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FED Adds QS To QE: Here's The Transcript of Bernanke's Testimony

In Financial Markets, International Econnomic Politics, National Economic Politics on 30.09.10 at 23:17

Appearing before the US Senate Banking Committee Thursday, FED chairman Ben Bernanke began his testimony on the recently approved US legal overhaul  – the regulation of the financial system. In a prepared speech, Bernanke praised the Dodd- Frank Act for addressing critical regulatory gaps that were revealed by the financial crisis, pointed out that the Federal Reserve was working closely with other regulators to enact the law that was approved by Congress in July. The chairman also introduced “quantitative surveillance” of the US banking system.  Read the full transcript of Mr. Bernanke’s testimony.

“The stress tests also showed how much the supervision of systemically important institutions can benefit from simultaneous horizontal evaluations of the practices and portfolios of a number of individual firms and from employment of robust quantitative assessment tools.”

Ben Bernanke


“As it was put by my former colleague, Markus Brunnermeier, a scholar affiliated with the Bendheim center who has done important research on bubbles; we do not have many convincing models that explain when and why bubbles start. I would add that we also don’t know very much about how bubbles stop either.”

The FED chief thanked the Senate for confirming two of three outstanding Federal Reserve Board governor nominees , filling key slots on the central bank’s board.

The lawmakers approved Janet Yellen as a member of the board, as well as vice chairman of the FED, and Sarah Bloom Raskin as a member of the board.

Bernanke will over the next days participate in a panel taking questions from Senators on implementation of the latest financial overhaul. The panel also includes Sheila Bair, head of the Federal Deposit Insurance,  Mary Schapiro, head of the Securities and Exchange Commission and Gary Gensler, head of the Commodity Futures Trading Commission.

Ben Bernanke started his opening statement by saying:

“In the years leading up to the recent financial crisis, the global regulatory framework did not effectively keep pace with the profound changes in the financial system. The Dodd-Frank Act addresses critical gaps and weaknesses of the US regulatory framework, many of which were revealed by the crisis. The Federal Reserve is committed to working with the other financial regulatory agencies to effectively implement and execute the act, while also developing complementary improvements to the financial regulatory framework.”

Adding:

“The act gives the Federal Reserve several crucial new responsibilities. These responsibilities include being part of the new Financial Stability Oversight Council, supervision of nonbank financial firms that are designated as systemically important by the council, supervision of thrift holding companies, and the development of enhanced prudential standards for large bank holding companies and systemically important nonbank financial firms designated by the council,  including capital, liquidity, stress test, and living will requirements.”

“In addition, the Federal Reserve has or shares important rulemaking authority for implementing the so-called Volcker Rule restrictions on proprietary trading and private fund activities of banking firms, credit risk retention requirements for securitizations, and restrictions on interchange fees for debit cards, among other provisions,” he said.

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Introducing QS 1

According to Mr. Bernanke, a critical feature of a successful systemic or macroprudential approach to supervision is a “multidisciplinary perspective.”

“Our experience in 2009 with the Supervisory Capital Assessment Program – popularly known as the bank stress tests – demonstrated the feasibility and benefits of employing such a perspective. The stress tests also showed how much the supervision of systemically important institutions can benefit from simultaneous horizontal evaluations of the practices and portfolios of a number of individual firms and from employment of robust quantitative assessment tools,” he told the senators.

“Building on that experience, we have reoriented our supervision of the largest, most complex banking firms to include a quantitative surveillance mechanism and to make greater use of the broad range of skills of the Federal Reserve staff,” he said.

Here’s the full transcript of chairman Ben Bernanke’s testimony before Banking Committee today.

And Defending QE 2

One of the things Mr.Bernanke probably will have to explain to the senators is the – now famous – monetary policy called quantitative easing.

The policy, based on the economic theories of John Maynard Keynes,  means in practice to pour money into the the financial system in numerous ways to stimulate economic growth in times of contraction.

Many economists, commentators and other financial experts have started to question the theories, used by both central banks and governments to build their arguments and actions.

After spending unknown trillions of dollar to counter the economic downturn, without much visible results, it’s quite understandable.

However, Ben Bernanke, will defend the FED’s policy with the strongest conviction.

Speaking at a conference at Princeton last Friday, he said:

“Standard macroeconomic models, such as the workhorse new-Keynesian model, did not predict the crisis, nor did they incorporate very easily the effects of financial instability. Do these failures of standard macroeconomic models mean that they are irrelevant or at least significantly flawed? I think the answer is a qualified no.”

“Economic models are useful only in the context for which they are designed. Most of the time, including during recessions, serious financial instability is not an issue. The standard models were designed for these non-crisis periods, and they have proven quite useful in that context. Notably, they were part of the intellectual framework that helped deliver low inflation and macroeconomic stability in most industrial countries during the two decades that began in the mid-1980’s,” Ben Bernanke said at the conference, sponsored by Center for Economic Policy Studies and the Bendheim Center for Finance.

PS: Don’t Blame The Models

On the other hand, human behavior is still a big problem.

Or as the FED chief puts it: “Most economic researchers continue to work within the classical paradigm that assumes rational, self-interested behavior and the maximization of “expected utility” – a framework based on a formal description of risky situations and a theory of individual choice that has been very useful through its integration of economics, statistics, and decision theory.9 An important assumption of that framework is that, in making decisions under uncertainty, economic agents can assign meaningful probabilities to alternative outcomes. However, during the worst phase of the financial crisis, many economic actors – including investors, employers, and consumers – metaphorically threw up their hands and admitted that, given the extreme and, in some ways, unprecedented nature of the crisis, they did not know what they did not know.”

The idea that at in certain times, decisionmakers simply cannot assign meaningful probabilities to alternative outcomes –  even not think of all the possible outcomes – is known as Knightian uncertainty, after the economist Frank Knight who discussed the theory in the 1920’s.

“Research in this area could aid our understanding of crises and other extreme situations. I suspect that progress will require careful empirical research with attention to psychological as well as economic factors,” Bernanke replies.

Another issue that clearly needs more attention is the formation and propagation of asset price bubbles, the FED chairman acnowledge.

“Much of the literature at this point addresses how bubbles persist and expand in circumstances where we would generally think they should not, such as when all agents know of the existence of a bubble or when sophisticated arbitrageurs operate in a market. As it was put by my former colleague, Markus Brunnermeier, a scholar affiliated with the Bendheim center who has done important research on bubbles, “We do not have many convincing models that explain when and why bubbles start.” I would add that we also don’t know very much about how bubbles stop either.”

“The financial crisis did not discredit the usefulness of economic research and analysis by any means; indeed, both older and more recent ideas drawn from economic research have proved invaluable to policymakers attempting to diagnose and respond to the financial crisis. However, the crisis has raised some important questions that are already occupying researchers and should continue to do so. As I have discussed today, more work is needed on the behavior of economic agents in times of profound uncertainty; on asset price bubbles and the determinants of market liquidity; and on the implications of financial factors, including financial instability, for macroeconomics and monetary policy,” Ben Bernanke concludes.

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Here’s a copy of the Princeton speech.

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Related by the Econotwist:

Goodbye Keynes – Hello Ricardo!

US Economic growth slows to 1,6% – Does Quantitative Easing Really Matter?

US Congress Question Morals of Monetary Policy

“A Breakdown In Our Values”

Force The Rich!

Wild-West Capitalism (Don’t Blame The Baby Boomers)

Socialism For The Rich – Capitalism For The Poor?

2010 Analysis: The Road to Disaster

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EU Respond To Cyber Threath Alarm

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics on 30.09.10 at 17:35

EU’s anti-cyber-crime agency ENISA will start working with Europol to track down hackers and the creators of botnets like Conficker and Stuxnet, the EUobserver reports. A new law is about to be adopted, making the setup of these zombie networks illegal. The EU commission says it does not want to terrify people but notes that the Stuxnet could be used to sabotage a nuclear plant.

“To anyone who thinks that cyber-attacks are an abstract concept, I would say that for millions of people each year there are already direct practical consequences.”

Neelie Kroes


During a press briefing in Brussels Thursday, the EU commission for Home Affairs highlighted the creation of two large-scale cyber weapons in the past two years as examples of the increasingly dangerous environment on the Internet, citing internal alerts from British, French and Germany military intelligence.  In January and February last year the Conficker prevented French fighter planes from taking off, in addition to  shutting down the British and German army websites.

The so-called Conficker botnet has since 2008 installed malicious software on an estimated 12 million personal computers worldwide turning them into “zombies,” capable of collectively sending 10 billion spam emails a day without the owners’ knowledge.

The massive spamming can be used to steal money, blackmail banks or other firms with the threat of a shutdown or to get hold of classified information.

Conficker in January and February 2009 prevented French fighter planes from taking off and shut down British and German army websites.

The Stuxnet botnet is designed to take over the control systems of industrial plants, including nuclear installations, in order to sabotage operations.

It has reportedly affected facilities in China and Iran prompting speculation on the involvement of Israeli and US secret services.

A former US National Security Agency officer, Charlie Miller,  estimates that a hostile foreign power, given just €86 million ($105 million) and a team of 750 spies and hackers, could launch a devastating cyber attack on the EU.

In Miller’s worst case scenario, the 27 EU countries would wake up one day to find electricity power stations shut down, phone and internet communications disabled, air, rail and road transport impossible,  stock exchanges and bank transactions frozen, crucial data in government and financial institutions stolen and military units cut off from central command or receiving fake orders.


Celia Malmstrøm

“I don’t want you to walk out of here totally terrified, but just to give you an idea that there is a threat,” EU Commissioner for Home Affairs, Cecila Malmstrom, said at the press briefing in Brussels, on Thursday, according to the EUobserver.com.

“To anyone thinking that cyber-attacks are an abstract concept, I would say that for millions of people each year there are already direct practical consequences. When your money is quietly stolen from your bank account or your country is shut down – as happened to Estonia in 2007 – the threat suddenly becomes very real,” EU’s Information Society Commissioner, Neelie Kroes,  said at the same event.

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5 Years In Prison For Cyber Crime Attempt

The Malmstrom-Kroes package, presented today,  gives new powers to the EU Crete-based European Network and Information Security Agency (ENISA), as well as new anti-cyber-crime legislation that could put people in jail for years.

Ms. Kroes wants ENISA to work with Europol (the EU version of Interpool) and Frontex (the EU’s Warsaw-situated border security agency) in forensic operations to track down the people behind cyber attacks.

ENISA will also to set up an EU-wide alert system on the cyber attack threat level, and a Computer Emergency Response Team inside the EU institutions.

The agency’s mandate has up until now been limited to research on security of e-commerce.

The Malstrom directive draft, approved by the commission today,  is aimed to obligate the EU countries to criminalize the creation of botnets, and to collect and share cyber-crime data.

It will also demand that member states punish cyber criminals and the “instigation, aiding, abetting and attempt” of cyber crimes with up to five years in prison.

Ms. Kroes says she hopes the new measures will be in place by 2012, and that she is “rather hopeful” of success after the first contacts with the members of the EU Parliament and member states who will have  to give the new developments a green light.

Europe: Cyber Criminals Attack Critical Water, Oil and Gas Systems

Hackers Steal CO2-emission Permits Worth $4bn

Another Carbon Fraud Raid Reveals Firearms, Piles Of Cash

EU Demand Explanation On US Plan To Monitor Money Transfers

Julian Assange: Journalist, Activist or Informant?

In Defence Of A Robot

In Financial Engeneering, Law & Regulations, Quantitative Finance, Technology, Trading software on 30.09.10 at 12:11

This must be one of the weirdest lawsuit we have seen in long time: Starting this week, the two Norwegian day traders who are charged with fraud and violation against an automatic trading robot will appear in Oslo District Court to defend their actions. However, the poor robot,  being called a stupid, cheating liar, have the best representatives any offended robot can have; a hard-hitting police attorney, backed by an army of experts from the Oslo Stock Exchange. The robots owner, Timber Hill, has not been seen, nor heard from since the news story broke in August this year.

“Either the robot is very, very stupid, or the person who programmed the robot is very, very stupid.”

Sven-Egil Larsen

The case against the two traders in the so-called “robot-case,” where alleged manipulation of a the stock market trading machine is essential, started Monday. The Norwegian police believe that the day traders,  Sven-Egil Larsen and Peder Veiby, has conducted a number of unlawful acts against the brokerage firm Timber Hill and its stock trading robot, and have charged them on grounds of market manipulation.

“This case should never have come up before the court. It is the Oslo Stock Exchange who has initiated proceedings against the accused and the court will lead the crusade. None of the authorities that have looked at the case, neither the Financial Authority or the police, seems to be able to look at it with competent and critical eyes. For this reason, we now have a case that hardly anyone in the market can understand,” says Mr. Larsen’s lawyer, Halldor Christen Tjoflaat, according to the website Stocklink.no.

“Timber Hill appeared in 2008 as a poor investor in selected papers and on selected days. Rather than do something about the obviously poor investor who moved prices randomly when there only was a small trade in  papers they were active in, the Oslo Stock Exchange have turned against them who has a different trading strategy than Timber Hill and made money off it,” he adds.

The two Norwegians are accused of price manipulation of shares listed at the Oslo Stock Exchange, during the period November 2007 to March 2008.

Oslo Stock Exchange is in a strategic alliance with London Stock Exchange where Timber Hill is a member.

Price Manipulation

According to the charges, the day traders placed over 2,200 orders, and managed to give the market a false picture of supply and demand.

Christian Stenberg

Christian Stenberg

“We believe the two are guilty of a numerous cases of price manipulation. They have added buy and sell orders that was not real, they have had another motive; namely to move the price,” prosecutor Chris Stenberg of the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim) told the newspaper Dagens Næringsliv, when the lawsuit was filed.

“It’s not about fooling anyone, but to be smarter than someone,” one of the traders says.

Sven-Egil Larsen and Peder Veiby was among the most active equity traders on the Oslo Stock Exchange in 2007 and 2008.

According to the allegations, they manged to make a pre-programmed trading robot at the brokerage firm Timber Hill offer better prices than it was supposed to do.

Stupid Robot

Both Mr. Larsen and Mr. Veiby deny any accusations of any wrongdoings, and believe that they only found a weakness in a system.
They emphasize that non other than the electronic player has been harmed.
They admit, however, that they have exploited the weakness, but denies the accusation of  manipulating the market.

Larsen believes that either the robot is very, very stupid, “or the person who programmed the robot is very, very stupid,” he says.

Larsen was the one that first found the weakness in the Timber Hill system when he was doing arbitrage trading in low liquidity stocks at OSE. Peder Veiby was long in Hafslund and had followed the stock over a longer period. This made Mr. Veiby able to form a picture of automated systems trade patterns over time and found that Timber Hill had its special way of behavior. He observed how the Timber Hill system changed the level of price and orders,  and decided to try to make money on this behavior.

It all began in November 2007 and lasted until March 2008.

Mr. Veiby considers it likely that he would have made money on the deals.

Both traders purchased a large chunk of stocks at a specific  price, followed by series of smaller purchases at a higher price. All within a short periode of time.

The Timber Hill robot reacted by raising the price on the shares, and Larsen and Veiby did what every skilled trader would do; they dumped their holdings and secured the profit.

They also did the same exercise by shorting shares, but then making the profit by selling to the ever lower price.

According to the two traders statement in court, it was not every time the strategy succeed.

Occasionally, the robot did not react as they had anticipated, usually caused by other players preventing the trade pattern to repeat itself, they explained in court.

200 Trades A Day

In their statement they also says that they was surprised every time it was possible to get the robot to repeat the same pattern.

Sven-Egil Larsen

Veiby is charged with 42 cases of violations of the Securities Act’s, while Larsen is charged with 30, involving a total of 2.200 transactions.Larsen estimates that during 2008, he made about 20.000 trades, which indicates between 100 and 150 trades per day, on average.

Veiby estimates that he performed about 60 to 70 trades per day during the period.

Asked by the judge, Larsen and Veiby said that they did not knew each other before this case, and that they had not been cooperating.

On the contrary, they had by several occasions destroyed each other’s plans.

Quote Stuffing

Police attorney Christian Stenberg will only make general comments, and not go into details.

He believes the two defendants placed orders with the purpose of moving the price, and since the market relates to the quotes provided by the exchange (the robot) it would be a form of manipulation.

The District Court in Oslo has to the decide on the rather interesting question whether this is illegal, or not.

“The question is whether the orders that was entered is legitimate. That’s for the court to decide,” the police attorney says.

No Sign Of The Robot Owner

During questioning, the police was interested to know what would be a “natural behavior,” and what perception the two traders had of the Timber Hill trading platform.

However,  the public prosecutor did not offer any explanation as to why representatives of the Timber Hill was not summoned as a witness.

Peder Veiby’s lawyer, Anders Brosveet, said in his procedure that it was not the two defendants who moved prices,  and claimed it was Timber Hill since they deleted their own orders and then raised the price.

The problem is that the brokerage firm’s robot was so poorly programmed that it failed to pick up signals that any rational market participant would do, he argued.

We might expect a ruling by the court at the end of the week.

Related by The Swapper:

Update: Day Traders Crack The Timber Hill Trading System

Oslo Stock Exchange Comments On Market Manipulation

Illegal To Outsmart A Trading Robot, Expert Says

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The Definite Picture

In Financial Engeneering, High Frequency Trading, Law & Regulations, Quantitative Finance, Technology on 30.09.10 at 02:58

Credit outperformed equity today in a cautious session. Protests against government austerity measures took place across Europe, including a general strike in Spain. But in a day light on economic news the markets were far more concerned with the fate of Anglo Irish Bank and a possible downgrade of Spain. Both issues should be resolved tomorrow, and investors and dealers seemed to spend most of today adjusting their positions, according to the daily alert frpm Markit.

“The Irish Times reported that the government will also release a “worst case” scenario that will show the cost rising well above EUR30 billion. We “will get the definite picture tomorrow” according to foreign minister Michael Martin, though it is likely to be after the close.”

Gavan Nolan


Further news on Anglo Irish emerged after the FT published a report stating that the government will announce an additional capital injection of EUR5 billion. This will bring the total cost of bailout to EUR30 billion, short of the EUR35 billion figure that so unnerved the markets.

“But the Irish Times reported that the government will also release a “worst case” scenario that will show the cost rising well above EUR30 billion. Ireland‘s spreads were only slightly wider on the news, and quickly recovered later in the day. We “will get the definite picture tomorrow” according to foreign minister Michael Martin, though it is likely to be after the close,” Gavan Nolan, vice president at Markit Credit Research writes in today’s daily alert.

Tomorrow will also see the expiration of EUR225 billion in ECB 3-, 6- and 12 month loans.

“The central bank allocated just 104 billion in 3-month loans today, well below the EUR150 billion consensus estimate. Tomorrow’s weekly auction will give a better idea of banks’ reliance on the ECB for funding,” Nolan points out.

Equity markets remained lacklustre throughout the day, unlike their sovereign and financial inspired credit counterparts. Even robust leading indicators from Asia couldn’t provide impetus.”

The Markit/HSBC China Manufacturing PMI came in stronger than expected, with the sector posting its highest reading for five months. Japan’s Tankan business sentiment survey also beat expectations, although signs that manufacturers are pessimistic about the months ahead tempered gains. Consumer finance firms Acom and Promise Co widened sharply following Takefuji’s bankruptcy.

S&P placed both firms on negative watch.

BP was one of the day’s strongest performers after it managed to sell $3.5 billion of senior unsecured notes ($2bn 2015, $1.5bn 2020). “The company’s spreads have tightened since it managed to stop the oil leak, though it remains significantly wider than its single A peers. The credit will struggle to shake off the litigation risk premium that has been attached to it since April,” Gavan Nolan adds.

  • Markit iTraxx Europe 112bp (-3), Markit iTraxx Crossover 514bp (-7)
  • Markit iTraxx SovX Western Europe 159bp (-5)
  • Markit iTraxx Senior Financials 144.5bp (-4.5)
  • Sovereigns – Greece 790bp (-17), Spain 230bp (-5), Portugal 440bp (-6), Italy 198bp (-4), Ireland 475bp (-8), Belgium 132bp (-4)
  • Anglo Irish Bank 935bp (-12)
  • BP 165bp (-19)

HERE”S TODAY’s EDITION OF “UNIQUE MARKET ACTIVITY” by Markit BOAT.

Espen G. Haug: Algorithms Should Be Monitored On A Daily Basis

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 30.09.10 at 01:36

Leading derivative expert, author and regular contributor at the Econotwist’s, Espen Gaarder Haug, says algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience. The former Norwegian Wall Street trader  have a thing or two to say in relation to the ongoing circus at Oslo District Court – also known as the “robot case.”

“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?”

Espen Gaarder Haug


The day traders in the so-called “robot case”  – now appearing before the Oslo District Court accused of market manipulation – run their scheme undisturbed for nearly six months. First, when the Oslo Stock Exchange contacted the brokerage and investment firm that owned the shares that the robot was trading, the alarm was raised and  the possibility to manipulate the trading program was removed.


“A rational investor would have plugged these holes quickly,” Dr. Espen Gaarder Haug comments.

“If you choose to outsource market making to a computer and you lose money.. I mean, you just have to accept it,” he adds.

Espen Gaarder Haug holds a  Ph.D. from NTNU and is regarded as one of the worlds leading experts on derivatives and option pricing models.

His book “The Complete Guide To Option Pricing Formulas” is seen as “The Bible” by many fund managers and derivative traders.

He has worked almost 17 years as a trader on Wall Street, among others, at JP Morgan and Chase Manhattan Bank.

He has also worked as an active manager of multi-billion dollar hedge funds, like Amaranth and Paloma.

Dr. Haug underlines that he don’t know anything about robot manipulation other than what’s been written in media, but says he recognize similar issues from his experience in the international financial industry.

He believes that the trading algorithm requires good internal monitoring y individuals with broad market experience.

“I know many who run algorithm trading, and they’re always following the trades with several well-qualified employees – and often by the one who created the algorithm,” he says.

There’s Always A Risk

“Robot trading always involves a risk of weakness in the algorithm,” Haug points out.

“It is therefore important to monitor whether such risks pops up, so that these algorithms can be adjusted, or turn off. If you choose to let the robot run without supervision, you take an unnecessary, additional risk,” says Haug.

The ongoing court case in Oslo have revealed that the two charged day traders was able to exploit the same weakness over and over again.

Timber Hill (who is a part of the Interactive Broker Group) was not aware of this before the Oslo Stock Exchange contacted them on March 14th this year.

Testifying before the court on Tuesday, Thomas Borchgrevink, manager of market surveillance at the Oslo Stock Exchange, said:  “I felt that they were not aware of this. They were not on the ball.”

Timber Hill closed down, temporarily,  the robot in question when the Oslo Stock Exchange made them aware of the error, and has since modified the algorithms.

Chill, Timber Hill

Espen Gaarder Haug assumes that the Timber Hills algorithm was not only used to make trading in stock (so-called market making) in the  Hafslund (B shares), Wilh. Wilhelmsen and Odfjell (B shares), which is relevant for this trial.

“In a way, Timber Hill, should be glad that someone intervened in these low liquidity stocks, and that no other big caps suffered even greater losses,” Haug points out.

There may be several reasons why a brokerage firm choose to let a robot trade without supervision, he says.

“They can, for example, have too much faith in their algorithm, so they do not fear failure. It may also be that they trade many shares in as many markets as possible, so that each share has little importance. And they choose to take a risk that in some cases leads to losses”.

“Around-the-clock monitoring is costly, but the algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience,” he notes.

Mandatory Monitoring?

Haug believes it is reason to ask whether monitoring should be mandatory:

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“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?” Dr. Haug asks.

He believes naive algorithm trading, could not only harm itself, but at worst, damage the entire economy by reinforce large price movements.

Espen Gaarder Haug predicted in detail the financial crisis by the end of 2006, beginning of 2007, in a series of interviews and articles published by the Norwegian-The-Economist-peer – Økonomisk Rapport in 2007 and 2008.

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“Although it is difficult to prove, there are good indications that the US stock market crash in 1987 was reinforced by the naive algorithm trading. The algorithms were based on a number of imaginative assumptions that broke completely with the crash. Some major players followed their naive algorithms slavic and sold more and more the more as the market dropped based on signals from the algorithms they slavishly followed,” Dr. Haug says.

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www.espenhaug.com

Related by the Econotwist’s:

In Defence Of A Robot

Update: Day Traders Crack The Timber Hill Trading System

Oslo Stock Exchange Comments On Market Manipulation

Illegal To Outsmart A Trading Robot, Expert Says

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Confusion Reigns

In Financial Engeneering, High Frequency Trading, Quantitative Finance, Technology on 29.09.10 at 00:53

Risky assets experienced a volatile session today, perhaps a reflection of market participants’ confusion over US monetary policy. The two major US economic releases of the day – the Richmond Fed manufacturing and the Conference Board consumer confidence surveys – were both well below expectations.

“Recovery locks are currently indicating a recovery of 18-20.”

Gavan Nolan

This had the typical effect of causing spreads to widen and stock prices to fall. But the markets quickly recovered in the afternoon, and European spreads were only slightly wider at the close.

“It is quite possible that investors see the slew of disappointing data as making the next stage of QE an inevitably, maybe as soon as November,” Gavan Nolan, vice president of Markit Credit Research writes in his daily alert.

Adding: “They will remember that the first stage of QE was positive for financial markets, if not the real economy.”

Earlier in the session, sovereigns were performing their usual role as the source of volatility.

Ireland briefly hit another record wide level after S&P weighed in with their latest assessment of Anglo Irish Bank.

In a radio interview an analyst from the rating agency reiterated the cost of the bailout at EUR35 billion. But he also raised the possibility of the rescue fund exceeding this amount, and that was enough to spook the markets.

Ireland’s spreads widened beyond 500bp and Portugal’s spreads also approached their record wides of 460bp.

A downgrade rumor on Spain also didn’t help.

The Irish government on Thursday is expected to provide some clarity on the Anglo Irish bailout and its intentions regarding subordinated debt.

“This could proved to be an important catalyst for future spread direction,” Nolan points out.

In Japan Takefuji Corp filed for bankruptcy protection today.

This wasn’t a great surprise given its was heavily trailed in the media yesterday.

Indeed, a glance at its spread history over the last two years suggests that it was something of a formality.

A credit event auction – only the third in Japan – will no doubt be announced in the coming weeks.

“Recovery locks are currently indicating a recovery of 18-20,” Gavan Nolan writes.

  • Markit iTraxx Europe 114.5bp (+1.25), Markit iTraxx Crossover 520.5bp (+4.5)
  • Markit iTraxx SovX Western Europe 162.5bp (+4)
  • Markit iTraxx Senior Financials 148.5bp (+4.5)
  • Sovereigns – Greece 800bp (+3), Spain 233bp (+6), Portugal 445bp (+20), Italy 202bp (+6), Ireland 485bp (+13), Belgium 136bp (+1)
  • Anglo Irish Bank 965bp (+17)

3 Stocks That Rose More Than 4000% In One Day

In Financial Markets, International Econnomic Politics on 29.09.10 at 00:31

The daily updates of trades made in the MFT, OTC and Dark Pool market is quite amusing reading. Here you’ll find the complete list of stocks you should have bought – yesterdaystock that rose several thousand per cent in one single trading session.

“Read it and weep…”

econotwist

For example: If you had bought shares in the consumer service company Punch Taverns yesterday, you could have enjoyed at profit of 9482 per cent today.

Enterprise Inns would not have been a bad bet, also. The shares jumped 5397 per cent yesterday.

Or, Debenhams – with a gain of 4581 per cent – could just have made your day, today.

However, you’ll find the full list of movers and shakers in the European markets over at The Swapper.

Read it and weep….

Unique Market Activity

In High Frequency Trading, Law & Regulations, Quantitative Finance on 29.09.10 at 00:12

Here’s the latest update from Markit Financial Information Service on trades not known to the general public before now. Today’s “Unique Market Activity” list disclose important trades made yesterday.

“Markit BOAT is a trade reporting platform which consolidates pan-European cash equity trade data from MTFs, Dark Pools and OTC transactions.”

Markit BOAT


Markit BOAT is a trade reporting platform which consolidates pan-European cash equity trade data from MTFs, Dark Pools and OTC transactions. The trading activity in this report took place on 27th September 2010 and was published by Markit BOAT on the same day.

Trading activity reported with the “Market Condition” flag is excluded from this report.

Such trading activity is not relevant because the trade price and/or trading process does not reference or correlate with the then current market price.

The “Unique Market Activity” section lists stocks which were not active on Markit BOAT on the previous trading day.

Unique Market Activity:

Name Sector Volume Turnover €
ANGLOGOLD ASHANTI Basic Materials 822,355 27,752,792
IMPALA PLATINUM HOLDINGS Basic Materials 188,399 3,581,217
SPICE Industrials 3,495,482 2,876,157
STRATEC BIOMEDICAL SYSTEMS Health Care 68,872 2,039,467
BARLOWORLD Industrials 244,800 1,194,223
ANTENA3TV Consumer Services 155,588 988,728
TOM TAILOR HOLDING Consumer Goods 66,850 774,819
COMPUGROUP MEDICAL Technology 82,411 758,181
SIGNET JEWELERS Consumer Services 29,412 680,941
BREMBO Consumer Goods 72,814 519,349

Top 10 ETF

Name Volume Turnover €
DJ STOXX 600 OPTIMISED BASIC RESOURCES SOURCE ETF 158,100 50,612,206
DJ STOXX 600 OPTIMISED BANKS SOURCE ETF 343,824 25,242,898
DB X TRACKERS – MSCI EM ASIA TRN INDEX ETF 600,242 16,279,740
ETFS PHYSICAL GOLD 122,336 11,639,110
DB X TRACKERS – MSCI WORLD TRN INDEX ETF 536,924 11,446,481
DJ STOXX 600 OPTIMISED TELECOMMUNICATIONS SOURCE ETF 86,000 6,912,904
DB X-TRACKERS – MSCI KOREA TRN INDEX ETF 135,992 5,184,015
ETFS FORWARD NATURAL GAS 900,583 4,979,119
ETFS NATURAL GAS 15,967,943 3,951,507
DB X-TRACKERS – DJ STOXX 600 BANKS SHORT ETF 126,871 3,722,507

Top 10 Trades

Name Sector Volume Turnover €
ING Financials 22,000,000 173,115,796
ARCELORMITTAL Basic Materials 5,000,000 124,799,995
ENI Oil & Gas 7,500,000 118,501,425
GALP ENERGIA Oil & Gas 5,000,000 62,300,000
BBVA Financials 5,000,000 51,550,598
IBERDROLA Utilities 8,000,000 45,679,199
TESCO Consumer Services 8,300,000 42,647,976
DIAGEO Consumer Goods 2,600,000 33,962,761
XSTRATA Basic Materials 2,300,000 33,382,201
SABMILLER Consumer Goods 1,200,000 28,751,881

Major Movers

Name Sector Volume Volume (T-1) % Change
PUNCH TAVERNS Consumer Services 17,862,965 186,422 9482%
ENTERPRISE INNS Consumer Services 13,244,855 240,931 5397%
DEBENHAMS Consumer Services 6,928,872 148,030 4581%
ING Financials 23,231,560 5,268,551 341%
BAE SYSTEMS Industrials 6,823,523 2,034,065 235%
BBVA Financials 8,414,029 2,770,831 204%
ENI Oil & Gas 75,813,183 27,391,805 177%
RBS Financials 18,960,039 7,721,357 146%
IBERDROLA Utilities 10,402,031 4,308,591 141%
CENTRICA Utilities 6,902,407 3,465,526 99%