Who Will Be Blamed?
zerohedge.com / by Tyler Durden on 10/17/2015 – 19:01
It was one week ago, when we read with great curiosity (and commented on) a research report drafted by none other than the NY Fed called “The Liquidity Mirage“, which was not only a confirmation of our article from July explaining “How High Frequency Traders Broke, And Manipulated, The Treasury Market On October 15, 2014“, but a validation of all our work since we first wrote our inaugural post on the dangers from HFT on that long ago April 10, 2009: “The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans” (for those who have not read it, it may be an interesting read: over 6 years ago, when virtually nobody had head of HFT, it predicted just how the market would break under the weight of the fake liquidity provided by these very “liquidity provider” as it did for the first, and certainly not last, time on August 24).
None of the authors’ conclusions were surprising: we have been repeating for years that what HFTs do is create a broken market topology at the micro level, where the noise of an infinite of HFTs algos becomes the signal in itself, and whenever a major countertrend move happens, the market simply shuts down as these “New Normal” liquidity providers are simply finely-tuned momentum creation and frontrunning machines, and most certainly not market makers.
What was curious is that the NY Fed went one step further than the Joint Staff Report released in July of this year, which stopped just short of blaming HFTs for the October 2014 Treasury flash crash. The NY Fed report did not have such qualms and openly accused HFTs of generating the conditions that were necessary and sufficient for the October 15 2014 flash crash (and every other one both before and since following the implementation of Reg NMS). From the report:
This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market.”
The post Who Will Be Blamed? appeared first on Silver For The People.
Source: http://silveristhenew.com/2015/10/17/who-will-be-blamed-2/
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