Thursday, October 7, 2010

The Corrupt SEC

The SEC's report on the flash crash of May publicly reveals its deep level of corruption and that it now longer serves the PUBLIC in its regulation of the stock exchanges. The report clearly shows that the fragmented electronic markets that the SEC has imposed simply do not work under stress. The SEC turned the stocks markets over to nameless, faceless computers, instead of people with clear responsibility and capital at risk.

The report documents that a huge trade made by a huge mutual fund [Waddell & Reed], that in fact operated like a hedge fund, cracked open the seams of the markets like the iceberg hitting the Titanic. And the markets sank, despite all those promises of better liquidity and public service the SEC promised when it forced the NYSE specialist system out of its former critical role.

In a market dominated by HUMANS, that huge order by Waddell & Reed would have been exposed to the markets and that fund would have gotten a low price and borne the cost of its lust for speed itself. Instead, the the SEC's market, they were able to secretly flood the markets with thousands of small electronic orders simultaneously, like a virus infects a being. And that wave of orders killed the market as other computer traders copied the move.

The SEC could easily stop this practice. Bring back the specialist system. Impose it on all stocks. Impose it on ETFs. Require large orders on stock futures to go to people in the pit. Then those hogs will have to pay for their greed as the counterparties price the speed & size into lower bids. Ban ALL electronic trading whenever the market is down 2% or for a stock when it is down 5%. Ban coordinated electronic waves of orders. Coordinated electronic orders are obviously market manipulation - get rid of them. Expose the large order to the market at once to attract offers, using the NYSE specialist to advertise the stock available and attract bids. That's how large orders were formerly done and that worked OK for decades.

Will the SEC do any of this? Nope. They are corrupt and in the pocket of the Street & hedge funds & their law firms. The SEC employees want high paying jobs when they leave the agency, and a sure way to get those is to do the bidding of those people while working for the SEC.

Sighhh. The Ruling Classes in DC are so corrupt. Vote them all out this November.

Word of the Day

"Entelechy" - noun [$10] Philosophical
Entelechy means 1. realization of potential; 2. the supposed essential nature or guiding principal of a living thing.
Sentence: The SEC and its employees has lost all connection with the entelechy of the agency, which is, as it is for ALL government agencies, to serve the People and the Common Man and Woman.


bluewater said...

Hey BM Thought that same SEC report placed some blame on the NYSE as it was doing a retro/upgrade on its computer system at the very moment WR did its 75,000 order game

mfl59 said...

you are concerned about thievery and you want to bring back the specialist system? The speicalist was the most overpaid gig in the history of the world when paired with the skillset necessary to do the job....Its like playing poker against an opponent and knowing his hole cards on every hand...

Bunkerman said...

I'll bet specialists made a lot letter than high frequency traders.

and they were regulated very tightly and if they screwed up, could lose that gig.

unlike the unregulated HF scum the SEC relies on.

The markets were better letting those guys make good money, but to watch them closely re fairness.

All orders should go through he same gate and be exposed fairly.

BW: the Waddell-Reed trade was in the e-minis; I didn't see what you said in the press reports. Same point, though. Big orders should be routed to HUMANS.

mfl59 said...

I agree...big orders should be routed to humans....and I also agree that HFT is a disaster...that needs to be is ruining the ebb and flow of the markets

Bud said...

are you kidding me with todays blog...............'view from the politburo'

i am a huge supporter of participation in the markets.............animal, human, vegetable..........all encouraged..............HFT is a very valuable particpaint in the efficient functioning of our markets

Bud said...

Bman are you in a competitive distrcit ?? who is your congressman ?? are you voting for baker or cahill ?

mfl59 said...

..............HFT is a very valuable particpaint in the efficient functioning of our markets

That is perhaps one of the dumbest things Ive ever heard...

Bunkerman said...

I'm not sure if my district is competitve, but I'm be voting againt the incumbent, who is a known crook.

There's an R named Baker running for Gov, I'll vote for him as the D gov is a crook & crypto-fascist.

Bunkerman said...

"i am a huge supporter of participation in the markets.............animal, human, vegetable..........all encouraged"

Bud, you left out "mineral" so I guess you agree with me: unplug the computers !