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Somebody Stole 7 Milliseconds From the Federal Reserve
An anonymous reader writes "Three to seven milliseconds before the fed moved interest rates, billions of dollars of trades were input that took advantage of the changed rates, reaping huge profits. According to a report at Mother Jones, 'Last Wednesday, the Fed announced that it would not be tapering its bond buying program. This news was released at precisely 2 pm in Washington 'as measured by the national atomic clock.' It takes 7 milliseconds for this information to get to Chicago. However, several huge orders that were based on the Fed's decision were placed on Chicago exchanges 2-3 milliseconds after 2 pm. How did this happen?'"
Can someone explain this to me in idiot? I don't see what the problem is, nor why I should care.
If you don't see a problem, then no amount of idiot will make you care.
If someone talked, why would they need to wait until 2? They could "speculate" ahead of the curve.
...that if the timing is down to milliseconds then the system is broken. It's automatically an unfair playing field tipped towards the largest competitors that have the computing power and programing to operate on that time scale.
Of course nothing about Wall Street is about fairness anymore and usually they don't care about the law, either.
Insider gets info early, writes code order trades at 1:00:00.008 pm Chicago time. PC clock isn't perfectly synced with the atomic clocks, runs a little fast for some reason.
The real thing to look out for are all the trades made before 2:00:05pm Eastern time, because it will take around 5 seconds for any human observer to read, notice, decide, and click a macro trigger. It is very safe to assume that all trades within 5 seconds of an announcement are suspect and worth investigating in more detail.
Perhaps they thought it would make it less likely that they would be caught?
Several large orders betting the other way may have been placed a few milliseconds after 2:00 PM as well. But there is a 'feature' in on-line trading that allows high frequency traders to cancel or abort trades that they claim were made as a result of 'system errors'.
Have gnu, will travel.
That would give away their predictive edge to other traders.
Because then they would get busted for insider trading. This guy set his timers so that he wasn't doing the trade until after it was officially announced, but forgot about the speed of light delay and got busted anyway. Not that the FTC gives a damn about insider trading anyway, it's hilariously and blatantly rampant but they're powerless to do anything about it.
I read the internet for the articles.
If people knew half the shit that Wall Street does they wouldn't like it. I think articles like this actually make it harder to have a productive conversation about the fairness of Wall Street because it makes it seem like this type of abuse is the exception rather than the norm.
There is a revolving door between Wall Street, Corporate board rooms, and the Fed. Not only do people go through that revolving door but so does information, so does hits about what might happen in the markets or what might come out of the Fed. Go watch Wall Street, either one, it's dramatic but its accurate enough for the average person to get a idea of what goes on behind those closed doors.
Lets list the facts:
This type of insider trading is illegal.
The leak that allowed this is a firing offense and also illegal.
Trades were executed in Chicago after the change was announced in Washington D.C. in a classical physics sense.
Trades were executed in Chicago before the change was announced in Washington D.C. in a relativistic physics sense.
What does all that imply?
Someone at the Federal Reserve leaked the information before it was announced.
Someone else wanted to use this information but also not get caught.
That someone doesn't understand relativistic physics.
Light doesn't propagate through fibre as fast as it does through a vacuum.
The information was widely available about 5 minutes in advance:
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it
Someone had the order all queued up, and was waiting for word. He got word of the interest rate move, and keyed in his order, which his computer would execute at 2:00:00:002, forgetting that such an order was impossible without giving away he was cheating by having gotten the announcement early.
No leak would allow someone to time those trades so precisely. there may have been a leak, but there was also something done to make it possible.
Huh?
The executive branch nominates the Fed president but that person doesn't report to the POTUS.
My guess is that someone with an inside connection to the Fed leaked the information (over cocktails or a golf outing the day before) to one of their hedge fund buddies who made the billion dollar bets. They jumped the gun because they figured that John Q. Public isn't going to believe that trades made a few thousandths of a second too early can really be that big of a deal. Even if they get caught and wind up paying a fine, they will still make out like bandits. Tax these millisecond trades and they'd go away or, at least, the volume would drop significantly. Instead of the paltry fines that the SEC levies on the cheaters, they ought to take the entire transaction away from the guilty party. That'd stop the practice. In a heartbeat. Third strike and you go directly to jail.
CUR ALLOC 20195.....5804M
Well, yes, yes it would. Did the fed time their release for exactly 2:00 and slave their clocks to the naval observatory (as many modern computer systems do)? Does the financial community know this? The financial community has hyper-accurate knowledge of timing in their own systems as well as exactly how many milliseconds it takes to complete a trade.
Suppose you have information leaked an hour ahead of time. You can't act on it then because it'd be obvious that you had leaked information and you know they're looking for that. So, you have to wait until everybody else has it. But if you wait until everybody else starts to react to the news, your leaked information is worthless.
You also only have an hour to think about what to do, so you can't change your IT system and whatever plan you come up with you have to either act immediately or not. So, you tell your existing IT system that is already capable of hyper-accurate timing to execute a trade just after the announcement.
Later on you realize that everybody has hyper-accurate timing, not just you.
Seriously, I've been contacted by maybe a dozen financial company recruiters who want me to squeeze another quarter millisecond out of their trading network. I'd sooner flip burgers. Millisecond trading is theft. Period. Even when it happens enough milliseconds after receiving information to have broken no law.
Moderating "-1, Disagree" is simple censorship. Have the guts to post your opinion.
I am so glad that when corporations couldn't be bothered to honor their pension promises to employees the IRS came up with the bright idea of allowing 401ks so we can all gamble our retirement life savings away in the stock market.
The difference between 1929 and 2008? Not nearly enough bankers jumping out of windows. Maybe someone should start pushing them.
Apparently the great minds of the Masters of the Universe aren't familiar with the speed of light. No matter for them though - the head of any major financial institution could rob the president at gunpoint on live TV, and still not be prosecuted for it.
Utah, at the new NSA data center.
It's quite possible they do understand the physics
Or, their lawyers advised them that it's legal in some really devious way because they didn't actually look at what was stolen until the "legal" time.
Or, they're an organization such as Goldman Sachs, and know that they're above the law.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Does it even make sense to discuss this in terms of ms? Once the Fed decision was announced, someone had to read or listen to it, digest it, and then make a decision. A purely non-thinking reflex in humans is measured in the order of 100 ms-- e.g. light goes on, push a button, no thought involved. Is someone trying to suggest that if the press release was given at 2:00:00 in a machine readable format, a computer parsed the information (it presumably was not given as a buy or sell recommendation) and made a decision to trade without human interaction/vention, it would have been kosher?
Even if this was 100ms after 2pm, this was almost certainly a criminal act. I think a human making a decision involving billions of dollars would probably like to take a second or two to make sure they weren't misinterpreting the press release before investing even if they were in a hurry.
This wasn't high frequency trading, this was a big trade, made intentionally to take advantage of a presumed market movement, and whoever made the trade would still have made it if there were a tiny transnational tax on top of it. This wasn't some computer constantly submitting prices and making hyperfast trades, it was probably a trading decision made by a real live human--it just happened to be very time dependent and was scheduled with millisecond accuracy (maybe too much accuracy if the story is correct).
A per-transaction tax would do absolutely nothing about a trade made based on information acquired over golf (which would already be illegal).
Bottles.
Well I will take a crack at it....you see the problem is the current system is designed to allow the parasites, those that have made insane amounts of money by rigging and manipulating the government and the system to keep their elite status by being able to pull shit like this which ordinary folks can't do because they don't have the capital required to "buy in" at the correct facilities to beat the wire.
When i see shit like this, along with both parties seeming not to give a shit about being scene outright kicking the poor when they are down i have to wonder....how much time does the USA really have left? After all as has been pointed out several times the unemployment numbers are bullshit and if you figure in all those that they just magically drop from the rolls we are looking at a good 23%+ unemployment, meanwhile you have the right wing being so damned vicious to the poor you might as well replace the elephant with Monty Burns and then to add the shit icing on the asshole cake you have shit like this which allows the really nasty leeches like Goldman Sachs to make mountains of money off of the American people.
So I have to wonder if this isn't the root cause of why all empires fall, those at the top become so fucking greedy that they tilt the system so damned far out of balance the whole thing collapses. It pretty obvious that in the last 4-5 years or so many in power have stopped caring about the kayfabe of giving a fuck about anyone but the elite, the working poor and unemployed, which outnumber the top 1% by a good 10,000 to 1 (because in reality its more like 0.01% that get a good 70% of the wealth consistently) are just being bombarded with story after story like this where the elite scam billions and the only thing the government does is ask if they want a task break, and the war on poverty by attacking food stamps, medicaid/care, disability, welfare, etc makes it real clear to the poor folks that the elite really want them gone...so is this how it ends? With the poor getting everything taken away until their is nothing to lose and we have own own Arab Spring?
I don't know but I can tell you the flyover states are beginning to look like the depression, small businesses that were here for generations closed and the factories gone so that huge chunks of land are nothing but abandoned buildings, and instead of helping the broke and starving poor those in government seem to be doing everything they can to curbstomp poor folks and take away any benefits they may get. Hell I got a disabled relative that if he isn't able to win against them taking his disability he'll be homeless by Xmas, and I hear similar stories from all my customers, women and kids sleeping in cars because they found a way to take away what pitiful benefits they were getting, tents popping up all over the place because folks got nowhere to live, it makes me wonder if the whole French "let 'em eat cake" situation is repeating here and will end with the same result. The teeming poor have nothing to lose and their ranks grow by the day, its seriously bad here folks.
ACs don't waste your time replying, your posts are never seen by me.
In the U.S. of A. the term "insider trading" applies only to share/stock trading, where it is illegal.
Those not trading stocks - such as commodities, bonds or spot FX need not concern themselves with such nonsense. Trading on material non-public information is perfectly legal in those markets.
Or alternatively to a tax, introduce a random delay on the order of 1 to 5 seconds to each order. That way, a ms advantage will be lost in the "sea" of 5 seconds. And for those who say that ms level trading provides important liquidity to the market, I say that if 5 seconds makes such a big difference, to a trade, it is cheating or at best gaming the system rather than investing. And investing is in my humble opinion the true value and purpose of the stock market.
Longer version of the story is this
The fed announces the decision at 2 pm (EST). But press people are taken to a safe room ten minutes in advance and told the contents of the Fed release. They have 10 minutes to prepare their brief. Them and the editors are banned from communicating this to the outside world before 2pm.
Probably what happened is that a press guy communicated the announcement with his editor with the understanding that the news will not be released until 2pm. The editor probably spread the news to multiple locations, again with the 2pm restriction. The editor held his side of the agreement, and released it at 2pm (EST) in Chicago.
The news was legally released at 2pm, but just location shifted. They probably did not break the letter of the agreement. Of course, the slobs on Wall Street got creamed, if they were hoping that they could trade faster than Chicago by a millisecond.
This is one rare case in real life where the agreement should have used the relativistic definition of time-space and have the agreement describe the time co-ords for release for each location. But then, since New York is closer to DC than Chicago (an Philly even more so), it would be advantaging some locations more than others.
http://slashdot.org/submission/1062723/Cheap-mobile-data-plan?art_pos=2
More likely, whoever set this up was an investment banker and didn't understand that the delay caused by the time it took the signal to get from DC to Chicago was enough to be measured. It's obvious to people like us, but then again, we've made the effort to learn science, and all investment bankers are interested in knowing about is manipulating money.
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Markets are never 100% fair, or 0% fair. So instead of focusing on perfection, we should be focusing on improvement. An obvious way to have made the market more fair in this case would have been to make the announcement after the markets were closed for the day. Another possibility would have been to halt trading for a few minutes before and after the announcement, for the news to settle. I suspect that the person responsible for making the decision to announce in the middle of the trading day was also someone who, directly or indirectly, benefited from the cheating. Cui bono?
No leak would allow someone to time those trades so precisely. there may have been a leak, but there was also something done to make it possible.
Oh come on.
You know what the fed is going to do in advance. (whispers and leaks)
You know it will be done precisely on time so as to avoid all appearances of favoritism.
You arrange for your trades to appear after the precise time of release, but fail to take into account the time for the announcement to get to Chicago.
Your trades go in after the announcement but before the notice arrived in Chicago.
A leak is the most obvious answer. A leak of several hours notice makes more sense.
Errors in atomic clocks invoke Occam's Razor.
Sig Battery depleted. Reverting to safe mode.
If (and only if) the trade occurred before the light-travel time from Washington, then (by special relativity) there exists a reference frame in which the trade occurred before the information was released in Washington.
It would be so fun to see this argument play out in court.
Quattuor res in hoc mundo sanctae sunt: libri, liberi, libertas et liberalitas.
The information was not public at 2pm in Chicago. It was public at 2:00.007pm
Um.. Sorry, not true. Where the person leaking the information is going to be in trouble, if you knowingly trade on inside information the SEC may take exception to your activities in a criminal way.
But besides being illegal, it's STUPID to trade on supposed inside information anyway. First, you don't really KNOW it's true. You could be getting set up, or be involved in some pump/dump scheme by somebody who just wants to use your trades to move the stock price in their favor. Second, if it IS true and the source is really an insider, you both can share adjoining cells. Either way, you loose.
I don't take the chance. I don't trade in companies I work for and I don't waste my time and money on stock tips of unknown origin. I also don't make any investments I don't FULLY understand...
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
The information was, at the time the trade was executed,
Not in Chicago. Chicago was not in the light cone of the information release at the time that the trades were executed and hence, the information wasn't public. I must admit to being a bit surprised that there is a non empty intersection of relativity and finance law.
But if they had waited those few more milliseconds, they would have been in compliance and yet still most likely beating anyone who had to process the Fed announcement first.
Exactly. Where in the world would someone get the idea the markets aren't totally generated and artificially sustained monopoly money. Its a joke. Transactions should require settlement (transfer of non-electronic wealth).
Its a joke and a fraud and its bankrupting main st and making the rainmakers and market manipulators rich.
Legalize the constitution. Think for yourself question authority.
Far more likely, some group created a series of methods for intercepting internal communications (NSA) and passed this information onto another group (CIA) with deep links with major contracting firms (the whole global military industrial complex and it's financiers). Insiders risk getting caught and actually being punished where as, thanks to a whole range political communications interceptions, the other groups will blatantly commit crimes with no fear of prosecution.
Chaos - everything, everywhere, everywhen
Or better, not have a federal reserve bank controlling monetary policies and creating endless inflation at the cost of the wealth of the middle and lower class.
I love a good conspiracy theory, but this Tea Party nonsense is just stupid. First, inflation hurts the wealthy (who tend to be creditors) far more than it hurts the poor (who tend to be debtors). Traditional champions of the poor, such as Williams Jennings Bryan, understood this, and fought against tight money policies that actually benefit the wealthy and hurt the poor, but that is exactly the opposite of what is happening today. Second, both interest rates and inflation have been near zero for years, so your assertion that they are inversely correlated is weak. Third, what do you suggest as an alternative to our current monetary policy? European style austerity? Several years ago America and Europe both had about 10% unemployment. Today, America is at 7.5% and Europe is near 12% ... and the euro has fallen against the dollar (again, the opposite of what your conspiracy theory predicts).
True, but that is still illegal and against SEC regulations for insider trading. This was the kind of stuff that got Martha Stewart into deep trouble, not to mention many other people who have been convicted on similar charges. What *should* have happened is that everybody possessing this information prior to the official release should have maintained an embargo on the information (in the case of journalists) and certainly not spread that information further. They are also criminally liable for anybody else they shared this information prematurely and it would have been a conflict of interest to even act upon that information.
As to if the SEC will even bother doing a formal investigation on this matter and even bother to file charges, that is a completely separate story. None the less, it is pretty obvious that somebody broke the law regardless. Since these first trades are patently obvious that they had prior knowledge, they would be easy targets to go after and burn a whole bunch of people in the process... if anybody in the SEC would bother.
My bet is that somebody in the Obama administration is going to claim that sequestration is the cause for no prosecution or investigation. It would be an easy out at least.
Seriously how the fuck did this garbage get modded up. The stock market is NOT nor has it EVER been a zero sum game. The stock market is little more than a glorified way to buy a piece of a company, the value of the shares is not zero sum, it is based on whether the underlying asset (ie, the company) is increasing or decreasing in value. You only got one thing right, and that is staying out of the entire market, someone with so little knowledge of how it works most definitely should avoid it.