October 14, 2010

It looks like the Flash Crash will be simply an excuse:

Data firm Nanex LLC has since questioned regulators’ finding, suggesting Waddell’s algorithm actually did factor in price because data show a slowdown in selling by Waddell during the market’s steepest decline.

CFTC Economist Andrei Kirilenko on Tuesday left open the possibility that the algorithm didn’t completely ignore prices.

The staff is “not aware of any specific price limit that was built into the algorithm,” he told CFTC Chairman Gary Gensler. But just because there wasn’t a price limit didn’t mean the algorithm didn’t “take into account prices and quantities,” he added.

OK – so the Flash Crash report is now highly suspect. Intellectual dishonesty is running rampant. But why would they be dishonest?

Commodity Futures Trading Commission enforcement attorney Bob Pease said the agency is eyeing the use of trading algorithms and a practice known as “quote stuffing” as possible areas that could be deemed disruptive under a provision in the Dodd-Frank financial law enacted in July.

Mr. Pease, the CFTC lawyer, said the agency is looking to see if automated algorithms are “inherently disruptive” and if market players should have certain responsibilities in how they execute these orders.

Well, because you’ve got two-bit Napoleons like Bob Pease anxious to lump use of trading algorithms in the same category as quote-stuffing to push a regulatory agenda in which everything is regulated.

Speaking of algorithms, the two Norwegians discussed October 5 have been convicted on charges of smart trading:

Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker.

The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks.

Prosecutors said Mr Larsen and Mr Veiby “gave false and misleading signals about supply, demand and prices” by manipulating several Norwegian stocks through Timber Hill’s online trading platform.

Anders Brosveet, lawyer for Mr Veiby, acknowledged that his client had learnt how ­Timber Hill’s trading algorithm would behave in response to ­certain trades but denied this amounted to market manipulation. “They had an idea of how the computer would change the prices but that does not make them responsible for what the computer did,” he told the Financial Times. Both men have vowed to appeal against their convictions.

Precisely. While I suspect that this is one of those cases where the keys to the puzzle are too complex to make it into the newspaper, I cannot fathom how exploiting an idiotic algorithm – using only arm’s length trades between willing counterparties – can possibly be seen as a crime.

CFTC Chairman Gary Gensler has been criticized on PrefBlog – but there can be no doubt he is a fine regulator:

Gensler has asked Congress to increase the agency’s budget by 69 percent next year to $286 million and predicts the agency’s budgeted staff of about 650 will need to grow to more than 1,000 to meet its new demands.

There are rumours that the capital surcharge talks are in trouble:

Leaders of the world’s largest economies, divided over how to curb risk-taking by their biggest banks, will likely fail to agree on a capital surcharge.

Instead, the Financial Stability Board, which is weighing measures to prevent such institutions from causing another economic crisis, will recommend a range of options without setting a level of extra capital to be imposed globally, said members of the group who declined to be identified because the discussions are private. The FSB will meet in Seoul next week.

The fissures running through the group are similar to those that split the Basel Committee on Banking Supervision when it considered tighter capital requirements for all banks this year. Germany, France and Japan are resisting a surcharge for big lenders, as are lobbyists for those firms, while the U.K., U.S. and Switzerland advocate the approach, members say. That camp agreed to soften some of the Basel capital rules with the understanding that more would be done to restrain the largest banks through the FSB.

France, Japan and Germany are opposing capital surcharges for big lenders because they say their banking systems are different from those in the U.S., U.K. and Switzerland, where the largest blow-ups occurred during the crisis, members say. U.S. regulators have been skeptical of contingent and bail-in capital as alternatives to straightforward surcharges, arguing that they’re untested mechanisms that might not fulfill their intended purposes during the next crisis.

“We can’t rely on them yet,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in a telephone interview last week. “There’s not much of a market for them. Triggering them could end up destabilizing the bank and the markets. We just got rid of TruPS because they did not provide loss absorption in the crisis. We could end up with the same problem with these new instruments.”

Low US mortgage rates are having an effect – just not the intended effect, that’s all:

Rates for 30-year fixed loans declined to 4.19 percent in the week ended today from 4.27 percent, Freddie Mac said in a statement. It is the lowest rate since the McLean, Virginia- based company began tracking the data in 1971. The average 15- year rate tumbled to 3.62 percent from 3.72 percent.

A six-month decline in mortgage rates has spurred a surge in refinancing while doing little to increase property demand as U.S. unemployment hovers near 10 percent. Sales of existing homes were the second-lowest on record in August, the National Association of Realtors in Washington said Sept. 23.

The Canadian preferred share market had another strong day on extremely heavy volume, with PerpetualDiscounts up 22bp and FixedResets gaining 6bp.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0907 % 2,189.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0907 % 3,317.2
Floater 2.86 % 3.18 % 77,065 19.30 3 0.0907 % 2,364.3
OpRet 4.91 % 3.53 % 77,631 0.13 9 -0.0905 % 2,371.5
SplitShare 5.88 % -28.27 % 64,448 0.09 2 0.4684 % 2,394.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0905 % 2,168.5
Perpetual-Premium 5.70 % 5.09 % 146,736 4.84 19 0.0495 % 2,012.4
Perpetual-Discount 5.43 % 5.42 % 238,044 14.71 58 0.2222 % 2,007.7
FixedReset 5.27 % 3.07 % 337,204 3.28 47 0.0619 % 2,271.2
Performance Highlights
Issue Index Change Notes
BAM.PR.R FixedReset -2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 25.95
Evaluated at bid price : 26.00
Bid-YTW : 4.36 %
BNA.PR.C SplitShare 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.33
Bid-YTW : 6.12 %
BNS.PR.L Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 22.03
Evaluated at bid price : 22.15
Bid-YTW : 5.09 %
TD.PR.P Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 24.62
Evaluated at bid price : 24.86
Bid-YTW : 5.28 %
GWO.PR.J FixedReset 2.26 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.26 %
Volume Highlights
Issue Index Shares
CM.PR.A OpRet 168,500 Called for redemption. RBC crossed 80,000 at 24.98; Desjardins bought 80,000 from Nesbitt at the same price.
Maturity Type : Call
Maturity Date : 2010-11-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.04 %
CM.PR.E Perpetual-Discount 146,131 Scotia crossed 25,000 at 25.25. RBC crossed three blocks, of 30,000 shares, 10,000 and 59,800, all at 25.52.
Maturity Type : Call
Maturity Date : 2012-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.99 %
RY.PR.C Perpetual-Discount 113,838 Scotia crossed 100,000 at 22.55.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 22.37
Evaluated at bid price : 22.52
Bid-YTW : 5.18 %
BMO.PR.K Perpetual-Discount 112,501 TD crossed two blocks of 50,000 each, both at 24.89.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 24.58
Evaluated at bid price : 24.81
Bid-YTW : 5.36 %
RY.PR.R FixedReset 107,820 TD crossed 25,000 at 27.85. RBC crossed 30,000 at 27.85 and 42,000 at 27.90.
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 27.85
Bid-YTW : 3.03 %
RY.PR.E Perpetual-Discount 66,388 Scotia crossed blocks of 25,000 and 10,000 at 22.10.
Maturity Type : Limit Maturity
Maturity Date : 2040-10-14
Maturity Price : 21.94
Evaluated at bid price : 22.06
Bid-YTW : 5.17 %
There were 72 other index-included issues trading in excess of 10,000 shares.

One Response to “October 14, 2010”

  1. […] noted on October 14 the Norwegian day traders have been convicted on charges of shouting that the emperor has no […]

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