what a f*cking shame... just bumped into this... i trade on OTC mkts where you'd slit peoples throats if they don't respect anonymity...
FYI, Chris Hehmhyer heads Goldenberg Hehmeyer. WSJ article referenced is below
letter.
"I know that a couple of large institutions spent $10's of millions building a
database that sniffs out market patterns. These databases constantly ping
various futures' participants and from the counterparty data figure out who is
doing what. These institutions, depending on the counterparty data, then
either race the counterparty or try and push the market the opposite way."
The CME/CBOT's lack of anonymity is an issue
The CME/CBOT's lack of anonymity is an issue. In various ways, counterparty
data (both clearing firm and individual trader identification) is
electronically sent in real time to market participants. Certain data is only
received by clearing firms.
From a shareholder point of view, in the electronic world, nothing but 100%
anonymity (including no nightly batching) makes any sense. Anonymity speaks to
integrity, fairness, and creates more volume and liquidity. Also, there is no
legitimate purpose to ever sending out any counterparty data in the electronic
world. If the clearing corporation confirms that a trade has matched between
two parties, the trade is good and no other data is needed. Do we remember the
"clearing corporation is the seller to every buyer and buyer to every seller"?
This is Futures 101. In fact, 100% anonymity is the case at Eurex, Liffe, and
ICE.
Interestingly, over the past several months, I've run across analyst reports
where analysts have trumpeted the CME being anonymous. Also, in general, I
believe that the market believes the same to be true for the CBOT. As this
lack of anonymity has started to leak recently, I spoke with a few CME/CBOT
executives and they all seemed to prefer anonymity. CME has even hinted at
moving towards anonymity. And four weeks ago, in a related Wall Street Journal
article, CBOT Chairman Charlie Carey said, "Anonymity has to win out on this."
Yet, all of this and nothing has happened.
So, why in the world is this not happening, as technically it is very easy to
quickly stop pouring out this sensitive counterparty data? I'm not sure, but I
do know that a couple of large institutions spent $10's of millions building a
database that sniffs out market patterns. These databases constantly ping
(with one lots) the various futures' participants and from the counterparty
data figure out who is doing what. These institutions, depending on the
counterparty data, then either race the counterparty or try and push the market
the opposite way. This is bad for CME/CBOT and, for that matter, the futures
industry.
If the CME/CBOT end up agreeing that this is bad, the result should be 100%
anonymity, as anything less is "kinda pregnant". In fact, if they don't go
100% anonymous and there is a stiff challenge, like ICE vs. CME (NYMEX), I
believe that ICE and their anonymous market will win hands down. After all,
integrity and fairness are the foundations upon which the Chicago exchanges
sit...volume and liquidity are the result. The foundations need to be solid.
Respectfully,
Chris Hehmeyer
Co-Chairman
Goldenberg Hehmeyer
<http://www.ghco.com/learnAboutUs_leadershipDetail.aspx?subSection=leadership&detail=1>
http://online.wsj.com/google_login..../SB114506240937226739.html?mod=googlenews_wsj
THE WALL STREET JOURNAL
CME and CBOT to Close Loophole
Exchanges to Take Steps To Protect the Anonymity Of Investors Trading Online
By PETER A. MCKAY
April 15, 2006; Page B6
Chicago's two major futures exchanges are closing a little-known loophole that
is undermining the anonymity of electronic trading and perhaps giving big
investors an edge.
At issue is the distribution of traders' identification to brokerages as
transactions on the Chicago Mercantile Exchange and CBOT Holdings Inc.'s
Chicago Board of Trade are finalized, or cleared.
One brokerage, Goldenberg, Hehmeyer & Co., earlier this year figured out how to
take advantage of that information by determining almost instantly the identity
of investors on the other side of transactions executed by the firm for itself
or for its customers. Goldenberg Hehmeyer, based in Chicago, had been planning
to start telling customers who was on the other side of their trades and using
such information to shape its own in-house trading strategy, said Co-Chairman
Christopher K. Hehmeyer.
When stocks are traded on public exchanges, investors generally don't know who
they are buying from or selling to. On futures exchanges, most investors expect
the same thing when trading electronically.
The reason: Say Investor A has just sold a bunch of gold futures to Investor B.
Then the price of gold futures starts falling. If Investor A knows that
Investor B is too small to ride out the slump and is generally a short-term
trader, Investor A can squeeze Investor B by demanding an even lower price to
buy back the futures.
Mr. Hehmeyer says he believes online markets should be anonymous, and he
complained vociferously about holes in the exchanges' systems. He said he
decided they weren't moving quickly enough to plug them, so he made plans to
start taking advantage of them himself and letting his customers do likewise,
fearing competitors might already be doing so.
Mr. Hehmeyer informed the two exchanges of his plans several weeks ago. After
The Wall Street Journal questioned the CME, a unit of Chicago Mercantile
Exchange Holdings Inc., about the matter, it sent a notice to members Wednesday
saying it would "suppress" the trader-identification data on online trades
beginning April 30. At the CBOT, Chairman Charles P. Carey said, "We'll be
discussing it shortly. I suspect we'll do the same thing as CME."
On the exchanges' floors, details of trades are jotted down on cards. The
details executed on either of the exchanges are sent to the CME's
clearinghouse, which completes the transaction and guarantees both sides -- the
grease that makes the whole system work. These details include numbers used to
identify traders, making it easier to trace and rectify errors.
When the clearinghouse clears the trade -- sending brokerages cash for their
sellers and contracts for their buyers -- it includes both sides'
trader-identification numbers. That's no big deal on floor trades, because they
are conducted face-to-face, so there's little expectation of anonymity.
The system gives floor traders a big advantage, which is why many big
investors, such as hedge funds, didn't do much business on the exchanges until
the late 1990s, when they ramped up their electronic trading capabilities. Once
that happened, big investors grew confident that the floor traders' edge had
been neutralized, and a huge boom in futures trading commenced. About 70% of
each exchange's volume these days is electronic, including contracts covering
everything from the Standard & Poor's 500-stock index to Treasury bonds, as
well as many commodities. Both are public companies with profit margins and
growth that are the envy of the exchange industry.
Exchange members say that errors are practically unknown in electronic trades,
yet the exchanges still ship trader-identification numbers to brokerages.
Members know all the traders' numbers, allowing member brokerages like Mr.
Hehmeyer's to use powerful computers to determine almost instantly who is on
the other side of his and his customers' trades -- and to adjust their trading
strategies accordingly.
The CBOT's Mr. Carey says he believes that trader-identification numbers are of
limited usefulness once a trade is executed and that the board's online markets
long have offered sufficient anonymity. But he acknowledged that as technology
has allowed the exchange to send data to brokerages more quickly, concerns have
grown that they can use the information to get an edge.
"If we have people who are concerned about it, then we'll make changes," Mr.
Carey said. "Anonymity has to win out on this." (The CBOT's listings include
futures based on the Dow Jones Industrial Average, which is owned by Dow Jones
& Co., publisher of The Wall Street Journal, and receives licensing fees from
the CBOT.)
FYI, Chris Hehmhyer heads Goldenberg Hehmeyer. WSJ article referenced is below
letter.
"I know that a couple of large institutions spent $10's of millions building a
database that sniffs out market patterns. These databases constantly ping
various futures' participants and from the counterparty data figure out who is
doing what. These institutions, depending on the counterparty data, then
either race the counterparty or try and push the market the opposite way."
The CME/CBOT's lack of anonymity is an issue
The CME/CBOT's lack of anonymity is an issue. In various ways, counterparty
data (both clearing firm and individual trader identification) is
electronically sent in real time to market participants. Certain data is only
received by clearing firms.
From a shareholder point of view, in the electronic world, nothing but 100%
anonymity (including no nightly batching) makes any sense. Anonymity speaks to
integrity, fairness, and creates more volume and liquidity. Also, there is no
legitimate purpose to ever sending out any counterparty data in the electronic
world. If the clearing corporation confirms that a trade has matched between
two parties, the trade is good and no other data is needed. Do we remember the
"clearing corporation is the seller to every buyer and buyer to every seller"?
This is Futures 101. In fact, 100% anonymity is the case at Eurex, Liffe, and
ICE.
Interestingly, over the past several months, I've run across analyst reports
where analysts have trumpeted the CME being anonymous. Also, in general, I
believe that the market believes the same to be true for the CBOT. As this
lack of anonymity has started to leak recently, I spoke with a few CME/CBOT
executives and they all seemed to prefer anonymity. CME has even hinted at
moving towards anonymity. And four weeks ago, in a related Wall Street Journal
article, CBOT Chairman Charlie Carey said, "Anonymity has to win out on this."
Yet, all of this and nothing has happened.
So, why in the world is this not happening, as technically it is very easy to
quickly stop pouring out this sensitive counterparty data? I'm not sure, but I
do know that a couple of large institutions spent $10's of millions building a
database that sniffs out market patterns. These databases constantly ping
(with one lots) the various futures' participants and from the counterparty
data figure out who is doing what. These institutions, depending on the
counterparty data, then either race the counterparty or try and push the market
the opposite way. This is bad for CME/CBOT and, for that matter, the futures
industry.
If the CME/CBOT end up agreeing that this is bad, the result should be 100%
anonymity, as anything less is "kinda pregnant". In fact, if they don't go
100% anonymous and there is a stiff challenge, like ICE vs. CME (NYMEX), I
believe that ICE and their anonymous market will win hands down. After all,
integrity and fairness are the foundations upon which the Chicago exchanges
sit...volume and liquidity are the result. The foundations need to be solid.
Respectfully,
Chris Hehmeyer
Co-Chairman
Goldenberg Hehmeyer
<http://www.ghco.com/learnAboutUs_leadershipDetail.aspx?subSection=leadership&detail=1>
http://online.wsj.com/google_login..../SB114506240937226739.html?mod=googlenews_wsj
THE WALL STREET JOURNAL
CME and CBOT to Close Loophole
Exchanges to Take Steps To Protect the Anonymity Of Investors Trading Online
By PETER A. MCKAY
April 15, 2006; Page B6
Chicago's two major futures exchanges are closing a little-known loophole that
is undermining the anonymity of electronic trading and perhaps giving big
investors an edge.
At issue is the distribution of traders' identification to brokerages as
transactions on the Chicago Mercantile Exchange and CBOT Holdings Inc.'s
Chicago Board of Trade are finalized, or cleared.
One brokerage, Goldenberg, Hehmeyer & Co., earlier this year figured out how to
take advantage of that information by determining almost instantly the identity
of investors on the other side of transactions executed by the firm for itself
or for its customers. Goldenberg Hehmeyer, based in Chicago, had been planning
to start telling customers who was on the other side of their trades and using
such information to shape its own in-house trading strategy, said Co-Chairman
Christopher K. Hehmeyer.
When stocks are traded on public exchanges, investors generally don't know who
they are buying from or selling to. On futures exchanges, most investors expect
the same thing when trading electronically.
The reason: Say Investor A has just sold a bunch of gold futures to Investor B.
Then the price of gold futures starts falling. If Investor A knows that
Investor B is too small to ride out the slump and is generally a short-term
trader, Investor A can squeeze Investor B by demanding an even lower price to
buy back the futures.
Mr. Hehmeyer says he believes online markets should be anonymous, and he
complained vociferously about holes in the exchanges' systems. He said he
decided they weren't moving quickly enough to plug them, so he made plans to
start taking advantage of them himself and letting his customers do likewise,
fearing competitors might already be doing so.
Mr. Hehmeyer informed the two exchanges of his plans several weeks ago. After
The Wall Street Journal questioned the CME, a unit of Chicago Mercantile
Exchange Holdings Inc., about the matter, it sent a notice to members Wednesday
saying it would "suppress" the trader-identification data on online trades
beginning April 30. At the CBOT, Chairman Charles P. Carey said, "We'll be
discussing it shortly. I suspect we'll do the same thing as CME."
On the exchanges' floors, details of trades are jotted down on cards. The
details executed on either of the exchanges are sent to the CME's
clearinghouse, which completes the transaction and guarantees both sides -- the
grease that makes the whole system work. These details include numbers used to
identify traders, making it easier to trace and rectify errors.
When the clearinghouse clears the trade -- sending brokerages cash for their
sellers and contracts for their buyers -- it includes both sides'
trader-identification numbers. That's no big deal on floor trades, because they
are conducted face-to-face, so there's little expectation of anonymity.
The system gives floor traders a big advantage, which is why many big
investors, such as hedge funds, didn't do much business on the exchanges until
the late 1990s, when they ramped up their electronic trading capabilities. Once
that happened, big investors grew confident that the floor traders' edge had
been neutralized, and a huge boom in futures trading commenced. About 70% of
each exchange's volume these days is electronic, including contracts covering
everything from the Standard & Poor's 500-stock index to Treasury bonds, as
well as many commodities. Both are public companies with profit margins and
growth that are the envy of the exchange industry.
Exchange members say that errors are practically unknown in electronic trades,
yet the exchanges still ship trader-identification numbers to brokerages.
Members know all the traders' numbers, allowing member brokerages like Mr.
Hehmeyer's to use powerful computers to determine almost instantly who is on
the other side of his and his customers' trades -- and to adjust their trading
strategies accordingly.
The CBOT's Mr. Carey says he believes that trader-identification numbers are of
limited usefulness once a trade is executed and that the board's online markets
long have offered sufficient anonymity. But he acknowledged that as technology
has allowed the exchange to send data to brokerages more quickly, concerns have
grown that they can use the information to get an edge.
"If we have people who are concerned about it, then we'll make changes," Mr.
Carey said. "Anonymity has to win out on this." (The CBOT's listings include
futures based on the Dow Jones Industrial Average, which is owned by Dow Jones
& Co., publisher of The Wall Street Journal, and receives licensing fees from
the CBOT.)