The LIBOR scandal

jmc · **Joined:** Feb 21, 2008 **Posts:** 2835

slasher wrote:

jmc wrote:

The level of outrage seem to be inversely proportional to the persons understanding of how the markets work.

that seems the way things are alright. Look at this statement for example:

jmc wrote:

But that was about 2 dozen flash crashes ago (1 really big one) and before the real hard evidence for front running by the algos came out last year. We are now in pure 1928 territory. Which is why they need to be shut down. No co-location. No phoney sell offer stuffing. Minimum hold period of at least 1 hours for all non market makers. Actually enforce the Security laws. etc. etc..

The book I'm now reading was published a few weeks ago and is the first detailed hard evidence I've seen in print that documents widespread abuse. The author used to be a quant so he knows his stuff.

some random guy used to be "a quant" but now writes books. QED.

I mean really, 1928? are you still standing by your theory that High Frequency Trading can hold up the entire equity market

jmc wrote:

1) All you need to know about the run up in Apple stock is that it is by far the mostly popular stock as a play by the hedge funds. Last time I looked, about 2Q ago, most companies in play had at most 2 or 3 funds with a position in the stock. Apple had 30 plus. It is basically a huge game of chicken being played by at least 5 big funds and bunch of coat tail players. When the break happens it should be pretty spectacular. Not quite VM/Porsche spectacular but expect a 30 year reversion to mean by the time it is all over. Not sure what the 30 year reversion number is. $40? $20?

The "random guy" also wrote a book called "The Quants"..

http://www.amazon.com/The-Quants-Whizzes-Conquered-Destroyed/dp/0739385062

...which if you know anything about the business was written by someone who knows his stuff. It sure beats the Matt "I used to write Russian whore reviews for The Exile" Tabbis of the world.

If you are familiar with the history of the US stock market the 1920's, pre Panic, and pre 1934 SEC regs, you will know that I'm referring to the fact that 1928 was the high point for every stock scam than was doing the rounds at the time. Pretty much every new issue that year was fraudulent in some form or other and the biggest operators had reduced the exchanges to a pure front running operation to fleece the small investors. Which is why equities became anathema to the ordinary investor, not recovering in esteem until the late 50's. With HFT's / algos accounting for 80%/90% of daily volume of most highly traded equities / indices and it seems with defacto front running on all public exchanges equities have become a pure zero sum game with the small guy guaranteed to be on the pure minus side.

My Apple quote refers to hedgies. Which is a completely different subject. Some hedgies may HFT. And some HFTs play AAPL. But the key part of HFT is the HF. High Frequency. Hold times from a fraction of a second to low mins. The hedgies Apple position hold time is measured in quarters. The main change in the Apple position since that quote is that quite a few hedgies have cashed out to book profit with the large (and stupid) institutional investors like CALPERS seem to be the marks on the buy side. There also seems to have been a lot of activity with small guys buying in as a whole lot of small hedge funds try to coat tail to make up for their dismal returns from the other positions. Basically an excuse to their AUM's - I know we have not had a good year since 2009, but we are now in APPL and look how much money that has made over the last few years....

The long term future of these small funds is about the same as the 2'nd, 3'rd and N'th tier VC's in the Valley in 2000. Mass extinction time. So they are just trying to milk the 2 (their management fees) of the 2/20 for a few more years. Because there will be no 20% of the upside for there people in the foreseeable future.

So the AAPL play still has a few more quarters to run but the long term trends in AAPL's position indicates that ts going to be tulips all the way.

sorehead · **Joined:** Dec 12, 2007 **Posts:** 596

Quote:

So the AAPL play still has a few more quarters to run but the long term trends in AAPL's position indicates that ts going to be tulips all the way.

Not sure if tulip prices were supported by a P/E ratio of 14. I think they'd a ratio of N/A. That share price of apple probably more justifiable than that of many companies. Fine their stuff could go out of fashion but they've enough money now to move the company anyway they choose.

jmc · **Joined:** Feb 21, 2008 **Posts:** 2835

sorehead wrote:

Quote:

So the AAPL play still has a few more quarters to run but the long term trends in AAPL's position indicates that ts going to be tulips all the way.

Not sure if tulip prices were supported by a P/E ratio of 14. I think they'd a ratio of N/A. That share price of apple probably more justifiable than that of many companies. Fine their stuff could go out of fashion but they've enough money now to move the company anyway they choose.

What counts against AAPL long term is that NuApple is very much a Personality Cult of Jobs run on Stalinist lines. So now the tyrant is dead we will one day have our 20'th Congress moment and the whole edifice unravels and collapses.

Add to that iOS is well on its way to being the minority member of the mobile OS duopoly. The only thing to be decided is will the equilibrium point be at 10% or 20% market share.

See the Short Apple thread for more discussions on the subject

http://www.thepropertypin.com/viewtopic.php?f=15&t=39673&hilit=short+apple

Open Window · **Joined:** Jan 1, 1970 **Posts:** 18108

Can we stick to LIBOR in this thread please. We have an apple thread already.

slasher · **Posted:** Tue Jul 24, 2012 8:12 am

Quote:

With HFT's / algos accounting for 80%/90% of daily volume of most highly traded equities / indices and it seems with defacto front running on all public exchanges equities have become a pure zero sum game with the small guy guaranteed to be on the pure minus side

Front running this, front running that. Yeah, that's why your portfolio is losing money.

Exchanges work on bids and offers originating from those who want to buy or sell.
If you want to buy and you see value at a certain price, set your bid price and volume and buy your stocks. This notion that there's an Algo waiting to front run your tiny bid and turn you over is deluded fantasy. The bid ask spreads are tiny compared to what they used to be because of the Algos and any true value investor appreciates that.

Exchange have message to trade ratios as it is, sometimes pretty low and the high volume guys need the rebates to stay profitable thus they need to stay on the side of the exchanges. Turning rebates to penalties like Oslo Borse did will sort out the cowboys, trying to ban what you refer to as HFTs says a lot about your true socialistic nanny state principles [bien pensant, much?]. Have a read of what Craig Pirrong has to say if you want an academic's take on this.

jmc wrote:

I know we have not had a good year since 2009

Speak for yourself

ex-Patrick · **Posted:** Tue Jul 24, 2012 9:39 am

C4's Dispatches last night: http://canyoutrustyourbank.channel4.com/

IMO, what's important in LIBOR is it provides another stick with which to beat the banks. The Tories had backed away from any proper reform of retail/investment banking before 2013 at the earliest. The LIBOR scandal brings reform back to the top of the agenda. The Lib Dems are looking for something to make them popular (or less unpopular) and have already started making noises about a future coalition with Labour. Cameron is slowly being backed into a corner on banking reform.

What Goes Up... · **Posted:** Wed Jul 25, 2012 1:25 am

http://baselinescenario.com/2012/07/19/ ... r-scandal/

Quote:

The Federal Reserve And The Libor Scandal
Posted on July 19, 2012
By Simon Johnson

On June 1, 2008, Timothy F. Geithner – then president of the Federal Reserve Bank of New York – sent an e-mail to Mervyn A. King and Paul Tucker, then respectively governor and executive director of markets at the Bank of England. In his note, Mr. Geithner transmitted recommendations (dated May 27, 2008) from the New York Fed’s “Markets and Research and Statistics Groups” regarding “Recommendations for Enhancing the Credibility of Libor,” the London Interbank Offered Rate.

The recommendations accurately summarized the problems with procedures surrounding the construction of Libor – the most important reference interest rate in the world – and proposed some sensible alternative approaches.

This New York Fed memo stands out as a model of clear thinking about the deep governance problems that allowed Libor to become rigged.

At the same time, the timing and content of the memo raises troubling questions regarding the Fed’s own involvement in the Libor scandal – both then and now.

.....(cont'd)

jmc · **Joined:** Feb 21, 2008 **Posts:** 2835

slasher wrote:

Quote:

With HFT's / algos accounting for 80%/90% of daily volume of most highly traded equities / indices and it seems with defacto front running on all public exchanges equities have become a pure zero sum game with the small guy guaranteed to be on the pure minus side

Front running this, front running that. Yeah, that's why your portfolio is losing money.

Exchanges work on bids and offers originating from those who want to buy or sell.
If you want to buy and you see value at a certain price, set your bid price and volume and buy your stocks. This notion that there's an Algo waiting to front run your tiny bid and turn you over is deluded fantasy. The bid ask spreads are tiny compared to what they used to be because of the Algos and any true value investor appreciates that.

Exchange have message to trade ratios as it is, sometimes pretty low and the high volume guys need the rebates to stay profitable thus they need to stay on the side of the exchanges. Turning rebates to penalties like Oslo Borse did will sort out the cowboys, trying to ban what you refer to as HFTs says a lot about your true socialistic nanny state principles [bien pensant, much?]. Have a read of what Craig Pirrong has to say if you want an academic's take on this.

jmc wrote:

I know we have not had a good year since 2009

Speak for yourself

If you believe all that garbage you quoted about how the big exchanges transaction queues work then you are the mark. I strongly suspect none of your canny trades have gone beyond internaizers the last few years. Thats a nice little haircut by itself.

I read Scott Pattersons book, which goes into real technical detail, about what goes on and its dovetails quite tightly with everything I've seen and heard over the last few decades. I follow the jobs listings for these type of operations both in NYC and London (I'd have no problem getting hired by a HFT or algo outfit, I have the right background but the front desk is not for me) and based on what they are looking for and how it has changed over the last decade this fits into the rapidly evolving world Scott Patterson and others describes. The have been looking for some very odd expertise the last few years if they are all playing by the letter and the spirit of the law. Lets just say some of the requirements are more compatible with people who can hack the system than who can play the system...

The vast majority of this activity is purely parasitical. It has no real economic utility. Pure churn. In the words of Father Jack, creates liquidity, me arse.

So some guy in Houston says its OK? Houston? Really? Then I suppose it must be OK then.

slasher · **Posted:** Wed Jul 25, 2012 7:07 am

Quote:

If you believe all that garbage you quoted about how the big exchanges transaction queues work then you are the mark.

Garbage? You want to buy a stock you put in a limit order at your desired price and you get filled or you don't, it really can't be any simpler. Clearly buy and hold is not your strategy if you

Quote:

.. have not had a good year since 2009

http://finance.yahoo.com/q/bc?s=%5EGSPC ... Chart&t=5y

Quote:

I strongly suspect none of your canny trades have gone beyond internaizers the last few years. Thats a nice little haircut by itself

What canny trades would they be? You've made assumptions about me and my career before. It's rather poor etiquette really, in fact this "mark" stuff makes you look like a tit. You know even less about me than you do about exchanges and markets and that's saying something. I've never posted anything here that isn't extremely basic, that you make these inferences says a lot about how little you know. Keep tilting at the windmills if it makes you feel better.

BTW I mean really, this made me laugh:

Quote:

I'd have no problem getting hired by a HFT or algo outfit, I have the right background but the front desk is not for me)

What Goes Up... · **Posted:** Sat Jul 28, 2012 9:13 pm

http://www.reuters.com/article/2012/07/ ... 3220120728

Quote:

At least three banks seen central to Libor rigging
Sat Jul 28, 2012
By Carrick Mollenkamp and Emily Flitter

(Reuters) - New details from court documents and sources close to the Libor scandal investigation suggest that groups of traders working at three major European banks were heavily involved in rigging global benchmark interest rates.

Some of those traders, including one who used to work at Barclays Plc in New York, still have senior positions on Wall Street trading desks.

Until now, most of the attention has involved traders at Barclays, which last month reached a $453 million settlement with U.S. and UK authorities for its role in the manipulation of rates. Now, it is becoming clear that traders from at least two other banks - UK-based Royal Bank of Scotland Group Plc and Switzerland's UBS AG - played a central role.

.....

One former Barclays employee under scrutiny, Reuters has learned, is Jay V. Merchant, according to people familiar with the situation. Merchant, who oversaw the U.S. dollar swaps trading desk at Barclays in New York, worked for the bank from March 2006 to October 2009, according to employment records maintained by the U.S. Financial Industry Regulatory Authority (FINRA).

Merchant currently holds a similar position at UBS, where he works out of the Swiss bank's offices in Stamford, Connecticut, according to FINRA. He did not return requests for comment.

.....

The dollar and euro rate-rigging appears to have begun in earnest in early 2005 in the dollar market, according to the documents reviewed by Reuters. By August of that year, Barclays traders were reaching out to traders at other big global banks to manipulate their rates to make them favorable to Barclays' trading positions.

Soon, the trading had crossed to the euro rate markets, according to the settlement documents filed in the Barclays investigation. And by 2007, traders at RBS and UBS were seeking to influence the yen rate market, according to documents filed in 2011 in Singapore's High Court and in Canada's Ontario Superior Court.

.....(cont'd)

jmc · **Joined:** Feb 21, 2008 **Posts:** 2835

slasher wrote:

Quote:

If you believe all that garbage you quoted about how the big exchanges transaction queues work then you are the mark.

Garbage? You want to buy a stock you put in a limit order at your desired price and you get filled or you don't, it really can't be any simpler. Clearly buy and hold is not your strategy if you

Quote:

.. have not had a good year since 2009

http://finance.yahoo.com/q/bc?s=%5EGSPC ... Chart&t=5y

Quote:

I strongly suspect none of your canny trades have gone beyond internaizers the last few years. Thats a nice little haircut by itself

What canny trades would they be? You've made assumptions about me and my career before. It's rather poor etiquette really, in fact this "mark" stuff makes you look like a tit. You know even less about me than you do about exchanges and markets and that's saying something. I've never posted anything here that isn't extremely basic, that you make these inferences says a lot about how little you know. Keep tilting at the windmills if it makes you feel better.

BTW I mean really, this made me laugh:

Quote:

I'd have no problem getting hired by a HFT or algo outfit, I have the right background but the front desk is not for me)

I think you went into some detail on the Short Apple thread. Its a while but the impression I got is that you were more and "investor" type than a "producer" type. Could be wrong - its been a while.

What is obvious is that while some people around here really are / were front desk / middle desk people, who really know what they are talking about and I have always listened to their opinions with great interest, always ready to be corrected when I've make the inevitable mistakes (see babytooth posts) I have never once got the impression from your posts that you actually inhabit or know very much about the front desk / middle desk world of NYC / London etc. You sound like more of an onlooker. A small fish in a small pond. So I'm afraid you sound more like a small time player in some backwater area than someone whose opinion should be given some weight. The fact that you posts are so testy would seem to reinforce that impression.

I am just a software guy, I've never claimed otherwise. I know how the software works and I know quite a bit of the math when it comes to quant land. I have peered into the finance area a couple of times, London early 2000's etc., did my research, and decided that although the money was spectacular it was brutal nasty work. Kept a close eye on the area since. And yes, its mostly algo, HFT related stuff.

So I know more than enough to know what I dont know. And so far I've got absolutely no indication that you actually know more about the subject than I do. Because in the past corrections to mistakes I've made by the people who actually do know what they are talking about tend to be more authoritative and even tempered than what I've seen in your posts so far.

I really would like to know why what looks like transaction queue front running is actually just some innocent side effect of the tp monitor. Or that quote stuffing is a completely legitimate and above board tactic. Maybe there is no problem. But so far, and based on the long and ignoble history of exchange based markets, I'm more inclined to pay heed to those who cry wolf. I well remember those great and the good of the finance business back in the mid 80's who told us that we had entered a new age, that portfolio insurance had ushered in a new world for prudent investors. Then the '87 crash happened. ..

It seems that those who said there was no systemic problem really did not know what they were talking about.

slasher · **Posted:** Sun Jul 29, 2012 9:18 am

jmc wrote:

I am just a software guy, I've never claimed otherwise. I know how the software works and I know quite a bit of the math when it comes to quant land. I have peered into the finance area a couple of times, London early 2000's etc., did my research, and decided that although the money was spectacular it was brutal nasty work. Kept a close eye on the area since. And yes, its mostly algo, HFT related stuff.

So I know more than enough to know what I dont know. And so far I've got absolutely no indication that you actually know more about the subject than I do. Because in the past corrections to mistakes I've made by the people who actually do know what they are talking about tend to be more authoritative and even tempered than what I've seen in your posts so far.

I really would like to know why what looks like transaction queue front running is actually just some innocent side effect of the tp monitor. Or that quote stuffing is a completely legitimate and above board tactic. Maybe there is no problem. But so far, and based on the long and ignoble history of exchange based markets, I'm more inclined to pay heed to those who cry wolf. I well remember those great and the good of the finance business back in the mid 80's who told us that we had entered a new age, that portfolio insurance had ushered in a new world for prudent investors. Then the '87 crash happened. ..

It seems that those who said there was no systemic problem really did not know what they were talking about.

Ha! I never even claimed to be a fish! Back water guy? A while back you "accused" me of being a HFT guy, even told me I was going to get cleaned out, make up your mind FFS. When it comes to the first principles you clearly don't get it. Your attempts at denigrating other posters are pathetic, but what would you expect from a guy who boasts of his physical size yet gets off on seeing peaceful women protestors attacked by cops. Personally, I value my privacy; it's a small world and so any information I ever posted is extremely basic, I've been careful never to refer to my occupation apart from the fact that I am self employed..., you've make a whole pyramid of inferences which make you look rather paranoid! (Your repeated talk about front desk and back desk sounds really like someone who thinks he knows a bit and is trying to impress others. By the way, re. "backwater", there's a lot of money being made in very nice 'backwaters' outside of LDN/ NYC). It seems like being called out really gets your back up. I'm sorry if I made you feel inadequate...

You keep saying you could work in the finance area, who are you trying to convince?

I think the other posters must be bored with this, I know I am, so from now I'll be ignoring your misinformation and invective.

Open Window · **Joined:** Jan 1, 1970 **Posts:** 18108

A curve ball if there ever was one....

Quote:

James Holmes’ father, Robert Holmes, set to provide crippling info on Libor & other banking scandal
2012 07 30

From: YouTube.com / DutchSinse

An interesting connection has emerged with the recent Colorado ’Batman’ shooting. Alleged gunman James Holmes’ father is/was set to testify regarding the LIBOR banking scandals.

Reports unconfirmed but here are more links for those who might want to wander about the garden

http://www.rogershermansociety.org/five ... ond011.htm

http://yourtubenews.ning.com/forum/topi ... bert-holme

Inis Man · **Posted:** Mon Dec 17, 2012 4:43 pm

Open Window wrote:

A curve ball if there ever was one....

Quote:

James Holmes’ father, Robert Holmes, set to provide crippling info on Libor & other banking scandal
2012 07 30

From: YouTube.com / DutchSinse

An interesting connection has emerged with the recent Colorado ’Batman’ shooting. Alleged gunman James Holmes’ father is/was set to testify regarding the LIBOR banking scandals.

Reports unconfirmed but here are more links for those who might want to wander about the garden

http://www.rogershermansociety.org/five ... ond011.htm

http://yourtubenews.ning.com/forum/topi ... bert-holme

The curveball just got curvier:

http://www.examiner.com/article/libor-s ... to-testify

mr_anderson · **Posted:** Mon Dec 17, 2012 6:13 pm

Bizzare.

The LIBOR scandal

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