60 Minutes details what everyone in the industry knew...except the SEC

James Longstreet
“The stock market is rigged.”

The arrangement that “for profit” exchanges had seemingly struck with high frequency traders was no real secret. Wire into the network, beat the orders by a nano second, front run the flow. If the flow is to “buy”, lift the offer (front run) and then quickly reoffer.  Maybe make a tenth or more per share.  Doesn’t seem like much, until millions of shares are involved.

Quarter after quarter certain trading firms registered performance without a single losing day.  Remarkable. Bernie Madoff would be proud.

New to the securities world in the past decade are two very important developments which have created this special nexus.  There are exchanges willing, apparently, to do anything for a profit.  And there is order routing via electronic platforms that allow for a certain “advantage” to some. The advantage is seemingly allowed by the exchanges because those who utilize said advantage generate large exchange fees.  Large exchange fees beget bigger bottom lines.  The large shareholders of the exchange stock on the boards of these exchanges appreciate the business, and also the higher exchange stock price that is a consequence of the increased fee revenue due to this special arrangement.

Per this 60 minute segment featuring author Michael Lewis discussing his new book Flash Boys, the front running electronic trading arrangement looks like this…

“"They are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price," Lewis, whose book is available on Monday, said on the television program "60 Minutes" on Sunday.

"This speed advantage that the faster traders have is milliseconds; some of it is fractions of milliseconds,"

Skimming. Frontrunning. Cheating.  Oh where oh where is the SEC?  I think we know.

Per the testimony of Mr. Markopolos, an SEC whistle blower on the Madoff scandal, getting the attention of the SEC regarding any wrongdoing is a delicate matter.  You see, according to testimony, those public servants in the SEC are essentially in incubation awaiting big Wall Street jobs. So, why would they reveal any industry wrongdoing when doing so could crash their career path?  And certainly, if these firms so accused aggregately contributed to candidates in the political spectrum that “did good work” and cautioned against an over zealous Securities watchdog, perhaps a special understanding could be “acquired”.

The scenario that 60 minutes has presented coupled with a Federal Reserve that seems to have added to its mission statement “guaranteed stock returns”, and all provided by regional boards loaded with Wall Street insiders, makes for quite a bulletproof money machine.

“The stock market is rigged.”

The arrangement that “for profit” exchanges had seemingly struck with high frequency traders was no real secret. Wire into the network, beat the orders by a nano second, front run the flow. If the flow is to “buy”, lift the offer (front run) and then quickly reoffer.  Maybe make a tenth or more per share.  Doesn’t seem like much, until millions of shares are involved.

Quarter after quarter certain trading firms registered performance without a single losing day.  Remarkable. Bernie Madoff would be proud.

New to the securities world in the past decade are two very important developments which have created this special nexus.  There are exchanges willing, apparently, to do anything for a profit.  And there is order routing via electronic platforms that allow for a certain “advantage” to some. The advantage is seemingly allowed by the exchanges because those who utilize said advantage generate large exchange fees.  Large exchange fees beget bigger bottom lines.  The large shareholders of the exchange stock on the boards of these exchanges appreciate the business, and also the higher exchange stock price that is a consequence of the increased fee revenue due to this special arrangement.

Per this 60 minute segment featuring author Michael Lewis discussing his new book Flash Boys, the front running electronic trading arrangement looks like this…

“"They are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price," Lewis, whose book is available on Monday, said on the television program "60 Minutes" on Sunday.

"This speed advantage that the faster traders have is milliseconds; some of it is fractions of milliseconds,"

Skimming. Frontrunning. Cheating.  Oh where oh where is the SEC?  I think we know.

Per the testimony of Mr. Markopolos, an SEC whistle blower on the Madoff scandal, getting the attention of the SEC regarding any wrongdoing is a delicate matter.  You see, according to testimony, those public servants in the SEC are essentially in incubation awaiting big Wall Street jobs. So, why would they reveal any industry wrongdoing when doing so could crash their career path?  And certainly, if these firms so accused aggregately contributed to candidates in the political spectrum that “did good work” and cautioned against an over zealous Securities watchdog, perhaps a special understanding could be “acquired”.

The scenario that 60 minutes has presented coupled with a Federal Reserve that seems to have added to its mission statement “guaranteed stock returns”, and all provided by regional boards loaded with Wall Street insiders, makes for quite a bulletproof money machine.