Comment Text:
10-005
COMMENT
CL-00017
From:
Sent:
To:
Cc:
Subject:
Heinz Lycklama
Friday, May 7, 2010 11:58 PM
Mary Shapiro ; Gensler, Gary
SEC-Trading Markets ; Mary Shapiro
; Jamie Dimon ; Eric
Thorson ; SEC Help ; Metals Hearing
; Shilts, Richard A. ; Berkovitz,
Dan M ; O'Malia, Scott ;
Gensler, Gary ; Chilton, Bart ;
Ryall, Christine ; Dean Payton
; Sommers, Jill ;
[email protected]; Dunn, Michael ; Stowe, Natise L.
; R Schaeffer ; Lavik, A. Roy
; secretary ; Obie, Stephen J.
; Walter Lukken ; Maria Cantwell
; Rick Larsen
; Patty Murray
; Patty Murray
; Canada FreePress
; Everett Herald ; John
Hughes ; Kim Strassel ;
eheffter@seattletimes, com
Shenanigan/Scams on Wall Street (Especially HFT)
Gary Gensler (Chairman of CFTC) &
Mary Shapiro (Chairwoman of SEC),
I'm addressing this letter to both the CFTC and the SEC
because I believe that both regulatory agencies have a
responsibility in seeing that investors, particularly individual
investors, can enter orders and have their orders executed
in a fair and transparent market. Yesterday's actions in the
markets indicate that we have a real problem.
Yesterday's (5/6/10) sudden 700 point drop in the DJIA
indicates that the problem is with the trading programs
being run by the large traders on Wall Street. The problem
is most likely caused by the High Frequency Trading (HFT)
programs being allowed to manipulate the markets, as
indicated in this article by J. S. Kim today (5/7/10).
http://www.theundergroundinvestor.com/2010/05/the-near-1000-poi nt-slide-of-the-djia-compells-fu rther-
i nvesti g ati o n -of-th e -wall-st re et-casi n o-sca m/
[The article is reproduced below for ease of reference.]
This is not the first time that the HFT programs have been
identified as the source of unfair trading on Wall Street.
Both the CFTC and the SEC are aware of the problems.
IT IS TIME FOR THE SEC AND THE CFTC TO PUTA
STOP TO MANIPULATION ON WALL STREET BY HFT.
Thanks for listening.10-005
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Heinz
Heinz Lycklama
17818 Oxford Dr.
Arlington, WA 98223
Ph/Fx: 360-403-7445/6
Cell:
425-501-5075
Email: [email protected]
URL:
www.osta.com
The Near 1,000 Point Slide of the DJIA Compels Further
Investigation of the Wall Street Casino Scam
May 7th, 2010
Yesterday's slide in the US stock markets provided further proof that the world's financial markets are
nothing more than a rigged casino where the house (Wall Street) holds by far the better odds in every
game (currency markets, stock markets, derivative markets, commodity markets) it offers the mark (the
retail investor). How else could the US DJIA lose 700 points in a 10-minute span and a number of blue
chip stocks lose 25%, or 30% in a matter of minutes as well? The answer? Wall Street's use of predatory
algorithmic High Frequency Trading (HFT) programs that are designed to trigger cascade-like buying
and selling. To believe that, as an individual investor, you have a snowball's chance in hell of beating
these Wall Street trading programs that front run your trades or block your trade executions faster than
you can blink your eye is tantamount to believing that skill is involved in winning when you shimmy up
to the slot machine stool at the Bellagio in Vegas.
Predatory algorithmic HFT programs aren't called "predatory" without good reason. Not that yesterday's
sell-off wasn't partially the result of fear injected into a Fed Reserve inflated stock market bubble,
because it was. But Wall Street deployed HFT programs had a lot to do with the cascading nature of the
decline in yesterday's trading. Continuing our casino analogy, HFT programs act in the same capacity as
the thugs employed by casinos that take you to the back room to rain down their "thuggery" upon you if
you start winning too much. HFT programs are designed to block the retail investor from making
successful trades against the trades of the house (Wall Street) and often prevent the retail investor from
obtaining fair prices in the execution of trades in numerous financial markets.
Consider the following example. Stock A's bid is $10.10 and the ask is $10.13. An investor places an
order to buy at $10.13. Instead of his order being filled and executed as it would if human traders were
executing the trade, HFT programs often immediately step up the ask price to $10.14 and screw both
parties in the trade. Depending on the orders that HFT programs "see", sometimes the HFT will see an
order at $10.13, and step up the price to $10.18 so the bids follow higher and the bid price gets reset at
$10.13 almost immediately. Or, if the bid price does not follow higher, then the bid-ask spread becomes
grotesquely distorted from $0.03 to $0.08 for no other reason than HFT programs are blocking liquidity.
Should the human trader withdraw his order to buy at $10.13, then often the bid-ask spread almost
immediately returns to $0.03 and the ask will subsequently fall from $10.18 back to $10.13. Should he
place the order again seconds later, however, the bid-ask spread will often immediately increase again
with the bid price increasing to a point higher than $10.13 again.
The HFT programs execute the shame shenanigans in the options markets depending on what side of the
market they are manipulating. I have many times been forced to take a lower profit on options trades10-005
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because of HFT programs. For example, if I placed an order to sell on option contracts at $2.50 when the
bid is at $2.50 and the ask is $2.60, instead of my order filling, the bid often immediately falls to $2.40
and the ask becomes $2.50, blocking my order from filling. HFT programs run amok in options markets
as well. This is Skynet from Terminator rigging markets, destroying liquidity and unfairly rigging prices
of all possible financial instruments that trade in every conceivable market, all with the blessings of the
SEC.
Wall Street has been running these types of scams ever since advances in technology have enabled them
to develop algorithmic programs to manipulate markets. In fact, on my company's website, I have stated
the following message for a long time now:
"Today, when stock markets' rise in the face of horrid
economic fundamentals, fundamental and technical analysis are inadequate when making critical
decisions about your financial future ... If one expects' to be profitable in today's investment world, one
MUST realize that ALL MARKETS ARE RIGGED, including gold, silver, currency and stock markets'...
Without understanding the fraud and rigging games of the financial oligarchs, it is impossible to
accurately predict long-term trends'. It is a near certainty that future shocks' to the economic system will
catch the vast majority of all investors unprepared and we expect great shocks' to hit the global economy
at some point in 2010. "
The only difference is that when I started pushing this message a decade ago, people laughed off my
proclamations and accused me of being enamored with conspiracy theories. Today, more and more
people finally are awakening to the reality that such a message is not a conspiracy but a fact.
So this is how the Wall Street Casino Scam operates.
The ratings agencies like Moodys and Standard and Poors are the pretty cocktail waitresses that lure the
mark (the retail investor) into the Casino (stock markets) with free alcoholic drinks (abominably horrible
and deceitful credit ratings of financial instruments) to instill the mark with the false sense of confidence
necessary to induce gambling in the rigged Casino. The regulators like the CFTC and the SEC are the pit
bosses that oversee the floormen (Wall Street firm CEOs) that oversee the table games dealers (the firm's
traders) and ensure the games (stock markets, currency markets, commodity markets) you are allowed to
play possess a feature (HFT trading programs) that ensures that the odds will always enormously be in
favor of the house. The pit boss oversees all floor dealers and conspire with the regulators (the cocktail
waitresses) to give gamblers (the investor) a sense that all dealings are legitimate even though the odds of
every table game (currency markets, commodity markets, stock markets) are insanely rigged in favor of
the house (Wall Street firms). If we consider the table game of blackjack, in a real casino, should you
receive a good hand, the dealer will pay out your bet. In the case of Wall Street, due to HFT programs, in
many instances, should an investor receive a favorable hand (i. e., a favorable move in the stock market)
in the game he or she is playing, HFT programs move in to prevent the bet from paying out in full or
paying out at all (an investor's sell order never executes at the price at which the market has informed the
investor that he or she can cash out).
In essence, financial markets are rigged exactly like casinos except for one difference. The predatory
algorithms executed by HFT programs ensure the winnings of the house to a much greater extent than
any Casino table game is able to accomplish. It this sense, Wall Street is rigged to a greater extent than
even casinos. In the instances when you win, they deploy HFT trading programs that prevent the bet from
paying out full value so that the house (Wall Street firms) can step in and earn profits from a trade it spots
AFTER an order has already been placed. Or in the mirror example, HFT programs allow the house
(Wall Street firms) to step in front of trades they "see" and front run them for their own profits, again
screwing the retail investor out of a lower price in a buy transaction. In these cases, which must happen
by the thousands every day, the HFT programs employed by Wall Street screw both the buyer and seller
in the transaction as it always attempts to widen the losses or lessen the gains of both parties involved. In10-005
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some instances, frustrated traders leave the game tables so liquidity dries up which leads to the
establishment of even more grossly distorted and unfair bid and ask prices. Despite this practice being
commonplace, the pit bosses of the giant rigged Wall Street casino, men like Goldman Sachs's Lloyd
Blankfein, want us to believe that their enormous profits are derived because of their upstanding integrity
and above-average intelligence of his firm's employees.
Next on the list of financial weapons of mass destruction? The $600 trillion (notional value) of the
derivatives market. Oh, what joy we'll experience when the banksters are eventually forced to unwind a
fraction of this market and various parties will actually be forced to make good on these contracts when
the financial instruments insured by them start heading south (or the true value of them are finally
recognized, whichever comes first). It's no wonder that the price of gold has diverged from the behavior
of the US dollar and US stock markets on multiple days for the last several weeks. The next significant
dip in gold/silver price that occurs may be the last best buying opportunity in "real" money for years.
About the author:
JS Kim is the Chief Investment Strategist and Managing Director of
SmartKnowledgeU, LLC, a fiercely independent wealth consultancy company that guides investors in the
best ways to build wealth through the progression of this global financial crisis.
