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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?'"
Looks like you picked the wrong week to stop sniffing glue.
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
Or why it is framed as 'banks break physics' rather than 'someone talked and then fraud happened'.
they STILL didn't get first post, did they?
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.
Can someone explain this to me in idiot? I don't see what the problem is, nor why I should care.
FTFA
There would seem to be three possibilities: 1) Some trader was extraordinarily lucky, placing a massive bet just before a major announcement that would make that bet highly profitable. 2) There was a leak, either by a media organization with early access to the data or even someone at the Fed. Or 3) The laws of physics have been violated as the information traveled from Washington to Chicago faster than the speed of light.
Big money interests are engaged in insider trading.
In idiot: Bad men do bad thing. Touch you in bad place.
Do you even lift?
These aren't the 'roids you're looking for.
They didn't steal 7 milliseconds.. they had the information minutes or more likely a few hours before everybody else. Don't try blaming this on some simple technological advandage.
I'm pretty sure it was Billie Ray Valentine and Louis Winthorpe. They did this previously and managed to bankrupt Mortimer and Randolph Duke in the commodities market.
The world is made by those who show up for the job.
...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.
Information was leaked and the whole thing setup to look somewhat legitimate. 3ms is the absolute fastest anything can get from Washington to Chicago, so the information was there before the official announcement.
Perhaps they thought it would make it less likely that they would be caught?
I'm pretty sure it was a speed of light violation. We should announce to the rest of the world this marvelous discovery.
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.
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it
The Insider in this case would have the information well before it was announced in DC. He has the trades all setup and ready to execute, and then set the timer to have it happen at exactly 2PM. He forgot about the speed of light delay however and accidentally outed himself. After a decade or so the FTC might slap him with a couple of thousand dollar fine or something to make sure he never abuses insider information to make a billion dollars in a millisecond again.
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.
http://www.nanex.net/aqck2/4436.html
"To those who are overly cautious, everything is impossible. "
Light doesn't propagate through fibre as fast as it does through a vacuum.
Of course there is a story here.
And of course it doesn't have to involve breaking the speed of light. It has to do with the Fed failing to properly enforce a supposedly very complex information lockdown and the information likely being either leaked or pre-loaded on remote servers, resulting in (according to the article) over $600M in trades via high-speed computer trading in the few milliseconds after the information was released - and now the Fed is investigating.
It's both related to technology and possibly involving criminal activity (or at the very lease a failure in information security). Sounds like a relevant story to me...
From: http://www.cnbc.com/id/101056168
"Inside a room on the top floor of the William McChesney Martin, Jr. building, Fed officials instructed reporters not to send information about that decision to the outside world before precisely 2 p.m. as measured by the national atomic clock in Colorado.
The doors were locked at 1:45 p.m., and Fed staffers handed out copies of the statement at 1:50 p.m., allowing reporters a few minutes to digest the complicated document before reporting on its contents. At 1:58 p.m. television reporters were escorted out of the room to a balcony where cameras had been prepositioned. The Fed's security rules dictated that television reporters were not allowed to speak before precisely 2 p.m. Print reporters were told they were allowed to open a phone line to their editors at headquarters offices a few moments in advance of the hour, but not allowed to interact with people on the other end of the line until exactly two p.m."
So many hacked communications channels are still possible from this. The print writers can signal the editors when making phone calls before 2pm, without talking to them. For example, the editor can instruct the reporter to call them on landline if it's a sell, or his mobile number if it's a buy. The TV reporter can wear a jacket if it's a sell, or remove it if it's a buy, so someone across the building can monitor the balcony for pre-release signals... etc.
Also, from the http://www.nanex.net/aqck2/4436.html:
"It wasn't just gold. It was everything that traded. In fact, the 1/100th of a second after 2pm was the most active 10 milliseconds in the history of the U.S. Stock an Futures markets."
This was a major, major hack, and they waited as late as they could wait, without signaling their competitors.
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.
Another possibility is that it was a big player like Buffet or Sachs, counting on profiting one of two ways: a) precede the market b) bet wrong but cause the market to reverse, triggering massive losses to those who told their broker to trade according to the news, with a stop-loss protection.
To carry out B, you have to be able to place a second bid greater in magnitude but opposite sign to the first, about ten minutes after the news breaks. You also have the liquid assets to do it. since the bailouts doubled the national debt and gave it to banks in interest free loans with no set date of repayment, then yes, itmay be possible that investment banks did it.
Correct Horse Battery Staple: 72 bits of entropy. Enter "Correct H" into google. When it generates the phrase, that's
Light only travels about 200000km/s in fiber optic cable, which means 5.5ms to travel that distance. With routing delays and stuff, it's probably about 7ms away.
Sure it's plausible. Atomic clocks. What the exploiter did was try to time the leak so that it happened exactly after the fed announced its decision before anyone else had a chance to react on it. They performed the trades at exactly 2:00 so that it all looked kosher. The problem was that they did it faster than what is physically possible and thus what was a plan to give plausible deniability backfired and thus exposed that they had insider knowledge.
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
No need to concoct such a nefarious plan.
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it
Plenty of people knew and could leak the information early.
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.
Perhaps this is evidence that the Higgs is getting more subtle.
And a lot richer.
We need a "+1 -- nice sig" moderation.
(I am not a physicist...)
How about a couple quantum entangled particles?
Is the Fed going to increase the rate? This is a question with two possible answers, yes and no. You get the answer in D.C. and mark a particle there. The entangled particle in Chicago would get the appropriate mark at the speed of light (or instantly?) where it is read and triggers a buy or sell appropriately.
Help! I'm a slashdot refugee.
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.
What if there was a guy named Beeks that had the report in his briefcase and traveled to the exchange in advance of the public announcement, and there were 2 men and a woman that intercepted the report and used it to their advantage while swapping it with a fake report which was given to the original people?
I can only hope the responsible investors are properly ticketed and fined. What a glorious and historic $75 that will be.
When did we start talking about airport security?
Check out my sci-fi/humor trilogy at PatriotsBooks.
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.
Actually a neutrino beam could make the trip faster than photons can in practice. One, because neutrinos could travel through the crust of the earth and thus avoid having to go around the curvature. Two, they would be traveling much closer to the speed of light than the photon-based signal, because that signal will be slowed by the index of refraction of the medium in which it travels, be it fiber optic cable or air (for radio waves).
Here's a link to an actual demonstration of an ASCII message sent via neutrino over 1035 meters
Don't Bogart the fish sticks
Of course, this hack isn't even new. There's the value of delaying a radio broadcast was documented in the movie The Sting. And before that there was the Count of Monte Christo who did a man in the middle injection of fake tweets into France's Semaphore packet system to ruin a banker.
I would assert that High frequency trading is simply parasitic. Many people have suggested a transaction tax could fix this. It would damp the frivolous trades yes, but it would not fix these mega scale singleton trades that can happen like this.
my proposal: What one should do I think is fix this by injecting random delays into the trading system itself. That is you would queue up all trades for the last 100 milliseconds into a block. Then randomize their order. then execute the trades in that new order. This would erase any value of a trade that depended on beating another trade by a few millisconds. You'd still have some edge cases to worry about (i.e. racing to be in the block before the next block). But you could fix that too (dither the interval size between 80 and 120 milliseconds at random, so no one would know where the block boundaries were.
For this to be viable enough people would have to agree that HF trades have no actual value added. Additionally, one would have the potential problem of exchanges popping up that did not honor this. But those would not likely have enough liquidity to matter.
Some drink at the fountain of knowledge. Others just gargle.
It sounds as if news services could have released it at exactly 2pm in Chicago without breaking the Fed's rules. The rules say "public use."
I often work with material under a press embargo. If I get something on Tuesday with an embargo of 2pm EST Wednesday, that means I can send it to my editor in Chicago (or anywhere else) on Tuesday. That's not public use. My editor will wait until 2pm EST and release it (for public use) at that time in Chicago.
FTA:
Transmitting them to the news service's own computer system in Chicago isn't "public use."
"No public use" means you can transmit your story to your editor in Chicago, who holds it until 2:00:00 pm EST and releases it immediately in Chicago.
That would be an unusual news story. It would consist of 1 machine-readable bit meaning "buy." But that's all their readers need.
Quick, everybody, you've got 7 milliseconds to mod me up to +5 insightful.
If a packet leaves Chicago heading east and a packet leaves New York at the same time, which state will they meet at?
The clocks weren't quite synchronized
Yes, it's so difficult to synchronize clocks these days. A GPS receiver will only get you a time reference accurate to within tens of nanoseconds.
As someone who makes a good part of my living trading bonds, there's a lot of misinformation here.
1) There is no such thing as "insider trading" in treasury bonds or their futures (or commodities futures or foreign exchange or options on any of the above). The reasoning is that the majority of the participants in those markets are knowledgeable insiders. Corporate bonds are a grey area but no one has ever been prosecuted and numerous people have openly traded on insider info. The SEC brought one case related to trading on credit default swaps, but it didn't go anywhere. Insider trading on stocks and stock options is illegal by case law.
2) if you had information about the Fed's future rate policy, you could make you bet in the spot or futures markets well ahead of the announcement. You would get a better price on your bet by doing so assuming it was a large bet, because markets tend to thin out before announcements (for technical reasons irrelevant to this discussion - just know it happens reliably).
I would guess the most likely explanation here, as with most apparent violations of the speed of light, is poor clock synchronization or other measurement issues.
No, not at all. The first link mentions another possibility a grey area.
3) CNBC is suspected of transferring the information before the 2pm to chicago, but not releasing it to the outside world until 2pm. No faster than light speed needed. The rule was stated as disclose from the room to the public. Is a server in chicago public? No. Is it outside the room ? , yes. So my understanding is that CNBC might be in trouble, or might not if the rule was ambiguous enough.
Never break laws or regulations that can simply be bent to your will.
Well.. maybe. Or Maybe not. But Definitely not sort of.
If Comcast is doing the routing, Oregon.
"Think about how stupid the average person is. Now, realise that half of them are dumber than that." - George Carlin
Utah, at the new NSA data center.
There's always aftermarket (which used to be when I bought/sold most things).
Additionally, this would then spike out the Aussie and Japanese markets, and the latter are particularly sensitive these days and could start an Asia-wide trading spike that would magnify the effect much more than it should be to such "news" (if lack of news is news).
-- Tigger warning: This post may contain tiggers! --
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.
Feeling good, Louis!
Which of you stole 7ms to post at exactly the same time as the other?
Sorry, couldn't resist... :)
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
Ummm, what? That's exactly how most trades originate.
Here: "Today, when Bloomberg releases a market-moving headline, on average it takes 4 seconds for the markets to move after the news story hits. Bloomberg machine-readable news can help you get ahead of that window.... Bloomberg's Event-Driven Trading feed offers clients instant, machine-readable delivery of Bloomberg's world-class news and data, including breaking headlines, exclusive worldwide market-moving coverage, structured financial data from company releases, news analytics, and global economic data."
Trying to compete with these guys by websurfing is really no different than reading the evening paper.
Well, here's a recent article that says the percentage of trades that are automated has been falling and may only be slight majority now.
These sort of announcements are generally written by computer, sent by computer, received by computer (over quite expensive lines), parsed by computer, and acted on by algo trading, generally in less than 1 ms these days. There's a whole industry around it. (Or should I be expecting a Whooshing sound any minute now?)
I suspect the answer is: the "Chicago Exchanges" have nodes on the low-latency Wall Street network.
Socialism: a lie told by totalitarians and believed by fools.
you do realize that 50% of all current trades last less than 100ms right? That is right folks 50% of the current volume is nothing but hot air. that is why the stock market has had 10-15% growth but the economy is barely doing 1-2%.
The fact this happened shouldn't surprise anyone. this is the problem of HFT.
i thought once I was found, but it was only a dream.
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.
Please don't listen to Truthers.
The 9/11 Comission did trace the orders back the investors and figured out what information motivated them to place the orders and what motivated the source of the information in the first place..
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.