Forum Post: The Market Is Cornered by the Big Banks
Posted 12 years ago on Nov. 29, 2011, 3:08 p.m. EST by enough
(587)
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Since high frequency algorithmic traders at investment banks and hedge funds generate 70% of the volume on our equity exchanges, they effectively have a corner on the market. High frequency traders may actually own shares for only a few seconds or milliseconds at a time, but the computerized control and illegal manipulation of those shares allows them to drive prices in the direction they desire at the expense of unsuspecting investors. High-frequency traders are the barracuda; investors are the gold fish. When the two swim in the same tank, guess who loses.
The figure registers as 70% because institutional investors including pension funds and mutual funds, aka where your 401k is parked, also uses high frequency computers to execute their trades. Do you really think CalPERS can't afford a high frequency trading machine? This doesn't necessarily mean they're algorithmic traders, just that they use the machines to use speed to their advantage.
And--"illegal manipulation." What do you mean? It's not illegal to hold shares only for microseconds or to drive up/down price because you bought/sold a lot of em.
On your whole point though, I agree. Don't swim with the big fishes.
I'm not sure pension funds and mutual funds need to resort to high-frequency algorithmic trading for their investments. Certainly, their performance results do not reflect the kinds of profits made by high frequency trading at investment banks and hedge funds. Instead, institutional investors are being exploited just like retail investors are. There are many cases of high-frequency algorithmic trading, such as flash and wave trading, that illegally front-run and pump-and-dump honest investors. Such market manipulation is illegal and has been since the Securities Exchange Act of 1934. You cannot realize gains of millions of dollars almost every single trading unless you are cheating. It is statistically impossible. Profits from proprietary trading account for about 70% of the profits of large investment banks in this fashion. That is why manipulative high frequency algo trading has risen exponentially over the past decade and that is why the market is effectively cornered. At this point, the SEC is jammed up because it did nothing to curtail and stop this type of trading. Whether the SEC did this intentionally or through ignorance, the result is the same. If the SEC decides at this point to ban or seriously curtail high frequency trading, 70% of the market volume would dry up and the market would collapse. Basically, we are screwed and the big boys have us and the government by the short hairs.
I don't mean the pension funds are conducting high-frequency ALGORITHMIC trading. I'm saying they're using similar programs and machines that the algorithmic traders are using. High frequency doesn't equal algorithmic. It just means it's fast and it conducts large trades. Algorithmic means computers are making decisions instead of humans.
The SEC is staffed by people who studied finance/law but couldn't get to the big banks or law firms. Face it, if they could then they would because the pay is incomparable. In fact, those who prove the better ones get poached by big banks because they MADE the regulations. The SEC don't have the resources to keep up with Wall Street, so the retail investor is screwed.
Sorry, I misunderstood. You are probably correct about the SEC at the staff level. But I believe the directors and managers who lead the SEC, and who invariably worked previously at Wall Street firms, are seriously compromised beyond the point of no return. As a result, the SEC is in the tank for the Wall Street firms that it is supposed to oversee and regulate. It is not just that the SEC is outgunned. They are also outflanked politically. There is no way the politicians want the SEC and the Justice Department for that matter to come down hard on their Wall Street campaign contributors and everyone knows it. That's why the SEC has agreed to laughable settlements with Wall Street banks time after time and why there have been no criminal indictments against Wall Street bankstas. This hypothetical conversation illustrates the point:
http://investmentwatchblog.com/crisis-in-the-sec-war-room/
And the banks are empowered by having nearly nothing to pay with an interest rate at 0.1%...
It is one fucking outrage after another and yet our government allows this shit to go on and on, as though Americans (the 99%) are too stupid and ignorant to notice. No wonder people are taking to the streets. Our government, our regulators and our justice system are owned by the big banks. And the bankstas are laughing in our faces backed up by law enforcement goons, who work for them, not us.
I liked the idea of a small fee for each transaction.
The problem with this is that it might reduce liquidity, which means the market may become more volatile. And uncertainty breeds inaction on the part of banks and companies, thus a freeze on lending and/or hiring. Moreover, if they install a fee in the U.S... I wonder where the investors will go to put their money instead.
That might help. Meanwhile, the high-frequency stealing has been going on for over a decade with the SEC looking the other way. The big banks make over 70% of their profits this way. They make over ten million every single trading day, which is statistically impossible unless you are cheating. All of their other scams pale in comparison, but computerized high-frequency market manipulation does not get the attention and condemnation it deserves, which is great for the banks and bad for honest investors.
This high frequency trading deserves a lot of attention. It rips off pension funds, municipalities and ordinary retail investors. A transaction ax would at least slow it down.
You're right, but the SEC is deliberately dragging its feet and has no intention of curtailing high frequency trading. This illustrates for all to see the incestuous relationship and revolving door between the SEC and Wall Street. Couple this sick situation with SEC incompetence and you have the status quo where Wall Street rules with impunity. The SEC couldn't hit its ass with either hand with the lights on. Witness Bernie Madoff. Meanwhile, the president and congress sit on their hands while investors, including the ones you mentioned, get ripped off every single trading day. It is more important for congress and the president to garner campaign funds than to protect Main Street Americans from the depredations of Wall Street punks.
I wouldn't expect Obama or any mainstream politician to take up this matter. It's something that people's movements like OWS should bring to the fore often. It's just outrageous. This is where your pension is going...
http://www.youtube.com/watch?v=4Z9WVZddH9w