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Norwegian Day Traders Convicted For Manipulating Computer Trading System
An anonymous reader submits news of the conviction of two Norwegian day traders, Svend Egil Larsen and Peder Veiby, who were on Wednesday fined and given suspended sentences (Norwegian court, Norwegian document) for cleverly working out — and cashing in on — the way the computerized trading system of Interactive Brokers subsidiary Timber Hill would respond to certain trades. They used the system's predictable responses to manipulate the value of low-priced stocks. The pair have gotten some sympathetic reactions from around the world, and promise to appeal.
So these guys figured out how to second-guess somebody's trading algorithm. How in hell is that a crime?
Many mechanical trading algorithms are also trying to second-guess the actions of other market participants in order to make a profit. These guys just did the same, apparently in cases where the trades made by a particular mechanical algorithm would be big enough to move the market themselves.
Mechanical trading algorithms are either fair game, or preferably, should be illegal. If mechanical trading algorithms are legal, then what these men did should definitely not be illegal.
Those who can make you believe absurdities can make you commit atrocities. - Voltaire
All stock trading changes the market. Does the system they beat have algorithms for anticipating the results of its own trades on the market? If so, why aren't the owners of the system being brought up on charges for manipulating the market?
No, the reason these guys were brought up on charges was because they aren't a big investment house, and beat a big investment house at its own game, not because they did something that's different from what any stock trader does.
Need a Python, C++, Unix, Linux develop
"The pair have gotten some sympathetic reactions from around the world, and promise to appeal."
A single blog entry from a seeming lunatic does not 'reactions from around the world' make.
I didn't RTFA (of course), but how is what they did different from guess what real people would respond to certain trade and engineer to profit from that? Isn't that what every speculator is trying to do? If someone used a program to trade and other people guessed (without foul play) how the program responds and profited from it, why is that a crime?
As for "manipulating prices", well, every investment firm is manipulating prices when they release analyst reports recommending "buy" or "sell" for stocks they own, I would like to see them prosecuted too!
Oliver.
FTFA:In yesterday's conviction of the Norweigan traders, the prosecution said the pair had given "false and misleading signals about supply, demand and prices"
In the US the official body that does this is called the Working Group on Financial Markets.
They hate it when other people cut in on their action.
Set your phasers on "funky"!
I know the guys at Timber Hill from before IB bought them. They are what one would calls pros. It is hard to think of them as victims. They have all the money hardware and brains a company could want. Actually, I would call Timber Hill fairly predatory. These guys were printing big money through high speed algo trading before anyone knew what that was back in 2000.
Knowing them, I doubt they are happy that their name is in the news. Years ago, they truly didn't want any attention. The less the outside world knew, the better.
The big issue is: this is essentially what all the high speed traders are doing. The line here is fuzzy. However, I fear these Norwegian fellows are being held to a higher standard than people who are more powerful and more established.
"It startled him even more when just after he was awarded the Galactic Institute's Prize for Extreme Cleverness he got lynched by a rampaging mob of respectable physicists who had finally realized that the one thing they really couldn't stand was a smartass."
In soviet Russia, YOU control market.
This is a hacked account, for which the owner can not be held responsible.
Most stock traders aren't targeting one other stock trader with a series of transactions, they manipulated that robot into giving them arbitrage. However, I thought their defense was quite strong in that a trade is a fact and can never be untrue as such. Poorly interpreting that trade makes you a bad investor. Repeatedly interpreting trades poorly makes you a bad investor with no learning ability. If that was illegal, there'd be lawsuits flying all over the stock market.
Live today, because you never know what tomorrow brings
Profits are for big guys. If you manage to beat them at their own game you must be prepared to spend significant amount of your own proceedings on legal fees. It is still better that legal system in China - you bribe the wrong guy and you get portion of led into your head.
Norwegians convicted for outwitting trading system
By Andrew Ward in Stockholm
Published: October 13 2010 19:17 | Last updated: October 13 2010 19:17
Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker.
The two men worked out how the computerised system would react to certain trading patterns - allowing them to influence the price of low-volume stocks.
The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called "flash crash" in May, when a single algorithm triggered a plunge in US stocks.
Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine.
Prosecutors said Mr Larsen and Mr Veiby "gave false and misleading signals about supply, demand and prices" by manipulating several Norwegian stocks through Timber Hill's online trading platform.
Anders Brosveet, lawyer for Mr Veiby, acknowledged that his client had learnt how Timber Hill's trading algorithm would behave in response to certain trades but denied this amounted to market manipulation. "They had an idea of how the computer would change the prices but that does not make them responsible for what the computer did," he told the Financial Times. Both men have vowed to appeal against their convictions.
Messages posted on Norwegian internet forums on Wednesday indicated widespread sympathy for the defendants. "It is the trading robots that should be brought to justice when it is them that cause so much wild volatility in the markets," said one post.
Mr Veiby, who made the most trades, was sentenced to 120 days in prison, suspended for two years, and fined NKr165,000 ($28,500). Mr Larsen received a 90-day suspended sentence and a fine of NKr105,000.
The fines were about equal to the profits made by each man from the illegal trades.
Christian Stenberg, the Norwegian police attorney responsible for the case, said any admiration for the men was misplaced. "This is a new kind of manipulation but it is still at the expense of other investors in the market," he said.
Interactive Brokers declined to comment.
Irregular trading patterns were first spotted by the Oslo stock exchange and referred to Norway's financial regulator.
“They had an idea of how the computer would change the prices but that does not make them responsible for what the computer did.”
vs
“They had an idea of how the gun would change the head of that person but that does not make them responsible for what the gun did.”
But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.
So... the traders didn't act genuinely based a real belief in the stocks. Unlike the computers that ran the automated trading at the firm, which obviously act geuinely on their real belief in the stocks they are trading, because, well, everyone knows computers are always scrupulously honest.
-- Terry
All of this is a symptom of how far the stock market has branched from its purposes - it's not just a way people have involved distributed judgement of the worthiness of societal ventures anymore, now we have huge parasites in the system, feeding on each other. When the boot comes down, I don't think we should cry. Only a few of these people make an honest living that benefits society.
For every problem, there is at least one solution that is simple, neat, and wrong.
and the machines they beat were honest and genuinely based on real belief in the value of the stocks
gtfo
If I get this right, someone is convicted for cleverly working out how a system works that cleverly works out how other systems in the market work (which is what an Algo in principle is). If I pare this down to the essentials, it seems this person is convicted of focusing on one particular trader instead of the whole market.
That's going to be interesting from a legal perspective, because there's nothing illegal in what he has done as far as I can see, unless he had insider knowledge. It's a bit like learning the characters of manual traders to trade against them - just faster..
Break out the popcorn..
Insert
Although you are probably not aware of it, most trading arms of the banks are at war against each other, trying to determine the trading algorythms each of them use, and deploy trading engines that take advantage of any weaknesses. It's one of the reasons you see an immense amount of mathmatical talent recruited by the Banks.
The problem I find with this, is that, unless the t&cs they signed to indicated that they should report any flaws in the bank's trading system, then this is actually a failure on the bank's part to test their systems.
But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.
No day trader makes decisions based on real beliefs of the value of stocks. That just isn't how day trading works. Day trading is essentially taking advantage of patterns that form in price changes because of the ways that people decide to buy and sell stocks. Read any advanced how-to-day-trade text and you'll see most of it is about psychology, because understanding what other investers are doing allows you to predict how their actions will affect the price of stocks. The entire point is to guess what purchases and sales other traders will make and to make money from the price movement those will create. Which is exactly what this pair did, the only difference being that it was a single automated trader rather than an entire market they were second-guessing.
Exactly. They're all second guessing each other, and that's OK.
What these guys did was to third-guess them. Apparently that's cheating.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
I find it quite hilarious, that Timber Hill comes whining to the court, when they are well known for playing the very same game.
I work in the european derivatives industry and traders at most big banks hate Timber Hill, because they have cost them a lot of money - by triggering the banks' automatic hedging systems though small orders for retail derivatives and raking in profits from the resulting trades on bigger derivative exchanges. What goes around, comes around...
This is incorrect. A huge portion of trades done on some markets are from Algol trading. Every Algol, i've ever seen, usually tries to guess the strategy of other traders/Algols.
Therefore nearly every Algol will by its nature '...manipulated that robot into giving them arbitrage'.
On another note a lot of order books are anonymous or may be dark, but poor Algols should not rely on this since other algols are designed to sniff out patterns even in these situations.
In this case, it is the victim who figured out what the gun did with his attacker's head.
Nae king! Nae laird! Nae yurrupiean pressedent! We willna be fooled again!
It is like card counting. All you do is take play a game according to THEIR rules and be just a bit better at it than an average joe. Use of your memory in a card game is something that the casinos do not like and therefore it is banned.
Bullshit. They did no wrong. The whole stock market thing is based on outwitting other investors. If you choose to let George Soros manage your money, I am free to try and outwit him, taking some of that money if I succeed. How is it different if you let a computer manage your money?
Something bad is coming when people are suddenly anxious to tell the truth.
So basically stock market now is just another incarnation of COREWARS?
So a common folk unleashes her DWARF. Then the trading house unleashes ANTIDWARF to get all the money from DWARF. Then two norwegians run ANTIANTIDWARF and eat up both DWARF and ANTIDWARF profits.
Just wonderful :-/
And so it begins.
As it's a Norwegian-related story, shouldn't trolls be modded UP? .
They will never know the simple pleasure of a monkey knife fight
How cyberpunk.
-- Sorry, I can't think of anything funny to say here.
Synopsis:
while (true) {
if (stockMarket.isDown()) {
sueHumansRandomlyToCoverLosses();
else {
buyStock();
laughAtHumanMinions();<br>
printf("Greed is 01000111011011110110111101100100");
}
}
From the dark, old days of the Internet when men were men, women were men, and children FBI agents
Rumour has it that these guys realised that there was a flawed algorithm (which turns out to have been operated by Timber Hill) making a market in illiquid shares, which set its quotes based either on the prices at which recent trades in those shares had been done, or on the algorithm's own position in the stock.
To give some background: if you are making a market in a stock, that means you are prepared to buy from people who want to sell and sell to people who want to buy. Unless you're feeling particularly generous, you want to buy at a "low" price and sell at a "high" price. In liquid markets (i.e. where there are lots of people buying and selling), you can typically rely on the market mid price (i.e. the best bid plus the best offer, divided by two) and "spread" off that (e.g. add a cent to it to get your ask, subtract a cent from it to get your bid). As the market (i.e. the mid price) moves up and down, you can adjust your bid/ask to follow it and, if you end up buying or selling stock, you can adjust your bid/ask to make it more likely that your quotes get hit/lifted to flatten out your position (e.g. if someone hit your bid and sold you shares, you would probably lower both your bid and your offer, in relation to the market, to make it more likely that someone will buy the shares off you and less likely that you'll buy more shares).
However, in illiquid markets and, in particular, in markets where you are the only market-maker, you may not be able to rely on a market mid, because you are the market, so it's up to you to set the price.
So, let's say you start off with a quote of 99.99/100.01 and a quantity of 10,000 on each side. I come in and lift your ask (i.e. I submit an order to buy at 100.01, which matches against your ask) to the tune of 1,000 shares (i.e. I buy 1,000 shares from you). You are now "short" 1,000 shares, so you might adjust your price to make your bid more attractive to potential sellers - i.e. you change your quote to 100.00/100.02 - and you keep quoting with a 10,000 quantity on either side.
I buy another 1000 shares from you. You shift your quote to 100.01/100.03
I buy another 1000 shares from you. You shift your quote to 100.02/100.04
I buy another 1000 shares from you. You shift your quote to 100.03/100.05
I now own a total of 4000 shares, for which I paid a total of [(1000*100.01)+(1000*100.02)+(1000*100.03)+(1000*100.04)=] 400,100
I now hit your bid and sell you back all 4000 shares at 100.03 for a total of 400,120
I just made myself $20. Thanks very much. Rinse, lather, repeat.
Now, you can see how some people might claim that I'm manipulating the market because I'm issuing orders into the market with the intent/expecation that the price will move as a result. But it's all a bit of a grey area.
However, I might argue that I'm merely taking advantage of bids and offers that are already in the market. If the market-maker on the other side wants to quote prices that allow me to make a profit (or, more accurately, if he's been stupid enough to roll out a market-making algorithm that does that), then why shouldn't I take advantage of it?
If this is what happened, then I'm surprised that Timber Hill decided to make an issue of it. If I'd been that stupid, I probably wouldn't want to draw everyone's attention to it. I would put the loss (which is this case appears to have been kless than $70k) down to experience, fix my algorithm and move on.
People/banks/brokerages/traders/hedge funds do make mistakes like this. A long, long time ago, when I was younger and far more stupid than I am now, I once gave a trader a market-making algorithm that used the market
Bernard Baruch noticed that the ball tended to land opposite to heavy bets in a roulette game. He placed his his bets likewise.
After a bit he was asked to leave, but until then he was making money on someone else's crooked wheel.
It is really all the other day traders who should be fined for not having good enough trading bots.
If it was a Sweden-related story, they'd be moded BORK
I don't think it's actually banned, they just ask you to leave if they find out you can do it successfully. They encourage people to try it, as people trying and failing means more cash for the casino.
But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.
Do you really think that savvy investors putting money into stock markets or housing markets or CDS or whatever during a bubble really think that the "fundamentals" justify such prices? No. They just think that the stocks will rise *a bit longer* so they better buy now and wait a little longer before jumping off the bubble. People who jump off the bubble too early lose their wall street job. There are even "momentum funds" that simply buy stocks as soon as the price starts rising, and sell shortly after, based on the idea that when a price starts moving up it keeps going up for a little while (and by the way, the fact that these funds make money disproves the random walk model and hence the rational expectations hypothesis). Honestly, any kind of fast trading clearly has little or nothing to do with the *real* value of stocks.
Not to mention algorithm trading... try asking a neural network if it *really really honestly* believes that a certain stock is worth more than its current value.
Ukrainian stock trader here: It's LEGAL in Ukraine!
Except there's almost no profit from trading stocks in here, also we have to cope with huge taxes.
Lots of words to say, its gambling. Akin to betting on horses. I find it deplorable, but accept that it exists. What I would rather see is much stronger oversight or regulation of this level of gambling and calling it what it is, not "trading". Regulate as strongly as the gambling industry has today.
Joey "Two Tone" is not going to the track to "day trade on horses", he's going there to bet. Betting on a horse has less repercussions, though then betting on investors and stocks. The later effects companies, employees, and the greater economy, the former only those who bet on horses.
Life is a great ride, the vehicle doesn't matter
It's not as if they hacked into it and caused it to give them favourable trades. If the thing behaves in a predictable way such that it can be gamed then it's tough titty for the idiot who runs it. What's wrong with exploiting that? You'd do it in a card game and you'd do it in a war.
it's no different to knowing that trader X is Jewish and might be more likely to buy because it's Yom Kippur or whatever.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Am I the only one to see something wrong with this argument? Yes it's in "cyberspace" (ugh) but that's exactly why it's not wrong.
Price is not the same as value. If I go to the open market shouting "I'll buy all your eggs at $10 each" and you go scrambling to buy them at $11, you're the stupid one.
If you blindly accept that the *value* of X is whatever the highest bidder says it is, you're pretty dumb. If you now set up an automated system that buys X at that price, you're even more stupid and deserve to be out of money. If you have an entire trading system that works on that premise, it's a total scam.
So, this is NOT the same as infecting people's computers, in fact it's the reverse. These idiotic machines are used to exploit the market system.
I'm sorry if I haven't offended anyone
So basically stock market now is just another incarnation of COREWARS?
So a common folk unleashes her DWARF. Then the trading house unleashes ANTIDWARF to get all the money from DWARF. Then two norwegians run ANTIANTIDWARF and eat up both DWARF and ANTIDWARF profits.
That it basically how Dan Simmons describes the evolution of the TechnoCore in "Hyperion"- a huge, and largely malignant cluster of AIs. They start out as a COREWARS-like scenario which gets loose on the net, leading to the evolution of increasingly more parasitic and hyper-parasitic pieces of code that finally reach sentience. Now couple that with the AI-economy from Charles Stross' "Saturn's Children", apply to current trading algorithms and be afraid, be very afraid...
Ubi solitudinem faciunt, pacem appellant.
Most stock traders aren't targeting one other stock trader with a series of transactions
Yes, the high frequency traders target more than one stock trader, after all they can make more money that way:
http://www.nytimes.com/2009/07/24/business/24trading.html
http://www.nytimes.com/imagepages/2009/07/24/business/0724-webBIZ-trading.ready.html
"High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits -- and then disappear before anyone even knows they were there. "
"And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes -- software that a federal prosecutor said could "manipulate markets in unfair ways" -- it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage."
In the recent US stock market crash fiasco, it seems that if their "fancy" computer programs screw up, the stock exchange rolls back the transactions. They don't do that for small investors.
Now when small time investors (relatively anyway) beat some computer program at its game, they get convicted.
Disgusting.
Having glanced at the curt document it looks they used this method. They were caught by an automatic monitoring system, not Timber Hill, and it's noted that Timber Hill has changed their algorithm since then (but nothing about them making an an issue out of it.)
It looks like they started out slow, but got bolder and eventually the stock exchange shut down to investigate. Bet they got a chill when that happened.
The purpose of the stock market is to allow companies to raise outside capital from many investors in a flexible manner. That's the only 'purpose' of it, to the extent that it has one (stock markets were not designed by a grand planner, like most social institutions they just evolved). 'Worthiness of social ventures' never was anywhere in there, that kind of stuff is only ever said by academic economists (and academic economics has way less relevance to modern finance than, say, engineering does).
Can you define 'honest living' and 'society' by the way? To me these sound like they can mean pretty much anything. The only clearly 'non-honest' living is actually hurting other people - can you explain how high-frequency traders do that? Or does the fact that you personally don't see any 'social porpose' to what they're doing mean it's a despicable occupation?
I am Norwegian, soon-to-be a lawyer and a computer scientist ( with some experience with day trading, eps. in the norwegian market )
As many of you have pointed out, and wanted to know: What are these young men charged with and convicted of ? Is it winning over an algo? Outwitting another "player in the market" ? Winning over the "big guys" ?
Of course not. It is not illegal to be smart, nor to make money in the stock market by "outwitting" someone - or something.
In the Norwegian court document refereed to, the parties admits that the trading algo used in this case was of "first generation" and was not particularly advanced. It did not learn, and was easily manipulated.
The law of which their were convicted says ( loosely translated ) something like this : [it is illeagal to] "by illegally execute market manipulation with financial instruments, by submitting orders in the market or execute transactions which gives, or is capable of giving, false or misleading signals about the supply(offer), demand or price on financial instruments".
They are charged with, not manipulating the alog itself, but the whole market _through their transactions_ with the algo. They _knew_ what was going to happen by doing what they did - the prices would rise on buy and the opposite on sell. They (maliciously) exploited this, but at the same time, manipulated the price in the market as a whole, which is illegal by Norwegian law. ( I and would guess, in the majority, if not all, jurisdictions)
This conviction was also given by the District(lower) Court in Norway. The Appellate Court and most likely also the Supreme Court of Norway will have their saying before this case is over.
Stock market and other economic models are a combination of clever maths and wishful thinking that have only a coincidental correlation with reality.
To have a right to do a thing is not at all the same as to be right in doing it
So when is this "Norwegian Day" ? My calendar only has american holidays on it (Oh yeah theres a few from Canada
Nobody has said anything about it around here, and you'd think they would being there is a lot of people with Scandinavian heritage.
Casinos being private property can, in a lot of jurisdictions, ban people from entry for whatever reason they like (that doesn't run afoul of anti-racism type laws).
Las Vegas casinos, for example, can and do ban people they think are card counting. In fact they can ban you from their property because "you were winning" and be perfectly within the law.
Atlantic City has completely different rules.
"In fact they can ban you from their property because "you were winning" and be perfectly within the law."
Which gets you straight into square one: "the reason these guys were brought up on charges was because they aren't a big investment house, and beat a big investment house at its own game".
Casinos are not "just" private property, they are opened-to-the-public bussiness and, as such, subjected to specific normatives regarding access appart from, say, your own home, which basically come down to "you opened to the public for a specific service, you can't reject somebody because of exercising that service"... unless, of course, you happen to be a big trade/corporation with deep pockets, in which case you set your own rules.
If this is what happened, then I'm surprised that Timber Hill decided to make an issue of it. If I'd been that stupid, I probably wouldn't want to draw everyone's attention to it. I would put the loss (which is this case appears to have been kless than $70k) down to experience, fix my algorithm and move on.
It must be noted that TMB did not react or care at all. It was Oslo Stock Exchange (OSE) who made an issue of this and made The National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (ØKOKRIM) take it to court. Timber Hill has made no comment, refused to appear in court and generally appear to want this to quietly go away.
9/11: Never forget it was a false-flag operation
It's not banned. They'll just put you on a blacklist, so that every other casino also knows about it.
Trades should be based on the average price over a minute or even an hour.
This would allow ALL the players on a market to adjust to new information fairly, rather than benefit only those that can afford high-speed trading.
Instead of trying to impose new fees on every trade, which will result, in some way or another, in those higher fees being passed to the small investors, legislators must find ways to level the playing field. With a level-playing field, short term speculation, that generate profits for a limited few and creates no wealth, will disappear.
Lots of words to say, its gambling.
Except that it wasn't in this case.
Casinos in vegas can do exactly that and the main ratinalle is that they are private property.
But it has exactly nothing to do with Norwegians playing the stock market.
That's easy! Just get rid of the algorithms. Hire humans to do the trading. This should the be law in every country. Actually I don't really think that would be the best law, I bet there are better ways to craft markets where incentives are against short trades, in order to make sure markets are for average investors instead of pro investors. Maybe, the law should take 98% of profits made on stocks held for less than a day; 90% less than a week; 75% less than a month; 50% less than a year; and 2% more than a year. Something like that. I bet others could come up with something better.
Read any advanced how-to-day-trade text and you'll see most of it is about psychology, because understanding what other investers are doing allows you to predict how their actions will affect the price of stocks.
With over 70% of US equity trading being done by algorithms, I doubt that day-trading is any longer about "psychology". It's amazing the stories we tell ourselves to explain the movement of stock prices, and we like to imagine the forces of human emotion and reaction are at play, but I think it's important to realize that that's mostly a fiction. Trying to "understand other investors", where those investors are envisioned to be someone like yourself, is not likely to be helpful at all.
Well, that actually makes more sense than TMB deciding to air their stupidity in public. :-)
They did it in Superman 3 once.
If you aren't suspicious of your government's actions, you aren't doing your job as a responsible citizen.
From the Parent
"The entire point is to guess what purchases and sales other traders will make and to make money from the price movement those will create".
I contend day trading is gambling, and these two guys just figured out how the house was gaming the system. To carry my analogy, the two figured out how and when the trainers/jockeys were doping horses and were able to place more certain bets then just relaying on the history of and/or the statistical public knowledge of the horse. Instead of publicly announcing this practice they decided to capitalize on it. I don't know if it was against the law (most likely not), but it was a bad ethical decision built on an already morally corrupt system. The market as a whole has lost touch with reality; existing today as a bookmaker's wet dream and less about growing a healthy economy.
Life is a great ride, the vehicle doesn't matter
I would say that's the risk you take when you automate any process really. As soon as you let a computer take over making decisions based on some algorithm (that is either great or a POS) you are taking a risk.
The fault is not with the people taking advantage of a shitty algorithm that doesn't work properly, its the fault of trusting your decisions to a shitty algorithm that doesn't work properly.
Making your own decisions and living with them is part of the game. Or entrusting those decisions to a human, who hopefully doesn't do a crappy job, or you fire them. In a "real world" human perception would see this BS, and not fall for it. So much of the market is now dependent on these stupid machine traders it is scary. A computer will always be subject to being inflexible in this respect until we get to the point of AI, and then likely the stock market will be the least of our worries...
Is what they did ethical? Probably not. However I think the actual fault is not theirs, but the users of the automated system.
We have a complete profession out here that manipulates prices. We call them valuers and they "determine" house prices. Only they are paid a percentage of their own answer, so the price is never too low and in the meanwhile at least 5 times what a house is worth. What you describe is called "trading". The one who is at fault here is the one who puts a computer in charge of the trade. Not the one who finds a client who is too stupid to take responsibility for his own actions and gives that responsibility to a computer.
Nae king! Nae laird! Nae yurrupiean pressedent! We willna be fooled again!
"But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the "stocks."
As is the case with 100% of trading and has been since at least 1974.
Your point is, again?
"It's a bad kind of manipulation, as opposed to the good kind which is accepted by all."
How can you have it so backwards? The "good kind" is the one accepted by the big tycoons (because it benefit them); the "bad one" is whatever doesn't please the big tycoons.
"Just know that you don't want to break the rules."
True. Then there is the point about who is making the rules (it's no wonder that somebody doesn't break the rules when he's the one making then -for their own profit).
"like breaking into your neighbor's home to show them they need to lock their windows will just get you into trouble."
Here it's more like "That's the law that you can go into whichever home you like, unless it happens to be my home, for in this case you will be prosecuted".
"Betting on a horse has less repercussions, though then betting on investors and stocks. The later effects companies, employees, and the greater economy"
Not true. The latter (directly) affects only those companies that accepted the bet of going into the trade market. How is it in a free market that it's socially acceptable for an entity to allow for the gains and resign from the loses?
Blackjack is played with the same deck(s), and is therefore in fact vulnerable to card counting. To resist this without pissing off customers who like the tradition, most casinos now play blackjack out of a 6, 8, or 12 deck 'shoe', and shuffle when they get 50 or 75% through.
http://www.blackjackhero.com/blackjack/terms/#shoe-game
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
Lots of words to say, its gambling. Akin to betting on horses.
No, just the right amount of words to describe something entirely different than gambling. That's the whole point, which apparently sailed quietly past your dock.
Gambling is when you don't know the outcome.
Gambling is for suckers. These guys merely recognized the patterns and took advantage of them.
"Casinos in vegas can do exactly that and the main ratinalle is that they are private property."
Which is exactly what I said: no matter why they purportedly do, the real fact is that they do it because they are powerful enough to get their way into laws.
"But it has exactly nothing to do with Norwegians playing the stock market."
It is exactly the same: when Goldman Sachs does it, it's the way it's meant to work; when a Norwegian John Doe does it, it becomes illegal -for him.
The article says they gave false info:
'In yesterday's conviction of the Norweigan traders, the prosecution said the pair had given "false and misleading signals about supply, demand and prices" when they manipulated several Norwegian stocks through Timber Hill's online trading platform.'
If they figured out the algorithm and then presented false inputs to produce results they wanted (to get it to make a trade with them), then that's a problem, no?
Either way, these people and others like them should just just trying to edge-case systems to line their pockets and go out and do something. Entire business have sprung up around high-speed trading, the principles of which are just to arbitrage faster. This doesn't really benefit anyone but these few individuals. They're just collecting all the half-pennies (as you may recall from Superman III) that would have gone to other people and scooping them into their pocket.
How about driving commerce instead? The idea of capitalism is that by harnessing the greed of people, they will produce better products and services for all of us and improve all our lives. This doesn't work when all they are doing is trying to be the one to complete a trade instead of letting someone else do it. The net advantage to society is nothing. So we should encourage other kinds of business instead of advanced arbitrage.
http://lkml.org/lkml/2005/8/20/95
I prefered the scenario in accelerando where
*spoilers*
Sentient AI's running limited companies gradually get smarter and smarter and better at trading until they out-compete their human creators and push them out.
I have wondered about this. The last time I was in Vegas, something like 8 decks were used, and at teh end of each hand the used cards were fed back in and shuffled with the other 8 decks.
Surely that makes it impossible?
If you ignore ACs because they are anonymous - you're an idiot.
I see that someone figured out "legally" how to play with your system and make you look like a fool,
so let's throw the book at them, but when we find out that you were being had by OUR system and that you
lost "xxx" (xxx= money, time, energy, stress...) because of it, then too bad for you.....this is our government.
You're almost certainly mistaken about the shuffling part. The shuffle only happens after a certain percentage (50 or 75) of the 8 decks have been dealt. There is typically a line on the shoe that shows them how far to deal before the next shuffle. Until the shuffle, you can count the cards that have been dealt, and do the statistics in your head to try to beat the system.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
The problem being, as we've recently seen in the May flash crash and similar smaller events in single names, is that HFT-based liquidity is not deep liquidity, and it dries up the second (or millisecond) that there's chaos in that market. Don't be confused - HFT liquidity is not AT ALL the same kind of liquidity that market makers are obligated to supply.
I contend day trading is gambling, and these two guys just figured out how the house was gaming the system.
You just contradicted yourself. Once you have a steady, low risk payout, you're no longer gambling. And that's apparently what was happening here.
All stock trading changes the market.
True, it does to a certain extent as a side effect of trading. But if you trade for the purpose of manipulating the market, that's illegal, in the U.S. as well as Norway. The only difference is, if this had happened in the U.S., there'd be some heavy duty jail time.
If I can be modded down for being a troll, can I be modded up for being an orc, or a balrog?
The only difference is that they are a small player. I'm certain that the big trading houses have programs that are expressly designed to affect the market with their trades. As soon as any program takes into consideration the effect its trade has on the market it's guilty of manipulating the market with its trade, no different from what these guys did.
I've watched a day trader at one of these operations use the tools the automation team gave him. It was like he was playing an RTS, and he was constantly making trades with the idea of moving the market in a particular direction. The system gave him tons of data to support him doing just that.
The only difference is that these guys made petty cash at the expense of one stupid program written by one larger trading house. They had the political clout to make a conviction stick. But if these guys deserve a conviction then there are likely hundreds more who deserve them even more.
Need a Python, C++, Unix, Linux develop
"Well, given the number of people besides myself who say "I bought this stock because I support this company" I'd say your 100% claim is false."
How many companies pay dividends nowadays? Are you telling me you are buying stocks as if it were charity, as lost money offered to the company? But if it is not for the dividends it is for the rise of the stock price itself, which is speculation, pure and simple.
"It's not because casinos are large and powerful that they get their way. That law has been there forever, I can kick you out of my house because [basically any reason]"
Ture. But your home is not a Casino.
"Casinos (as private property) can kick you out for the same reasons"
Casinos are not "just" private property; they are "public places of business" and, while regulated by state law, the general consensus and the way it is usually put down (because it's just the sensible way to put it down) is that a public place of business should allow admittance for people that is plainly engaged to the business in cuestion, like it's the case for a gambling house and somebody just gambling (by "just" I mean he's not drunk, making disorders, being afroamerican, etc.).
Casinos might get advantage of the "rules of conduct for allowed admitance" if they wanted to behave as other business do (like, say, dressing white tie on an old fashioned private club) and explicitly tell something on the lines of "ladies and gentelmen may be denied admittance on the fact of winning their bets above the local owner's expectations". Of course, that would have pretty bad press so, instead, they strongarm the local legislation so they can do what it is not generally allowed to other places of public business on more palatable arguments.
"so can mcdonalds"
No, McDonalds certainly can't do that. If you go clean, on your senses, without making disorders, well, if you just happen to be a normal person acting like a normal person and go into a McDonald they are forced by law to sell you a McWhatever if they can sell them on normal circumstances to anyone else. That's the burden they acquired when they opened to the public.
Well, I was in Vegas very recently, and that's how it was at the blackjack tables at quite a few of the casinos I went to....
So yeah, I think it's basically impossible these days at any of the big casinos.
If you ignore ACs because they are anonymous - you're an idiot.
I haven't been in a couple of years, but I'm shocked they would do this, as it would be a huge money loser for them as it would grossly slow the pace of games. Shuffling 8 decks takes them more than a minute, doing that every hand is a huge slowdown compared to playing 20 or 30 hands before the shuffle.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
It seemed instant?
They would put the cards just played in at one end, and different cards would come out at the other end, and all the time we were playing the cards would be shuffling every few seconds or so.
Maybe they are just constantly shuffling the 8 decks which is why there is no slowdown?
If you ignore ACs because they are anonymous - you're an idiot.
It depends on the country you're in.
here we have "the management reserves the right to refuse service"
Here at least I'm fairly sure there's some requirement that they have to ban you by name(but IANAL) so there might be a loophole where if you don't give them your name and don't cause trouble they're stuck and have to serve you but in general the question of if a business is required to serve you comes down to region specific laws.
Good story, too. The perfidious thing with the AIs in Accelerando is in my opinion, though, that the AIs do not necessarily get better at trading, but at gaming the system - creating new shell companies faster than anything can me leveraged against them. Probably the most realistic scenario, considering what goes on these days with automated trading.
Ubi solitudinem faciunt, pacem appellant.
Ah, so there's a machine shuffling as you play? That's interesting, and makes more sense to me. The last place I played was still shuffling manually.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
I guess it was only a matter of time...but that kills card counting right?
If you ignore ACs because they are anonymous - you're an idiot.
Probably, I'd guess there are statisticians who have gotten into it.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
Constantly canceling orders seems more like blatant manipulation to me. I guess the orders were never intended to be executed, but only to mislead other traders. Placing fake orders, in other words.
I suspect regulation of the gambling industry is more for the benefit of the industry than to reduce gambling (why should the government care about gambling?) Regulation reduces or eliminates competition while giving the government a big share of the profits. Short term trading doesn't really have any affect on the value of stocks - the trader may push the value up a bit if they buy, but the opposite will happen when they sell - it averages out to zero.
"you opened to the public for a specific service, you can't reject somebody because of exercising that service"
That is incorrect. Owners of private property can ban anyone from their property for any reason they want, or absolutely no reason at all.
That is incorrect, at least in the USA. There is no law that states that business must sell unless...