Sunday, August 22, 2010

Clampdown on HFT by FINRA?

Zero Hedge reports (citing the article in Financial Times):

"It couldn't happen to a nicer group of pirates. After a year-long campaign by Zero Hedge warning about the ongoing threat to market structure by the HFT plague, culminating in a the May 6 crash, whose incipient conditions exist to this day, the FT reports that the even more worthless regulator, FINRA, is beginning a clampdown on broker dealers who allowed high-frequency traders to have access to the markets without undertaking proper checks. As this means all of them, there is about to be a huge change in market structure as arguably more than half of the market "participants" are suddenly excluded from constant daily churning activity. What the outcome of this will be is anyone's guess, but definitely expect strange things if this is truly a first step towards reverting to some form of normalcy.

"The FT reports:

The Financial Industry Regulatory Association is undertaking a “sweep” of broker-dealers that offer market access to high-frequency traders to find out if they allowed these firms to run computerised trading programs – algorithms – without undertaking proper risk-management controls.

“We’re looking to find out if the brokers understood what was being done with the algorithm and whether the high-frequency trader had thought through how it would work under big market changes,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times.

Brokers also face scrutiny of their checks on the ownership of the firms they allow – directly or through sponsorship arrangements – to access the markets.

“The brokers should be satisfied they know who’s really operating these systems,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times. “The sub-custodian chain can bury the identity of high-frequency traders in Eastern Europe and elsewhere who raise serious regulatory concerns.”
"And you thought those pesky Eastern European were only responsible for reverse engineering any softward that ever came out and movie piracy - guess what: it turns out they now can just as easily hack the entire market too. And now please put back all your capital in stocks.

"Nonetheless, this is a market test run by a US regulator: an entity better known for being the most corrupt organization in the history of the world. As such some may be skeptical.

The probe will at the very least lead to tougher guidelines. “You can expect something to come out of it,” Mr Ketchum said. “Certainly, there may be enforcement actions if we find serious cases where brokers have failed to even try to exercise their obligations to run checks on the firms before allowing them access.”
"That's ok, Finra. We will constantly remind you, and your just as worthless and corrupt porn-loving cousin, the SEC, of just how worthless and corrupt you are until you actually put the investing retail public's money where you mouth is for once. Although it appears that at the rate retail is leaving the market, the system will fix itself and promptly blow up, once algos are left trading with just each other and the whole thing collapses like the binary ponzi scheme it is."

You tell them, Tyler.


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