of late. It’s a good way to make questioning of official versions of events look detached from reality, as with the flat Earth psy-op.

    1. In the derivatives-based manipulation of the “official” gold and silver prices there can be huge leverage on a relatively small cash base. Blockchain currencies, if I understand rightly, cannot be manipulated in this way since buying and selling can only take place with cash settlement, so any fluctuations are due to that good old fashioned “supply and demand” principle. There are currently just not enough units of the cryptocurrencies that seem to have requisites of reliability. So even if it wanted to, the central bank monetary fraud system just can’t pump its unending trillions into cryptocurrencies because these a) exist in a known, relatively limited number of units and 2) are not “interest-bearing” ( i.e. debt-based).

  6. ” I would simply add the point made so often by former Housing and Urban Development Assistant Secretary Catherine Austin Fitts: the systems themselves have no integrity; that’s the fundamental problem.”
    Could it be.. that the systems are being designed, built and put into place by humans that have no integrity..?
    Would human programmers of an AI entity put human morals and integrity into it’s POST?
    nah.. not enough profit and ME ME ME MINE ALL MINE. my precious…

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