OF FLASH CRASHES, HIDDEN ACTORS, AND NASTY IMPLICATIONS…

Remember the infamous May 6, 2010 flash crash that sent Proctor and Gamble's stock plummeting, losing and then regaining massive amounts of share value in a matter of mere seconds? I do, and I've tried to warn about the dangers of High Frequency Trading and "dark pools" for some time, and I'm not alone. Professional traders have done so as well, although my concerns have been rather different than theirs. My concerns have been about the fact that algorithmic trading done by computers at high frequency means that markets in a sense are not reflective of human market activity, simply because they are not reflective of the speeds at which humans can do things. During the May 6 2010 flash crash, Proctor and Gamble's stock plummeted, and then recovered, in mere seconds, faster than the infamous 1929 stock market crash, which took a day of trading, with short sellers helping to drive the nose dive. Granted, in 1929, the crash was more or less across the board, and in 2010 limited to one stock, but imagine if 2010 had been across the board. Of course, they tell us that safeguards are in place to prevent that from happening. But there's a nasty question that lurks in the background there as well: cyber systems are not "ultimately and finally" secure, so imagine if the safeguards themselves were hacked.

With all those thoughts in mind, consider this article shared by Mr. H.B.:

The Scapegoating Continues: Programmer Who Built "Flash Crash Trader" Software Goes On Trial

It's noteworthy that Zero Hedge titles this article "The Scapegoating Continues", although its reasons for doing so remain rather unclear. Is Zero Hedge trying to raise the same concerns as I am, that is, is the scapegoating referred to the fact that certain programmers are being sought to be brought to trial, while the wider philosophical issue of algorithmic trading itself goes unexamined? I don't know, but this is a rather intriguing comment at the very end of the article that makes me suspect that might be a possible interpretation, which statement also will be the occasion for today's high octane speculation.

The article is about the prosecution of Jitesh Thakkar for his part in allegedly participating in programming designed to "spoof" the system. Except, there's a massive fly in the prosecutorial ointment:

Jitesh Thakkar, who is being charged with conspiracy to manipulate markets, never placed any trades. Prosecutors are claiming that the conspiracy occurred between 2011 and April 2015, beginning with an email exchange with Sarao where he agreed to build the software. For those keeping score at home, this means that Thakkar's alleged misbehavior occurred after the 2010 crash (though, to be fair, there have been several similar 'flash crashes' since, including the Aug. 24, 2015 'flash crash' where the Dow dropped 1,100 points during the first five minutes of trading. (Italicized emphasis added, boldface emphasis in the original)

All of this, according to the US prosecutors, is designed to send a message, not about the idea of algorithmic trading itself, but those involved in programming the algorithms that do the trading:

By prosecuting Thakkar, prosecutors said they're hoping to send a message.

"We will also seek to find and hold accountable those who teach others how to spoof, who build the tools designed to spoof, or who otherwise aid and abet the wrongdoing," the US Department of Justice said in a statement announcing the criminal charges in January 2018 against eight individuals, including Thakkar. "The government wants to send a message that you have to be careful how you design these programs" for traders, Wayne State’s Henning said. If Thakkar is found not guilty, the message will be that "you have to be careful about how you design these programs, but you don’t really have much to worry about," he said.

Fortunately for Thakkar, the bar for a conviction is high. To convince the jury that Thakkar is guilty, prosecutors will need to prove that he knew he was participating in an illegal scheme to dig markets. (Emphasis in the original)

Ok, clear enough. However, in the final paragraph of this article, there is a comment that has my high octane speculation motor running in overdrive; it's this:

Meanwhile, HFT traders on Wall Street have been largely ignored by regulators as the scapegoated Sarao, who made just under $1 million on the day of the flash crash, a pittance in the grand scheme of things. Though a former programmer for Goldman Sachs was famously convicted, then vindicated, then convicted again for "stealing" code, including some of the bank's HFT strats. (Italicized emphasis added)

In other words, the article's conclusion does strongly suggest that the real issue for Zero Hedge is the same as for me, the issue of high frequency trading itself. Notably, Goldman Sachs hovers on the fringes of a conviction of a programmer, who was convicted for stealing some of the famous investment bank's code, which gave an indication of its high frequency trading strategies. The implications of that remark are, I suspect, enormous, for the remark implies that it would take but little modification to a bank's own codes to create market manipulations. Or to put that country simple, algorithmic trading that is "legal" can easily function as a means of market manipulation. And that, of course, takes the pricing mechanism one step further at a remove from genuine human evaluation and market activity. It's ok for a big investment brokerage to do it, but not ok for "the little guy"  who spots a weakness in the system, and exploits it.

As one might suspect, this has my high octane speculation motor working in overdrive once again, for this means that both non-state actors (such as the programmers under investigation as outlined in the article itself), or state actors with known cyber-security and hacking departments - China and Russia for example, but face it, one might as well include all the rest: India, Germany, France, the United Kingdom &c. - could also be involved in exploring HFT vulnerabilities for the purposes of market manipulation and even economic warfare. To draw an uncomfortable analogy, it's like walking into a casino, and playing a game of craps with weighted dice, or playing slot machines whose computer random-number generators have been hacked to the point they're no longer so "random." And of course, all this makes me wonder as well if high frequency trading algorithms might lie at the heart of the strange phenomenon of all the "suicided" bankers.

See you on the flip side...

 

17 thoughts on “OF FLASH CRASHES, HIDDEN ACTORS, AND NASTY IMPLICATIONS…”

  1. Just a heads up Joseph, Proctor and Gamble, is now “Procter and Gamble”. The name of the company changed a few years ago during the Mandela Effect. I too remember it being called, “Proctor”. We’d love to get a detailed post of your thoughts on the ME.

  2. I had an original thought this week, in the light of Miles Mathis’ approaches to these things. It has always been a mystery how Natty Rottenchild got wind of the Waterloo outcome, given there was a humungous storm at the time. What if the whole Waterloo scenario was as rigged as everything else (Napoleon was one of the family, so to speak). Now that makes sense. Alternatively he tossed a coin, and his brother tossed his coin in France. win win, brothers.
    (parenthetically I got onto Owen Benjamin this week (on yt) , best comedian since, and might better than , George Carlin (who did not mention the J word except in the traditional sense of victims even though he got serious about it all in his later years). Owen would last a week in Australian before being shackled and keelhauled)

    1. Waterloo. A good system of relay riders with all the right passes and a fast Channel boat might have done the trick; the place is about 100 km from the coast.
      Alternatively (or in parallel) the use of seers (today they would be called mediums or remote viewers) would not be surprising. As Daniel Lizst highlights in his series, there is evidence (see the story of Emma Hardinge Britten) for the use of seers by oligarchs in England by the 1840s.
      And in the “hidden technology” sphere, could there have been some type of remote communications device available to a select few? Experiments with electricity and magnetism had been under way since the 18th century…

  3. I was trading myself that day in 2010. Just made $800 shorting a stock and exited the position. Roughly 45 minutes later, the flash crash happened. That position I held would’ve been up $10K, although exiting it probably wouldn’t have been executable. When I saw it, I jumped into a long order, knowing this was a fluke. My order didn’t get executed till after it recovered. Anyway, want to talk about market manipulation, outside the general wall street games. Try more recently the federal reserve and all its QE and low interest rates, forcing money into the markets. Then even more recently, Christmas eve when the Treasury Secretary went to the 6 largest banks, and tweeted, they all have plenty of liquidity. Then Trump tweeted, its a good time to buy stocks, just as the markets were entering bear market territory. It really was looking like ’08 going into ’09. But Trump was right and the markets went straight up, like I’ve never seen before. Basically I saw a pattern shift, after Mnuchin went to the banks, stocks wouldn’t sell off on bad news, and only go up on “good” news/rumors. And at the end of last year going into this year, every day someone from the government or the fed would float out “good” news, and save the markets from selling off. The algo’s have risk managers who program them. So if your the fed, the president or his cabinet members, the Treasury Secretary, or the banks, it is perfectly ok to manipulate the markets. Especially if someone wants re-election come next year. Can’t do that if the markets are in a sea of red. Even though the economy has been that way for quite some while now.

    1. you really need colacation at the exchanges to catch the drops
      I traded that day (and have been for 30 years) however that ‘flash crash ‘ was premeditated …Another day was also an anniversary date for floor traders who stepped away (yes always preplanned)

      btw

      check out this interview by Sarah westall with

      Lee Wonta
      https://www.youtube.com/watch?v=AP7SYPAamCI

  4. What a Great Group of “minds” reside here!!! The only thing I would add is a quote from Col. L. Fletcher Prouty:

    ” The Kennedy assassination has demonstrated that most of the major events of world significance are masterfully planned & orchestrated by an elite coterie of enormously powerful people who are not of one nation, one ethnic grouping, or one overridingly important business group. THEY ARE A POWER UNTO THEMSELVES(my caps!) for whom those others work. Neither is their power elite of recent origin. Its roots go deep into the past.”

    It seems to go back to….”Exactly WHO runs this planet????” 😉

  5. As a betting man you may like to know that a horse named ‘Joe Farrell’ is running in The Grand National at Aintree (UK) today (6th April). Maybe a safer punt than the stockmarket at 18/1, but nothing is guaranteed!

  6. It has always been about the speed of information flow, and the control which this gives. Back in Napoleonic times, the Rothschilds built a Europe-wide network of signaling towers. Using these, information could be passed-along at a much higher speed than the fastest horse-ridden messengers. Combine this with ‘dedicated’ fastest-possible sloops across the English Channel, and you had many hours (or even a day) of information-lead on your competitors. The Rothschilds used this speed of information flow to their advantage in the well-known Waterloo ‘swindle’…

    Now, update this to the present. The speed of information flow is still uppermost in importance. Now, it is being used in a combination of hard-wired, ultra-fast communications channels and computer-based algorithmic trading. However, it is no different in purpose than the old signaling towers. It is getting inside the loop of your competitor’s best info, and exploiting that advantage.

    The above is ‘defensive’, in that you are not changing the market; you are simply better-equipped to observe and react. It is but a small step from there to ‘progress’ to use that information in ‘offensive’ ways; to actually form the market in ways that are beneficial to your aims. I am sure that ‘prospect’ has never occurred to the PTB… (sarcasm alert)

    Given the above, it is essential to know Who is forming the market. Is it just banksters, for greed and world financial control? Is it more an ‘inner circle’ of Illuminati-types with their own agenda? Is it even Enlil & Co. ™, who have an even more ‘strange’ agenda? Or, did an AI (perhaps ancient) take-over in the past few decades?

    We will not be able to sort this out until we know the real Players. And then, we will likely know their Agenda…

  7. We are dealing with mammon junkies and elites who look upon the rest of us as sacrificial animals to offer up to the real gods they really worship. Power is the most elusive and deadly drug to be addicted to.

  8. The real crime: high frequency algorithmic trading exponentially expanding towards an event horizon.
    Solution? Blame the victim; the human doing the job[spoof it, or hoof it to the streets?]. Although, in today’s world algorithms are writing programs themselves. Like the game Go; they’re just getting better & faster. Sometimes in their own language, that humans can’t fathom.
    Also, it is known in the biz that Microsoft, Apple, and other platforms, purposely create weak security so the alphabet intelligence communities can do their job.
    In other words, the less than secure internet infrastructure is by design.

  9. As fragile as my knowledge of stock markets and economics on Wall Street is, I understand the basic premise behind why the markets want high-frequency trading software to smooth the tides of profits and losses into something that is predictable, manageable and scaled. These algorithms attempt to prevent dramatic shifts—thus giving them time to preserve what can be preserved and to collect what can be collected. In theory it works great. But it is, in and of itself, a con game. It always was a con game. I always will be a con game. He who owns the code owns the game! That ownership is in corporate hands. Those hands have definite designs on financial supremacy in economic warfare—and they consider the financial world as an empire to build. If the Rothschild family can buy up England in a short time through a publication of a lie, buy stocks on the cheap and reap enormous profits after the defeat of Napoleon at Waterloo, software can be designed or modified to achieve a similar, net result at an opportune time with a new Waterloo in the offering. Yes, I have the same misgivings, as Dr. Farrell. If history has lessons to teach, opportunism and cheating always go rewarded if the con is large enough to gain international attention without the appearance of cheating. So, why is this legal case against Thakkar so important? Obviously, someone is going to a great trouble to punish this upstart for activities they consider to be criminal—yet the Rothschilds do it with immunity.

    Remember the Hans Christian Anderson fable, “The Emperor’s New Clothes?” Remember how he, and the subjects in his kingdom, where conned by swindlers who wished to sell the emperor clothing made of “nothing” at a huge price? Remember how the little boy was the only honest observer—but his opinion was over-ruled in deference to the con in order to preserve everyone’s pride and honor? Thakkar represents, at a minimum, a foreign merchant who is NOT a member of the swindler’s clothiers guild. At the same time, Thakkar may also represent the poor child and his open honesty about the fraud—with the people whose honor and pride demand maintenance of the fraud to preserve their status and standing. Honestly, this is how I see the situation. I don’t think I’m alone here, either.

  10. I think you are right to connect the dot between this and the banker deaths. Some of the algorithms and HFT people are even putting lasers on their rooftops to speed up trade. I think there is a hidden component here also – in that some of this highly complicated and intricate trading could be considered esoteric. And this ‘esoteric trading’ is giving certain people a glimpse at and possibly access to the hidden system of finance. Could the bankers being suicided (especially from rooftops) to send a message to the maverick esoteric trader to keep their hands off the loot?

    1. Recently I’ve noticed a lot on the Elizabeth Holmes/Theranos business – book, film, articles etc. Her success in bringing in such huge investment from such high profile entities as Kissinger, Murdoch, Schultz etc has been attributed to her amazing ‘networking’ skills! But how on earth could these titans of the business and political world put up sums such as $100 million each on a start-up with no due diligence research or analysis of it’s product? I don’t buy the big con story. I think she was fronting all that moolah for something else.
      And regarding trading algorithms, I wonder if the Barings Bank/Nick Leeson business in 1995 wasn’t a beta test or something other than a ‘rogue trader’ dissappearing millions of £££££ off his own bat to ‘protect his trading position’?

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