It's not about the fee income of the CME, it's about the income of Virtu et al. "interesting to note the following links between large HFT firms and CME Virtu Trading Director John Sandner is board member and ex chairman of CME http://ir.virtu.com/directors.cfm http://investor.cmegroup.com/investor-relations/directors.cfm Jump Trading - William Shephard CME board member owns a stake in Jump Trading. http://www.bloomberg.com/news/artic...dy-about-this-story-on-hft-power-jump-trading http://investor.cmegroup.com/investor-relations/directors.cfm Citadel - worked on joint venture with CME for central clearing house for CDS. http://www.chicagobusiness.com/article/20081129/ISSUE01/100031032/griffin-cme-ready-for-swaps Hudson River Trading - Adam Nunes business development is VP of U.S. options at Nasdaq OMX with responsibility for both the Nasdaq Options Market and Nasdaq OMX PHLX http://www.wallstreetandtech.com/tr...anges-and-bulge-bracket-firms/d/d-id/1262538?"
http://www.bu.edu/rbfl/files/2014/03/RBFL-V.-33_1_Aktas.pdf I read the complaint against Coscia/Panther. Looked like he was spoofing for pocket change based on the complaint. Meanwhile...... http://www.reuters.com/article/2015/04/20/us-usa-hedgefunds-corzine-idUSKBN0NB01T20150420
"Thus far, fines and censures have been common penalties issued against those who spoof.57 But does the punishment fit the crime? In Coscia’s case, CFTC Commissioner Bart Chilton thinks that the punishment may not have been enough.58 Specifically, Chilton described Coscia’s behavior as an “egregious violation” of U.S. trading laws and felt “dissatisfied” with the 12-month trading ban, believing the ban was too lenient.59 Chilton even called the ban “a nice sabbatical” for a trader to develop new algorithms to “unleash” on the market once the ban expires."
Perhaps a simple solution would be called "Pattern Spoof Trader", just similar to : http://en.wikipedia.org/wiki/Pattern_day_trader Q Pattern day trader is a term defined by FINRA to describe a stock market trader who executes 4 (or more) day trades in 5 business days in a margin account, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period.[1] As the trader is exposed to the potential risks involved in day trading and potential rewards, it is subject to specific requirements and restrictions. UQ
one of the big problems with this mess is that are plenty of people doing more or less the same thing. Unfortunately for Sarao, its like making the argument that everyone else is speeding why ticket me?, its not gonna fly in federal court. Like everything else there will be winners and losers when this all shakes out, fair is off the table as per usual.
Please! Fine me $1mm a day. So long as I make $10mm a day, you can do this forever if you wish. I'll even hand deliver the check with a fruit basket.
I still think he won't be doing (much) prisontime, that would set too much of a threatening precedent for the big players.
The 'Flash Crash' Case Doesn't Add Up BY KURT EICHENWALD / APRIL 29, 2015 2:44 PM EDT Stephen Mara, of Quattro M Securities, works on the floor of the New York Stock Exchange, in New York on May 6, 2010. If U.S. authorities are correct, Navinder Singh Sarao, helped set off the “flash crash” that day, raising fears that it’s not just big banks and hedge funds that can create chaos on exchanges and wipe out the savings of ordinary investors. HENNY RAY ABRAMS/AP FILED UNDER: Business, Stock Market, Flash Crash, Navinder Singh Sarao Try Newsweek: subscription offers This was clever, but was it illegal? The government labels this kind of trading “layering,” which is a type of “spoofing’’—terms that, as defined under criminal law, mean basically “Who the hell knows?” Here’s the definition offered by the Securities and Exchange Commission (SEC) in a big 2012 layering case: In layering, “a trader places a buy (or sell) order that is intended to be executed, and then immediately enters numerous non-bona fide sell (or buy) orders for the purpose of attracting interest to the bona fide order. These non-bona fide orders are not intended to be executed.... Immediately after the execution against the bona fide order, the trader cancels the open, non-bona fide orders.” OK, got it: A trader places a small order on one side of where trades are being done, then a huge order on the other side, moving the market. The small order gets executed, the trader cancels the huge order, and the market returns to where it was. So if that is the definition, why don’t the charges say Sarao did that? In the vast majority of transactions cited by the government, at no point is Sarao described as having first established a small position before putting his massive (and usually canceled) orders on the other side of where futures were trading. Instead, he enters the massive orders, then places the small order. In other words, he does it backwards from what the SEC describes as layering. The government makes a to-do out of the fact that the time between Sarao’s orders was milliseconds, as if the order of trading was irrelevant. So? Sarao wasn’t bidding against little old ladies whose gnarled fingers were slowly tip-tapping on keyboards. He was battling with traders similar to himself, including many with lots more computerized firepower than he had. The filing cites 10 trading days when Sarao engaged in spoofing. Of those, four occurred before President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, the first law to ever mention spoofing. To declare those first four trades illegal, the government cites a law passed in 2009 that says nothing about spoofing but instead declares only that it’s a crime to defraud a person in the futures market through false pretenses. (Note to prosecutors: You will be asked, either in court or on appeal, why, if the 2009 law wasn’t vague—thus making it unconstitutional to declare all traders were on notice that spoofing was illegal—was that spoofing section of Dodd-Frank necessary.) Let’s start with those first four, pre-Dodd-Frank transactions. To meet the terms of the 2009 law, the government is going to have to prove Sarao’s large transactions were false or fraudulent. But if someone can take the buy or sell order put up by a trader, then the transaction is, by definition, legitimate, and Sarao’s offers were at market risk. The government’s filing fudges by declaring that the structure of Sarao’s transactions “virtually ensured” they would not be filled and that he “nearly always” canceled the orders without executing them. And it is in those “virtuallys” and “nearlys” that legal cases fall apart. If the orders might be executed, then they were at market risk. And if they were at market risk, how can the government prove Sarao knew they were fraudulent? In fact, were the offers that were executed fraudulent up until the millisecond some other trader took them? Which brings us to the other six trades covered by Dodd-Frank, which attempted to specifically outlaw spoofing (and thus its variation, layering). There was a challenge to writing this part of the law: Traders give false signals to the marketplace all the time. Someone who wants to buy may try to make it appear he is trying to sell, and vice versa. It’s complicated, but the lawmakers understood that the more they tried to define spoofing, the greater the chance they would transform traditional trading techniques into crimes. To resolve that problem, Congress punted by outlawing any transaction that has “the character of, or is commonly known to the trade as, ‘spoofing.’” Yes, the law defines “spoofing” as “spoofing.” The definition of spoofing used in that 2012 SEC case doesn’t fit the criminal complaint against Sarao. If he relied on the “commonly known” definition the SEC used, how could he have had the intent to commit a crime? And again, without intent, there is no crime. Now, as promised, back to the flash crash. The government—and lots of huffing-puffing headlines—try to lay the blame on Sarao by saying he “contributed” to it. (Of course, every person who sold stock at that moment “contributed” to it, which shows the nonsense of that weasel word.) Nanex, a firm that offers streaming data on all market transactions, shows Sarao’s algorithm was shut off almost two and a half minutes before the nosedive occurred. Again, 150 seconds may not seem like much, but in markets it’s an eternity. That leads to a second problem: The criminal complaint makes much of the fact that Sarao’s program drove the market down, and when it was turned off, prices went up. By the government’s logic, Sarao couldn’t have been pushing the market down—if what the complaint says is correct, he was pushing the market the other direction. Perhaps that’s why the SEC and the CFTC (in a widely criticized report) already named two other culprits: fragmented markets that haven’t kept up with the challenges presented by evolving trading techniques, and a large mutual firm that sold a lot of contracts on the E-Mini S&P. Now that Sarao is out of the markets, things on the E-Mini can return to normal, right? Unfortunately yes, which means it is loaded with spoofing. Nanex, working with Zero Hedge, a website for sophisticated traders, assembled data showing buy and sell orders on the E-Mini on the day after the announcement that Sarao had been charged. The findings: In the one-hour period examined, a massive majority of the contract orders entered into that market were canceled without a single trade. In other words, spoofing. The government needs to step back, define the crime and find the big-time traders acting with intent to break the law, rather than wasting time on some guy working in his London basement. Either that or waste millions of dollars on a case that will fall apart while the big-time players still spoofing the market laugh at the patsy as they stuff their pockets full of cash.
By Pam Martens and Russ Martens: April 29, 2015 CME Group Executive Chairman Terry Duffy Disputes the Government’s Case Against the Flash Crash Trader in an Interview with Maria Bartiromo Prosecutors from the U.S. Justice Department have already lost their case in the court of public opinion against Navinder Singh Sarao, the man they allege fueled the Flash Crash in the stock market on May 6, 2010, trading from his bedroom in his parents’ house in the U.K. Yesterday, Terry Duffy, Executive Chairman of the CME Group and the man who sits atop the futures market in Chicago where the Justice Department alleges Sarao tricked the market into a collapse, threw cold water on hopes of building this case before a jury. Duffy told Maria Bartiromo the following in an interview on Fox Business News: “They took Accenture to a penny [Accenture is a stock that trades in New York, not in the futures markets in Chicago]; noone’s talking about Accenture going to a penny that day…But yet they’re blaming the futures market and the futures market is the only one that gave the data to all the regulators the day of the event. We looked through all this data and it was talked about by the regulators and us that the futures market did not cause this. I testified in Washington, showed how we went down, stopped, with our functionality replenished liquidity and the market kept on trading. They tried to blame Waddell Reed for it now they’re going to blame Mr. Sarao for it…” Sarao is charged by the Justice Department with inflicting carnage through the use of the E-mini, a futures contract based on the Standard and Poor’s 500 index. Chicago is one-hour behind New York. The crux of the Justice Department’s Flash Crash case against Sarao is this: “Between 12:33 p.m. and 1:45 p.m., Sarao placed 135 sell orders consisting of either 188 or 289 lots, for a total of 32,046 contracts. Sarao canceled 132 of these orders before they could be executed.” Duffy is going to make an excellent witness for the defense. Two weeks after the Flash Crash, Duffy testified before the U.S. Senate that “Total volume in the June E-mini S&P futures on May 6th was 5.7 million contracts, with approximately 1.6 million or 28 per cent transacted during the period from 1 p.m. to 2 p.m. Central Time.” That means that between 2 p.m. and 3 p.m. New York time, 1.6 million E-mini contracts traded. Sarao’s contracts during that period represented a mere 2 percent of E-mini trades and the majority of his trades were cancelled. Gary Gensler, the former Chairman of the Commodity Futures Trading Commission is going to make another outstanding witness for the defense. Gensler told a House Subcommittee the day after the Flash Crash that one trader “entered the market at around 2:32 and finished trading by around 2:51. The trader had a short futures position that represented on average nine percent of the volume traded during that period. The trader sold on the way down and continued to do so even as the price level recovered. This trader and others have executed hedging strategies of similar size previously.” This trader is clearly not Sarao as he was not in the market at 2:51 p.m. and did not represent 9 percent of the volume. Another great witness for the defense will be Rajiv Sethi, Economics Professor at Barnard College who has penned an OpEd for the New York Times pouring more cold water on the Justice Department’s case. Sethi writes: “Prosecutors also say that he [Sarao] manipulated prices on the Chicago Mercantile Exchange for years by ‘spoofing,’ or placing orders that he intended to cancel before they were filled. In fact, this is a common activity in equities markets today. The prosecution of Mr. Sarao is arbitrary, and his contribution to the flash crash was negligible.” Spoofing is so common on Wall Street that the law firm Robbins Geller Rudman & Dowd LLP – a firm staffed with former prosecutors from the U.S. Justice Department – filed a class action lawsuit on April 18, 2014 against the major Wall Street firms and the stock exchanges for routinely tolerating the abuse along with a myriad of other high frequency trading frauds on the market. (That case has since been consolidated with others, leaving just the stock exchanges and Barclays as defendants.) The original complaint on behalf of the City of Providence, Rhode Island alleged that “For at least the last five years, the Defendants routinely engaged in at least the following manipulative, self-dealing and deceptive conduct.” The complaint then specifically mentions “spoofing” and “layering,” the same techniques Sarao is charged with using by the Justice Department. The Robbins Geller lawsuit charges that the high frequency traders (HFTs) use spoofing to “send out orders with corresponding cancellations, often at the opening or closing of the stock market, in order to manipulate the market price of a security and/or induce a particular market reaction.” The lawsuit claims layering is used to “send out waves of false orders intended to give the impression that the market for shares of a particular security at that moment is deep in order to take advantage of the market’s reaction to the layering of orders.” The complaint goes on to say that “In 1999, there were 1,000 quotes per second, streaming from U.S. stock exchanges and approximately two billion shares traded each day. Today, there are two million quotes per second, but the market trades just over five billion shares per day, which is just over twice the volume of stock traded, but 2,000 times more quotes. These quotes are essentially HFTs at war with each other, to the detriment of the investing public.” Another key witness for Sarao will be former SEC Chair, Mary Schapiro. Speaking before the Economic Club of New York on September 7, 2010, just four months after the Flash Crash, Schapiro explained just how common this quote stuffing had become. Schapiro told the crowd: “These high frequency trading firms can generate more than a million trades in a single day and now represent more than 50 per cent of equity market volume. And many firms will generate 90 or more orders for each executed trade. Stated another way: a firm that trades one million times per day may submit 90 million or more orders that are cancelled.” Another serious problem for the government’s case against Sarao is what was happening at the stock exchanges in New York at the worst levels of the downdraft. As wepreviously reported: “According to reports of time and sales, around 2:45 p.m. when the massive market disruption got underway, Procter & Gamble traded at $59.66. It had opened the day at $61.91. About a minute later, it was trading at $57.36, then $53.51, then it hit a liquidity air pocket and plunged to print a trade at $39.37. This created panic in the market. If one of the most conservative stocks can hit a 36 percent downdraft, some traders thought a major news event was happening outside. Liquidity hit a wall. In an eight minute span, the Dow lost $700 billion and saw a cumulative decline of 998.5 points or 9.2 percent before turning on a dime and moving in the opposite direction. It closed the day down 3.2 percent. “Aggravating the liquidity crunch on May 6 was the fact that the New York Stock Exchange, where Procter & Gamble is listed, paused trading momentarily to let humans on the floor of the exchange attempt to find buying support. That pause sent trades off to the world of electronic exchanges which now make up the bulk of all trading in the U.S. The New York Stock Exchange has only a 25 percent market share in its own listed stocks. The cowboys of capitalism command the rest. “To underscore how dramatic and unprecedented the trading in Procter & Gamble was on May 6, I reflected back to the day I sat behind a Wall Street terminal and watched the market lose 22.6 percent in one day. That day was October 19, 1987. That was more than twice the percentage drop at the worst market point on May 6. And yet, Procter & Gamble lost only 28 percent at its worst point in 1987 versus 36 percent on May 6 when the overall market was down less than 10 percent. “When a bear raid knocks out these stop loss speed bumps on Dow components like Procter & Gamble and 3M (it lost 21 percent at its worst point), the New York Stock Exchange pauses trading momentarily and trades are left to the feckless electronic exchanges, proprietary trading desks of the bailout boys (big Wall Street firms) and high frequency traders. This is like hitting an air pocket at 30,000 feet, then opening the cockpit door to find out no one is inside and the plane is on autopilot as the plane goes into a nose dive.” Right now, this case looks next to impossible to win before a jury. Tomorrow we’ll take a deeper look into what may be motivating the Justice Department and Commodity Futures Trading Commission to bring this case five years after the Flash Crash happened.
previous article was from http://wallstreetonparade.com/2015/04/the-flash-crash-trader-has-strong-defense-witnesses/?