High Frequency Trading & Silver Price Manipulation

[Carpe Diem]

So we now know that CME Group and Thomson Reuters will be taking over the reigns of the silver fix when it comes to an end in London next month.

 

One of the possible reasons cited for Deutsche Bank not finding another bidder to take over their position in London as a result of ongoing collusion investigations by British and German authorities, it was hailed as a positive step forward by some commentators that we could now see a more transparent system for setting silver prices.

 

Then you do a bit of digging and find out that CME Group is just another of the big players in the derivatives and futures firms, and have question marks over a possible advantage they have in their High Frequency Trading systems.  Traders who are connected to CME's industry leading and high powered, fibre optic run systems can take advantage of a millisecond extra time to place their orders, which is enough to beat other traders who are not connected directly to their systems and therefore can't take advantage of price fluctuations as quickly as others.  In other words - frontrunning; being able to take advantage of prior knowledge (i.e. the time advatange of price movements) to give an unfair advantage over others.

 

This means that the bods who will take over the price fixing of silver are the ones who are known for using the highest performing technology to make up to 75,000 fake quotes per SECOND to slow down the rate of processing for other traders but also possibly to cover up fraud committed by the High Frequency Trading programs.  

 

Here's an example of the number of trades registered in only 100 MILLISECONDS or ONE TENTH OF A SECOND:

 

 

This is a graph showing the sheer volume of trades that can occur with these systems in 1/10th of a second:

 

 

The analysis of this, taken from Nanex's site is:

 

"The chart below shows the entire $30 drop in the price of Gold futures that occurred in just under 100 milliseconds (1/10th of a second). When we separated groups of trades by a jump in the exchange sequence number (a technique to determine the size of a larger order) we discovered there were 9 groups where the sum of the trade sizes was exactly 338 contracts! Each group is composed of widely different numbers of trades: the first group of 338 contracts is made up of 211 trades, the second group is made up of 186 trades, and 3rd-9th: 120, 193, 97, 193, 137, 112 and 109 trades respectively. We show these 9 groups in the chart below. What's more, there are other trades occurring between these groups of 338 contracts. 

This was not the result of a fat finger, but rather the work of a high frequency trading algorithm that paused, and (probably) tested the market before continuing. A fat finger would not have such distinguishing features. What is disturbing about this algorithm, is that it carefully waited so as not to trip the CME's stop logic and halt the stock. The halt was from the more lenient volatility circuit breaker after the price declined $30 in less than a second. This algo appears to have been more concerned about preventing an immediate halt, rather than getting the best prices. Since the value of the trades was close to $500 million, there aren't a lot of suspects. Add to this, the fact they didn't get "special treatment" and have the trades busted, or the price adjusted (which is what happened with the Treasury Futures debacle just 2 short weeks before this event)."

 

My question is around whether these same HFT systems that CME Group (which handles 12.5 million futures contracts a day) will use the  same algorithms that will be used to set the price of silver throughout the day.  I guess only time will tell, but it seems just another step further for the possible collusion between central banks and institutions such as CME to supress the price of silver.  If it's the "race to the bottom" as many talk about, and the S does Hit The Fan then systems such as this are only serving to paper over the cracks of a financial system already rotten to the core.  It also shows that the game of "them and us" will continue, and if that's the case then I'll continue to pick up cut-price silver and at least benefit from this ongoing manipulation of the gold and silver markets.

 

[Keithoil]

You can't say no one knows what will happen because they guys probably do know.

 

That said I could really do with Gold and Silver staying at its lows for a couple of years yet, you never know maybe the god of PM's s listening to my prayers.

[Carpe Diem]

For those with any interest in understanding more about trading and the work of CME Group (who along with Thomson Reuters will take over the silver fixing from London next month) and everything around the data wars currently influencing prices of stocks and commodities then this is a must watch.