Juggling Dynamite

High-frequency trading firms have been ripping off investors in the $22 trillion U.S. stock market by paying large firms like Goldman Sachs for the right to trade in the secrecy of “dark pools”, paying stock exchanges to purchase locational advantage by placing their servers in direct proximity to the exchanges for lightening fast trading, and buying preferential access to client order flows from broker/dealers in order to get ahead of and scalp profits off unsuspecting clients.

The new investor-owned IEX is an alternative US exchange which delays reports of order executions by 350 millionths of a second, in order to knock out unfair advantage taken by HFT firms. Micheal Lewis’s new book on the issue last week, has now brought a surge of business to the new exchange and away from the other conventional platforms engaged in predatory business practices.

But this is not just a US exchange issue. In Canada the same smart order routing system will soon be available via Aequitas, a new Canadian exchange that will use speed bumps and fees to discourage high-speed trading. Like IEX, Aequitas also rejects the maker-taker model, which pays rebates to market makers for providing bids and offers.

Following some revisions requested by regulators in January, Aequitas says its services are set to be available within the first half of 2015. See: ‘RBC Nice” pays off amid High-Frequency-Trading outcry

Millions in political lobbying have paid off yet again for the too big to bail and jail banking sector. Meanwhile the derivatives market (now estimated at $693 trillion!) continues to balloon in size and threat to tax payers and the real economy.

“In a victory for banks, global financial regulators backed away from earlier guidelines that the firms had warned would destabilize the $693 trillion derivatives market.

The Basel Committee on Banking Supervision’s final rule, released today, will require banks that broker swaps trades to set aside much less money to protect against a default versus a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, which are third-party guarantors that back the transactions, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017”.

See: Derivatives Rules softened in victory for banks

Important discussion…

Nomi Prins, author of “All The Presidents’ Bankers,” discusses regulation of big banks, the relationship between the White House and the financial industry and the state of “too big to fail”. Here is a direct video link.

Segment two discusses JPMorgan CEO Jamie Dimon’s recent mea culpa letter to shareholders. Here is a direct link.

Segment three discusses the history of the Glass-Stegall Act and why the next crisis will bring another opportunity to divide banking from speculating backed by the public purse. Here is a direct video link.