Dark Pools, Sergey, GETCO, Goldman, and People Who Trade Anonymously

[WhiskeyGirl]

I found this very interesting article.

Why would anyone want to trade anonymously?  What happened to the paper trail?  What happens to 'conflicts of interest'?  Who are these customers that trade anonymously?

Why software matters to traders
The reason that trade secrets are so highly coveted in this world is that firms like Teza and GETCO use their own money to exploit tiny discrepancies in the price of securities from one millisecond to the next. When it comes to computer-driven mega trades, milliseconds count.

What happened to investing for the long term?  More than one second?  Five years?  That seems to be what Obama tells people.  I don't look at the market day to day.  You will recover long term. 

How much are the HFT's making in less than a second?  How much does this maniuplate the market?

In an interview with Fortune, Iati recounted how these proprietary trading companies are vying to locate as close to the New York Stock Exchange's new multi-million-dollar data center -- being built in Mahwah, N.J. and set to open in 2010 -- as they can to get the information about trading activity as quickly as possible. "Proximity is everything now," he said, since the data travels over fiber-optic cables at light speed and the less distance it travels, the more quickly it arrives, and the more quickly the price discrepancies can be exploited.

Is this why TAXPAYERS have to foot the bill to build a state of the art infrastructure?  Why aren't these businesses paying for this technology themselves?  It seems like they have WAY MORE money than taxpayers.

GETCO's dark pool business
GETCO also has a separate business from its proprietary speed-of-light arbitrage business that provides customers, such as money managers and hedge funds, with fast-trade execution often with an "immediate or cancel" feature that insure that the trades cannot be traced. These hidden stock-trading venues, also known as "dark pools" -- in part because the trading takes place away from any exchange and therefore without any reports being filed -- have captured an increasingly large share of U.S. equity volume in recent years.

The leading "dark pool" is Goldman Sachs' "Sigma X," which executed about 162 million external orders in April 2008 followed by CrossFinder (owned by Credit Suisse), Knight Link (owned by Knight Capital Group) and then by GETCO, which started its GETCO Execution Services dark pool in March 2008, also according to TABB Group.

How do you keep the Dark Pool and traders honest?   How do you track their tax records if it's traders, trades, and records can't be traced?

Does Barney Frank know about this?  Where does this money go?  Maybe there are some taxes due in this group.

read more here -
http://money.cnn.com/2009/07/14/news/companies/sergey_aleynikov_getco_goldman.fortune/index.htm?section=magazines_fortune

Obama goes after a few people with Swiss bank accounts and ignores the possibilities of using internet gambling to launder money, and all these HFT and Dark Pools.

Does Paulson know about this?  Geithner?  Bernanke?

[WhiskeyGirl]

Schapiro has taken steps aimed to strengthen and speed the agency's enforcement efforts and installed a new enforcement director.

Lawmakers voiced approval of Schapiro's actions but several expressed frustration that there wasn't a more thorough housecleaning of officials deemed responsible for the Madoff failure.

"We have to hold people accountable at all levels of the agency," Schapiro said. "We've tried to pull all the lessons we can from those failings."

Investors and lawmakers have clamored for limits on moves they say worsened the market's downturn. Short-selling involves borrowing a company's shares, selling them, then buying them back when the stock falls and returning them to the lender. The short seller pockets the difference.

The SEC also is working to identify emerging risks to investors, including so-called "dark pools," or automated trading systems that don't publicly provide price quotes, Schapiro said.

"Given the potential risks posed by dark pools, the (SEC) will take a serious look at what regulatory actions may be warranted to respond to the potential investor-protection and market-integrity concerns that dark pools may raise," she said.

http://www.google.com/hostednews/ap/article/ALeqM5g1rWTMKudJr4P0u0qwx7yXxLR3CgD99EAQ2O2

I think the wrong message of reform is being sent.  Open the Federal Reserve, the markets, the dark pools and let the light shine in.  How many off balance sheet, non traceable things go on?

Who's looking out for Main Street?  The little people that labor day in and day out?  Sweat? 

No jobs for you America.  Rich global people and corporation have to make a dime on your savings and the sweat of people in foreign nations.

jmho

[WhiskeyGirl]

If trading systems known as “dark pools” expand substantially, they may “prompt speculation and suspicion” about price fluctuations because they don’t provide enough transparency, Schapiro said in speech yesterday in New York. Traders with access to the private markets’ pending orders also may gain an unfair advantage, she said.

After Goldman and Sergey, I believe many should be suspicious.

“Given the emerging risks posed by dark pools, the commission will be taking a serious look at what regulatory actions may be warranted,” Schapiro said. She said she’s asked SEC staff to review ways to “best bring light” to dark pools.

Obama’s plan would impose a so-called fiduciary duty on brokerages offering investment advice, requiring the firms and their employees to act in their clients’ best interest. Brokerages are currently subject to other requirements, including that they recommend “suitable” products.

Aren't brokerage firms already expected to act in the best interests of their clients?  Isn't that part of 'suitable'?  Isn't that a 'no-brainer'?

On dark pools, Goldman Sachs Group Inc. and Credit Suisse Group AG said June 17 that they would support an SEC proposal to adopt a uniform method for reporting equity trading volumes. Such a step would make numbers reported by different firms more comparable.

Is reporting 'volume' the same as reporting - Who?  When? and How much?  Reporting volume seems like a distraction, a red herring to real substancial information.

Why wouldn't they want to keep track of these trades?  Could this be a form of money laundering?  Where are all these accounts maintained?

http://www.bloomberg.com/apps/news?pid=20601103&sid=a8GQ7kkbNAdc

[WhiskeyGirl]

Ex-Goldman programmer eyes dismissal

http://www.reuters.com/article/topNews/idUSTRE57G5D020090817

I wonder how much this software has cost Goldman?

Did anyone else download this code?

Anyone copying/using it in the "Dark Pool" trade?

If they prosecute, does the code go into the court record?

I wonder if Sergey would accept a jury of his peers rather than settle?

Sergey a hero to the folks on Main Street?