Evidence of Algo Trading on CL

http://www.cnbc.com/id/32690802

According to the article CL is affected by high-frequency algorythmic trading program.
"an intricate scheme that allowed commodity traders in Chicago working for Optiver, a little-known company based in Amsterdam, to put their orders first in line and subtly manipulate the price of oil to the company’s advantage. "
The same behaviour was observed for broad equity market since the beginning of so called recovery. E.g. zerohedge warned many times about unusal activity of Goldman on NYSE.
I'm wandering about Opriver strategies. If they only were hammering settlement price, why high-frequency algorythm has been involved? I mean Amaranth did it very successfully in the past whithout any math And if somebody place market orders steadily in front of pin-striped masses, will they be able to boost the prices in short term?

 

Highlighting a foreign firm to deflect attention from the fact that GS and MS are the biggest players in the oil market.

There needs to be an investigation of the spike in oil after these two were given access to fed funds following a 9pm meeting.

 

Anybody who has ever traded CL can tell you this, trade it then trade Heating Oil or Natural Gas or any other energy and tell me that you just can't "tell" that the algos love this market. The spreads are also very "stiff"

 

1) Old news alert! Old news alert!
2) That can work some of the time but not all of the time. You are still "at risk". You're not getting "free money".

 

what do you mean by 'stiff'?

 

i was wondering the same thing. in my opinion i think he means the CL spread is more consistent than say NG. NG can be real herkey-jerky, spread is 1 tick wide then its 5, then 2, etc.

 

I do know but I'd like to know how they did it whether it was old trick or not. The trading scheme was exactly the same as Amaranth Advisors with little variations.
The distinguished features in this case were:
"Globex operates on a “first in, first out” system. Bids and offers quoted at the same price are executed based on the order in which they are entered into the system.
To ensure that its orders were first in the queue, defendants designed and refined a software program they referred to as the “Hammer,” which was created to rapidly enter a series of orders into Globex.
Throughout the early part of the trading day, defendant Dowson or other traders under his direction would adjust Optiver’s orders, often increasing Optiver’s net long or short TAS position. Later in the day, defendant Dowson or other traders under his direction would adjust Optiver’s bids and offers– cancelling or modifying existing orders and placing new ones – in a manner that often resulted in Optiver accumulating a net long or short TAS position.
Defendants developed and regularly refined another software program which processed information about prices and quantities of trades being executed and showed a running calculation of the VWAP during the close to facilitate the manipulative scheme."

1) refereing to original article, how algorithm could assure the first execution?
2) or they imply volume weighted MA as "algo-trading"

 

I know "stiff" is ambiguous, I guess when somebody said herky jerky that kind of describes it. I am tired and am having a hard time quantifying what I want to say, so I will try again tommorow. Good night all.

 

For the record, Nat gas is "herky jerky" as a spread because it is considerably less liquid and because it is difficult to store.

The presence of algos in liquid markets is virtually guaranteed, these firms typically spread futures and options not futures to futures and they do this very efficiently. It is unlikely that firm like Optiver could single handedly manipulate a market as liquid as crude.

 

No way on God's green earth that Optiver is manipulating the markets in the way suggested in this thread to the point that they can influence the direction of the market per se - they may be able to pop it for very short timeframes but no lasting effect. To accomplish that feat they would have to be heavily involved in the OTC market on a directional basis, which from a capitalization standpoint is doubtful.