Hold Brothers $4 Million Manipulative Trading Case

Quote from StarDust9182:

I don't understand your argument here. True market makers have legal responsibilities to buy stock when no one else will and sell when no one else will don't they?So they are given certain edges (subject to rules) like setting the spread.

So your tool is to not trade volume and thus force the market makers to shift their price or lose their jobs in the long run. Is my reasoning incorrect?

Where did you learn about market microstructure?
More...
my argument is that yes, those market makers do have that responsibility, and can set the spread wherever they want, BUT in markets that are inherently less inefficient (after hours, illiquid etfs), they will very rarely quote their best price. in essence, the quotes you see are not an indication of the true market, they're an indication of a max profit market for the market maker. my argument is, that in order to get them to quote more competitively, currently, the only tools available are to participate in behavior that is considered manipulative.

for example, an illiquid etf is quoting a 10% spread, midpoint is fair value. the market maker can profitably quote up to 3% discount of mid, but he currently isn't in case someone comes in and carelessly dumps. you need to sell. no one will lift your offer, even if you quote 3% discount to mid. however, if you bid at that 3% discount, he matches you. you cancel and you hit his bid. in theory, this is manipulative. in practice, this price was within what you were willing to pay, and what he was willing to quote and a fair exchange took place. since there are no tools available that would allow for you to ask him to quote there, pricing the market yourself there to see if there is any liquidity, is the only option you have.

the idea is not to make them lose money, the goal is to find a price that both of you would be willing to transact.

i learned microstructure primarily by practice, but i keep up to date with all the relevant studies/literature.

as far as a reference for my hold comment, it's industry color that you're not going to find publicly published. if you want to verify it, you could try calling them, but with all this heat i'd doubt you'd get very far. best bet is if you can find some professional traders or can talk to another firm. it was a huge print and the traders i work with and that i know in the business saw it hit the tape and then watched the aftermath. everyone was talking about it and the story was routed out pretty quickly. it's a very small industry.
 
i think you were not taught wrong that's why i asked if you took the 7 and 55. its not going to teach you to trade but it gives you an idea of the rules. when they made the nyse book it was for traders to get a real view. it was important for a few years. if orders are fake the idea of the books are pointless.

Quote from JuniorCTA:

I think you're confusing the terms designated market maker and electronic market maker(ie. HFT).
More...
 
Quote from propseeker:

my argument is that yes, those market makers do have that responsibility, and can set the spread wherever they want, BUT in markets that are inherently less inefficient (after hours, illiquid etfs), they will very rarely quote their best price. in essence, the quotes you see are not an indication of the true market, they're an indication of a max profit market for the market maker. my argument is, that in order to get them to quote more competitively, currently, the only tools available are to participate in behavior that is considered manipulative.

for example, an illiquid etf is quoting a 10% spread, midpoint is fair value. the market maker can profitably quote up to 3% discount of mid, but he currently isn't in case someone comes in and carelessly dumps. you need to sell. no one will lift your offer, even if you quote 3% discount to mid. however, if you bid at that 3% discount, he matches you. you cancel and you hit his bid. in theory, this is manipulative. in practice, this price was within what you were willing to pay, and what he was willing to quote and a fair exchange took place. since there are no tools available that would allow for you to ask him to quote there, pricing the market yourself there to see if there is any liquidity, is the only option you have.

the idea is not to make them lose money, the goal is to find a price that both of you would be willing to transact.

i learned microstructure primarily by practice, but i keep up to date with all the relevant studies/literature.

as far as a reference for my hold comment, it's industry color that you're not going to find publicly published. if you want to verify it, you could try calling them, but with all this heat i'd doubt you'd get very far. best bet is if you can find some professional traders or can talk to another firm. it was a huge print and the traders i work with and that i know in the business saw it hit the tape and then watched the aftermath. everyone was talking about it and the story was routed out pretty quickly. it's a very small industry.
More...

Good points. I agree with all you say.

IMO, market makers are reducing risk and not being manipulative. At any time, news can hit and put them underwater through no fault of their own. If the news is so sudden and bad, it can ruin a month or more of profits. They should be allowed to lessen risk just as I do by forcing them to take my market order at scary times. Much of market chopiness is simply market makers offloading risk. I don't really think that bouncing prices reflect all information, they are doing more than that as you point out.

Pre-1987, I suspect that market makers held directional positions but now I think they try and offset or profit as soon as practical. I have checked with a friend who said floor trading used to be fine with 50K but now most can't make a living with less than 500K. So the markets are much faster and much more efficient. Much to the chagrin of the constant chants of manipulation.

Your point about the rules needing to be tweaked is a good one. Perhaps they need to be tweaked with industry input to make them more fair. I am a great defender of market makers since they lessen my risk. I am fine with them making money provided I can do all the trades that they do. Their edge comes from larger pockets and more experience in particular markets and setting prices. Kudos to them as someone said in another thread.

I am not OK with markets that exclude information from some participants, sell information to some groups but not others, trade off inside information etc. Same information, same orders, same access is a fair market.

I was wondering if you had any information on good books on micro-structure. Most of my understanding has come through practice and conversations and thinking and asking the right questions. I would love to know more, but it is kept tight to the chest. I regularly pretend I was taking the opposite side of my trade and ask - why did I do this and how do I profit assuming I did.

In an previous options thread, I explained something key to understanding options liquidity and making money. By my responses, it was clear that several experienced traders didn't understand some concepts (or perhaps I didn't understand some concepts LOL) that would greatly improve their profits. Non-book learning if you will.

Thanks for the interesting comments. We all learn more by sharing our thoughts (in a respectful manner of course.)
 
this is 100% true on how to trade these wide spread iiliquid securities. most of these stocks have a very big spread 5-10% or more. back in the mid 2000s i use to trade illiquid stocks that trading this way. there was a huge edge to me watching these guys push these around and basically ride their coat tails. they were really good about hitting bids walking it lower and bringing in these island arca or brut programs. once they brought the stock low enough they would take all the program offers cancel their offers and walk it back up and do the same thing on the other side. i would see a lot of spoofing to try to trick the algos to give them some advantageous prints. sometimes other traders like myself would light them up where they were spoofing and give it back to them a few cents back. they still made money because they moved the stock 50 cents or so already. i would play in a narrow range. now you dont see any of that activity either because its frowned up for being manipulative, the programs themselves are not active anymore. the only thing that trades in these things is off board transactions and internalized transactions. very few go to the lit market anymore.



Quote from propseeker:



my argument is that yes, those market makers do have that responsibility, and can set the spread wherever they want, BUT in markets that are inherently less inefficient (after hours, illiquid etfs), they will very rarely quote their best price. in essence, the quotes you see are not an indication of the true market, they're an indication of a max profit market for the market maker. my argument is, that in order to get them to quote more competitively, currently, the only tools available are to participate in behavior that is considered manipulative.

for example, an illiquid etf is quoting a 10% spread, midpoint is fair value. the market maker can profitably quote up to 3% discount of mid, but he currently isn't in case someone comes in and carelessly dumps. you need to sell. no one will lift your offer, even if you quote 3% discount to mid. however, if you bid at that 3% discount, he matches you. you cancel and you hit his bid. in theory, this is manipulative. in practice, this price was within what you were willing to pay, and what he was willing to quote and a fair exchange took place. since there are no tools available that would allow for you to ask him to quote there, pricing the market yourself there to see if there is any liquidity, is the only option you have.

the idea is not to make them lose money, the goal is to find a price that both of you would be willing to transact.

i learned microstructure primarily by practice, but i keep up to date with all the relevant studies/literature.

as far as a reference for my hold comment, it's industry color that you're not going to find publicly published. if you want to verify it, you could try calling them, but with all this heat i'd doubt you'd get very far. best bet is if you can find some professional traders or can talk to another firm. it was a huge print and the traders i work with and that i know in the business saw it hit the tape and then watched the aftermath. everyone was talking about it and the story was routed out pretty quickly. it's a very small industry.
More...
 
Who the fuck has the money to HFT stocks? Have you seen the commissions? No independent HFT is doing that shit. Only BDs!

series 7? 55? sorry i am not a salesman




Quote from brokerboy:

i think you were not taught wrong that's why i asked if you took the 7 and 55. its not going to teach you to trade but it gives you an idea of the rules. when they made the nyse book it was for traders to get a real view. it was important for a few years. if orders are fake the idea of the books are pointless.
More...
 
Quote from bears21:

this is 100% true on how to trade these wide spread iiliquid securities. most of these stocks have a very big spread 5-10% or more. back in the mid 2000s i use to trade illiquid stocks that trading this way. there was a huge edge to me watching these guys push these around and basically ride their coat tails. they were really good about hitting bids walking it lower and bringing in these island arca or brut programs. once they brought the stock low enough they would take all the program offers cancel their offers and walk it back up and do the same thing on the other side. i would see a lot of spoofing to try to trick the algos to give them some advantageous prints. sometimes other traders like myself would light them up where they were spoofing and give it back to them a few cents back. they still made money because they moved the stock 50 cents or so already. i would play in a narrow range. now you dont see any of that activity either because its frowned up for being manipulative, the programs themselves are not active anymore. the only thing that trades in these things is off board transactions and internalized transactions. very few go to the lit market anymore.
More...

100% :)
 
in the old days people had a 7 and 55 just to be good old trader folk. we watched tv on plasma's, only had LCD computer monitors, gas was 2.25 a gallon, and Lost was still on tv. i have to catch up with the times i guess.

Quote from JuniorCTA:

Who the fuck has the money to HFT stocks? Have you seen the commissions? No independent HFT is doing that shit. Only BDs!

series 7? 55? sorry i am not a salesman
More...
 
It seems there is a lot of confusion on various topics here on this post. I came to after receiving a PM. I normally stay away from the legal concerns of other Firms. I think all this is bad for the industry as a whole.

I would consider getting an expert or two to analyze much of this on our next webinar if you guys are interested. There is a lot to all this, and we, as traders, need to be well informed to protect our industry and our livelihoods.

Let me know, I can probably add this to our next free online workshop. And, don't give me static about trying to help, you can turn the thing off if and when you think we're trying to sell you anything, LOL.

Let me know,

Don
 
You must log in or register to reply here.
Back
Top