Tuesday, April 1, 2014

Distilling the High-Frequency-Trading aka HFT Debate: The Wrong Topic to Debate

Sitting here watching CNBC and listening to the jibber jabber debate re Michael Lewis's new book and the fairness or unfairness of "high frequency trading" and who is purportedly profiting (and who is at a disadvantage) from super computing power and nano-second market all makes me say "If only everyone knew what the real issue is..and what all of the alphabet regulators and enforcement agencies should really focus on: payment for order flow.

For those more fluent on the topic now populating the airwaves and news print, probably because it has somehow now come under the scrutiny of the FBI--an agency that has even less of clue than the SEC when it comes to what the issues really are, its easy for majority of market watchers to be totally baffled.

Irrespective of what you might think of me, it can't be disputed that I'm an expert on the topic of market structure and trading, so allow me clear up a few things.

1. Anti-HFT people argue (among other reasons) that retail investors, as well as significant institutional investors are at a disadvantage when it comes to securing the best prices because others with sophisticated network connections are able to not only get to the markets faster, but thanks to sophisticated algorithms, these HFTs are able to distort and manipulate pricing and deprive 'natural investors' from fair access.

2. Claim that markets are 'rigged.'These same folks contend there is collusion taking place between the major exchanges (and dark pools) and the assortment of HFTs when considering the bizarre assortment of rebates and fees that work against investors and to the benefit of individual exchanges and firms that 'provide liquidity' and trade for their own accounts on a automated basis.

3. Pro HFT folks contend that they are merely using all legal and approved ways to leverage computing power--and more important, their black boxes provide 95% of the liquidity for public investors when those "natural" buyers and sellers want to buy or sell stocks.

The pros and cons of high-frequency-trading can be debated for as long as it takes to put the genie back in the bottle insofar as market structure. The securities industry, which includes exchanges, broker-dealers, proprietary traders, data providers and necessarily, a cacophony of regulators and overseers has morphed into what I call the "Battle of the Transformers."... I use this phrase because the vast majority of volume reported on US exchanges (and many others) takes place between computers. This transformation has taken place over the past 10-15 years all thanks to lobbyists and self-interested parties who have managed to change the entire dynamics of the securities market landscape.  In and of itself, just about everyone involved in this evolution has helped re-define the concept of self-dealing, which has exceeded epic proportions. One might even compare this disaster-happening-in-real-time to what is happening to our global environment, as real experts will argue that we've passed the point of no return and the notion of 'armageddon' is no longer fodder for sci-fi films, but a reality that our grandchildren may very likely experience first hand.

But I much as high-frequency trading is understandably problematic for many, I'm less concerned about whose computer is faster than the much more disconcerting practice of payment for order flow. Not the payment for orders that competing exchanges offer to those who route orders to their venues for execution, but the payments received by the leading retail brokers and custodians who take kick backs from  "preferred market-makers" in consideration for routing customer orders to those self-interested traders and the opportunity to "pick off" and execute at prices that are often less advantageous to the customer versus the prices they could receive when buying or selling in a truly open marketplace.  Those customers--which include mom and pop, as well as multi-billion dollar registered investment advisors who rely on brokers such as Schwab, Ameritrade and Fidelity, among others to provide order execution often have no idea that their orders are being sold in a manner that makes the world's oldest profession appear to be the most honorable, the most ethical and the most moral.

To you boneheads at the DOJ and SEC who religiously read my blog: I don't expect you to "get it", in fact I expect that you'll continue dancing to the beat of your masters aka the people who butter your bread.


Tuesday, March 25, 2014

Madoff Trustee Announces 4th Distribution of $350mil To Approved Claimants

From: I. Picard, Esq.
To: Bernie Madoff

Bernie- I am well aware that you are following the progress of my office, and I thank you for sharing this memo to your blog audience.

1. Per the formal announcement made this afternoon (see link below), we will be making a 4th distribution to approved claimants within the next several weeks..Maybe in time for Passover, but it could take longer than that..but at least we're making the formal announcement.
2. The amount we will distribute is a few nickels short of $350mil.
3. Despite your blabbering on your blog about JPMorgan making the payment to the fund in the form of bitcoins, that's simply not the case.
4. I'd appreciate if you would stop crowing about how you were instrumental in pointing prosecutors and others to JPM.  That said, I do have to congratulate you for advocating this cause in the public domain via your blog.
5. I too was surprised re the jury verdict yesterday in the trial against your employees..Like you, I bet the jury would be hung, even if I still believe they were all guilty. I know that Erin Arvedlund--who raised all of the red flags about you years ago, and is the same gal who wrote the most comprehensive book about the entire scheme, made a nice bet on the guilty outcome; too bad for her she's been living on a reporter's paltry income and couldn't afford to bet enough to make a difference in her bank account.I hear she has another book coming out re another global scandal and I'll be first in line to get a copy..
Here is the link to our formal announcement

Best regards,

Monday, March 24, 2014

Madoff "Shocked" by Jury's Guilty Verdict

To: Nan
From: Bernie

Although I'm shocked that the jury didn't hang themselves (no pun intended) and that not even 1 of the 11 jurors considered the notion "..if knowing of and aiding the fraud, why keep millions of [your own] dollars in your BLMIS brokerage account, as opposed to moving the 'cash' to a safe haven..?".....I can't say that I'm surprised by the verdict.

Let's face facts--aside from your not-terribly-convincing-face, and despite all of the evidence being circumstantial, and notwithstanding that "Dimes" was the fed's only witness, and as good as your lawyers Mo and Ro are, even they couldn't find a venue on this planet that would be sympathetic to anyone who worked for me for years and lived large accordingly.

I'm sure there are several grounds for appeal, including the veracity of the government's sole witness, who actually didn't finger you in a convincing way..but that costs money. Picower certainly isn't going to help....he's still trying to get back $20mil from that bitcoin exchange....So...if Mo/Ro aren't inclined to continue to work for peanuts, my suggestion is to throw yourself on the mercy of the court when it comes time for sentencing; not literally of course, or you'll undoubtedly break something.

If you demonstrate remorse, and the judge decides to look past the statutory guidelines, you might get as little 10 years, maybe only 5. Perfect opportunity for you to focus on cutting some of that fat off the bone.

Don't're not going to be sent to Alcatraz..Trust me....If you're lucky, you and Joanne will be sent to the same place and the two of you can become the prison camp's cupcake makers!

Wednesday, March 19, 2014

Betting on Madoff Jury Verdict: UK Broker Taking Bitcoins; Obama Spokesman Recommends Shorting Russian Stocks, Will SEC Bring Charges?

Some stories even I can't make up...Russian annexing Crimea is hardly a surprise, and that story was scooped months ago courtesy of Tom Clancy's last story "Command Authority." Certainly not as interesting as a plane with 239 people dropping off the map with still no trace 12 days later...then again, my pal Jeff is still presumed dead..

The headline? Yes, it is true that a UK online betting platform is making book on the outcome of the "Madoff employee trial." The best part is they are accepting bitcoins. Contact my agent if you need the number of the broker.  BTW- I'm betting on a hung jury..although that bet doesn't pay off nearly as much as guilty or innocent verdict.

Last..Let's see if I understand what happened earlier today while President Obama's spokesman Jay Carney was speaking at news conference re the Crimea incident. I thought I heard him say  "I recommend shorting Russian stocks..".. And, I'm not alone...the talking heads at CNBC made that same conclusion and it was the talk of the hour. Unless he's licensed by Finra, and when considering the public profile (he represents the CEO of the USA!), if it were anyone else, the SEC would be immediately filing charges for offering investment advice without having a license.

My advice: Jay Carney should get back in front of the cameras and extend an apology for mis-speaking, before some knuckleheads from Boca Raton start shorting Russian stocks--which I think don't necessarily have to go down any further..and could easily snap back and bite the shorts in the butt, big time. Money talks, bullsh*t walks.
Enough said.

Tuesday, March 11, 2014

Madoff Jury Ponders Defendant's Naivete Claim

"I did not know it was illegal, or even inappropriate to fudge client account statements by backdating transaction reports so that their tax returns would look nicer.."

"OK, so I worked for a brokerage firm for 30 years, give or take. But, I never went to college, the only page of any newspaper I've ever read is Page 6 and I just came to work every day and did what I was told."

"OK, so maybe I was a dunce, but this is America; dunces who perform "clerical duties" are entitled to earn millions of dollars, and there are plenty of dunces who drive Bentley's just like mine, and plenty more who have more than 2 houses.."

To: Irv Picard
From: Bernie
Re: Backdating Clawbacks

Irv: Now that a federal court is expected to quash your claw back strategy and limit the look-back to 2 years, a little birdie of a plaintiff lawyer is now claiming that you'll need to re-calculate the net loss formula that you derived when determining amounts that claimants are entitled to. Your "approved calculation" enabled you to go back in history and offset direct investor withdrawals and/or transfers to other BMIS accounts against the deposits made. With the pending ruling, one could argue that you can only look back as far as Dec 2006, and in turn, you'll [arguably] need to add back to "approved amounts" the amounts that you originally deducted while performing the "net loss" amount.
Yes, this will merely add to the amounts entitled, and unless you can win more judgments at this point, the overall impact on doing a "re-calc" might not be a big deal to you, but it could be a big deal to many claimants.

Tuesday, March 4, 2014

Putin Linked to Madoff Claimant Account; Threatens Action Unless Claim is Paid

To: Irv Picard
From: Bernie Madoff
RE: Claim Payment Status/Putin Account

Dear Irv-
Its been one year since the last 'claims distribution' and there are a bunch of people asking me when the 4th distribution can be expected, particularly in view of last month's approved settlement with JPMorgan..

Yes..we know that Hell-On-Wheels Helen Chaitman's lawsuit seeking "interest on the principal" has slowed the wheels of the payment machine, but we also know that JPM's settlement provides the approved claimant fund $400 million, give or take, unless of course someone managed to allow Dimon to pay in bitcoins that have since managed to disappear into thin air.

As your genius forensic team may or may not know, there's a fellow whose name is Putin who controls an approved claimant account. He's in a bear of a mood this week, and trust me when I tell you he would like to see the 4th installment before he mixes another Kiev cocktail.

My Zimbio
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