OK, so....

1) Every futures exchange out there, but most egregiously the latter-day Krays on LIFFE, consistently settle options to blatantly favour market makers at the expense of end users

2) In the US, bastion of Dodd-Frank regulatory goodness, the March settlement price for S&P 500 options and futures was nearly 10 points above the high of the day



3) Someone magically and noisily buys $3 billion of very deep in the money SPX put options yesterday a few hours before the more negative than expected Fed stress test results were released.   (As an aside, how is it that Citi is failing stress tests 5+ years after the crisis and no major European bank has ever failed one- at least one conducted in Europe?)

4) And yet.....according to global regulators, the largest market abuse going is whether a few FX shags occasionally transacted in an undesired way in an unregulated market?

Uh, OK.
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March 27, 2014 at 9:10 AM ×

Nice read! Very informative. Something interesting: This Rapidly Expanding Grocery Chain Is Shockingly Cheaper Than Walmart.
Read it here: http://goo.gl/SisRZg

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Anonymous
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March 27, 2014 at 9:36 AM ×

C Says
No way can you keep this up ,but by golly you are away to a wonderful start.
First Law of enforcement ,always nail the easy targets to make the numbers look good. It's right up there with the first Law of accountancy ,in a poor quarter pull some sales forward ! Or isn't that the first Law of Central bank policy to pull forward future activity into the present and hop the future fills in the hole ?

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Anonymous
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March 27, 2014 at 11:16 AM ×

I just dunno why these shenanigans continue to persist so blatantly.
Oh yeah I forgot it's called regulatory capture : ETC = good, OTC = bad
d'oh
srsly, it'd be nice if regulators listened to end users a bit more.
JL

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Nic
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March 27, 2014 at 1:19 PM ×

How does any bank, in the US or Europe, fail a stress test when they fill in the answers themselves on a form or over the telephone?
The only money made on Liffe goes to Czech republic now.

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Nic
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March 27, 2014 at 1:25 PM ×

Regulators don't care to hear from traders about market abuse, they don't like traders.
Remember Fisher at the treasury select committee last month? "a lot of traders whinging about how difficult their life is"

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BlackRaven
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March 27, 2014 at 1:44 PM ×

Why is spoofing bad? the order is there and you can trade against it.

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abee crombie
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March 27, 2014 at 2:27 PM ×

Ok I dont know too much about Krays but I did think I knew about the Spoos and I just recheck the CME website. Can you please refrence where the mar settlement price for the Spoo's is set at 11? Looking on CME website I cant find any data supporting that claim

http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_contract_specifications.html

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Nic
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March 27, 2014 at 3:46 PM ×

The FCA considers spoofing and layering cheating but they selectively enforce it like in oil http://www.fca.org.uk/news/fca-fines-us-based-oil-trader , but Liffe seems to protect the spoofers.
I have seen big size spoofs hit and it sends everything bonkers for a bit and makes market unstable.
They are spoofing many multiples of the daily total volume of a contract.
Some markets, like short sterling, the HFT spoofers actually wrote the fill algorythm for liffe, and its almost impossible to trade against them as you can't get filled.

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Anonymous
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March 28, 2014 at 7:30 AM ×

settlement on options.... loooong story. to be honest I don't think exchanges do it on purpose. They just do not have the same level of attention that a trader has. if you own 1000 call spread and the mkt is 12.0/13.0, you want it to settle properly (say 12.5) as you may have it against something else. it's your book, it's your life.

For them... 12.0/12.5 or 13.0 does not make much difference. among the myriad of options they have to settle, they hope their software won't make too many end users upset and when it does, they apologize and send an excuse email the following day.

Unfortunately, I do not think there is an easy way to solve the problem at once.

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BlackRaven
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March 29, 2014 at 12:23 AM ×

I agree that random regulatory enforcement is bad.

However I think their stance on spoofing and 'layering' is wrong.

If you make a trade decision in that direction because of an order you see, then you're taking liquidity not providing it.

hft's spoofing would protect real money orders and reduce the ability of locals to lean on orders.

Maybe short sterling is different - but I've heard the same claim in other markets, that you can't get filled but when I've looked at the evidence it has not been there.

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Nic
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March 31, 2014 at 2:19 PM ×

Market makers and 'traders' place orders in the market at prices that are value and take prices that are not value. They oil the cogs of the market, they assist price discovery to occur effeciently.
Spoofing, layering, quote stuffing and the other manipulative practices that some HFT engage in destroy prices not discover them.

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