Goldman Sachs Manipulating The Markets Again

Horses · #1 (**permalink**) 24th July 2009

...this time through something called 'high-frequency trading', leopards and spots come to mind.

Stock Traders Find Speed Pays, in Milliseconds

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.
http://www.nytimes.com/2009/07/24/bu...ef=todayspaper

cd27 · #2 (**permalink**) 24th July 2009

are we talking about high tech arbitrage here or a way of brokers taking a bigger cut? I like this passage,

Quote:

"It was July 15, and Intel, the computer chip giant, had reporting robust earnings the night before. Some investors, smelling opportunity, set out to buy shares in the semiconductor company Broadcom. (Their activities were described by an investor at a major Wall Street firm who spoke on the condition of anonymity to protect his job.) The slower traders faced a quandary: If they sought to buy a large number of shares at once, they would tip their hand and risk driving up Broadcom’s price. So, as is often the case on Wall Street, they divided their orders into dozens of small batches, hoping to cover their tracks. One second after the market opened, shares of Broadcom started changing hands at $26.20.

The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.

In less than half a second, high-frequency traders gained a valuable insight: the hunger for Broadcom was growing. Their computers began buying up Broadcom shares and then reselling them to the slower investors at higher prices. The overall price of Broadcom began to rise.

Soon, thousands of orders began flooding the markets as high-frequency software went into high gear. Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay. The high-frequency computers quickly determined that some investors’ upper limit was $26.40. The price shot to $26.39, and high-frequency programs began offering to sell hundreds of thousands of shares. "

anewbeginning · #3 (**permalink**) 24th July 2009

Is it Legal?

Is it another bubble, like the 1929 bubble, the dot com bubble and the most recent bubble.

Henry Paulson has huge influence over government financial regulation in the US and is also still closely linked to Goldman Sachs.

Are the seeds of yet another crash being sown?

And are Goldman Sachs making huge profits now and when the bubble bursts will they be going cap in hand to the government again.

Now the bust is over for Goldman, it's back to boom and profit, until the bust comes again, and we all suffer.

FutureChiefJustice · #4 (**permalink**) 24th July 2009

so finding faster ans inventive ways to screw people counts as recovery now? Nothing to see in the real economy here lads. Keep movin'.

cyberianpan · #5 (**permalink**) 24th July 2009

They are trading faster with computers... so the sky is going to fall down ! Quick Army of Luddites & Numpties: march and destroy the witches & warlocks !

People want them to slow down cos it's too fast to keep up with their pencil & paper ? Well boo hoo, that's life and get on with it.

cYp

anewbeginning · #6 (**permalink**) 24th July 2009

If it's legal no-one should have a problem.

And if it's an unsustainable bubble they are facilitating, we should all be worried.

Something tells me when a company like Goldman makes big profits, everyone else wants a share of it and pretty soon a new bubble has emerged.

But let's hope it's not that.

And let's hope that computerised trading doesn't make boom and busts happen faster as opposed to the decade long cycles of before.

mmrebel · #7 (**permalink**) 24th July 2009

Quote:

Originally Posted by cyberianpan

They are trading faster with computers... so the sky is going to fall down ! Quick Army of Luddites & Numpties: march and destroy the witches & warlocks !

People want them to slow down cos it's too fast to keep up with their pencil & paper ? Well boo hoo, that's life and get on with it.

cYp

Intersting atricle on software and trading with computers not sure i agree with it but interesting take none the less.

Quote:

Amid all the fallout from the financial turmoil, one group has yet to feel the accusing finger of blame: the analysts who built the computer software that drove the derivatives markets that, in turn, drove the financial collapse. Since the Big Bang of the 1980s, large amounts of stocks and shares - and derivatives of them - have been traded automatically by computers rather than by humans. These so-called "algotrades" accounted for as much as 40% of all trades on the London Stock Exchange in 2006; on some American equity markets the figure can be as high as 80%.

The people who write the algorithms that drive the software are called quantitative analysts, often referred to simply as "quants". They are generally physics and mathematics graduates working in risk management - calculating whether a given deal is a good idea - and derivatives pricing, which entails putting a figure on trades that in effect bet on other trades. It's enormously complex, which is why only the quants could understand it - if, that is, they did. History now suggests they didn't.

The rise of the quants has mirrored the automation of the financial markets; and as many of the newer markets, such as swaps (a sort of insurance) and derivatives, have been unregulated, the quants who have been responsible for developing the hugely complicated systems that in the end brought many of the western world's banks to their knees. As Richard Dooling wrote in the New York Times: "Somehow the genius quants - the best and brightest geeks Wall Street firms could buy - fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and - poof! - created $62 trillion in imaginary wealth."

Read the full article
Was software responsible for the financial crisis? | Technology | The Guardian

Horses · #8 (**permalink**) 24th July 2009

Quote:

Originally Posted by cyberianpan

They are trading faster with computers... so the sky is going to fall down ! Quick Army of Luddites & Numpties: march and destroy the witches & warlocks !

People want them to slow down cos it's too fast to keep up with their pencil & paper ? Well boo hoo, that's life and get on with it.

cYp

they are also being given privileged access to orders coming in from brokers allowing them to jack up the price and than sell it back at a profit. This is outright fraud nothing less, exactly the confidence boost the stock market needed

cyberianpan · #9 (**permalink**) 24th July 2009

Quote:

Originally Posted by Horses

they are also being given privileged access to orders coming in from brokers allowing them to jack up the price and than sell it back at a profit. This is outright fraud nothing less, exactly the confidence boost the stock market needed

Regards the rapid order entry then cancellation: there clearly is an oversight in the NYSE rules there- there should be a higher charge for this to discourage it, or even prohibit certain patterns

I.e. the NYSE need to reform their rules

Goldman are perfectly entitled to do this right now - and they should - that way we'll end up with better rules/more efficient market - for now there are no rules ... other than the rules

cYp

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