Someone in Chicago used a FTL drive to play the market (or cheated)

You’re going to have said that now, but do you really know that you’ll have been right?


The odd thing about it is this. If the information was leaked, it was certainly leaked minutes earlier. The offense is the leaking, not the time until you act on it. So it’s irrelevant for the penalty if you acted on the leaked knowledge minutes earlier, or exactly 2pm.

This presents a conundrum: On the one hand it’s extremely unlikely that somebody in posession of information extremely valuable, with the intent to use them, wouldn’t use them immediately, given that when he used them makes no difference to the seriousness of the offense. On the other hand it’s extremely unlikely that somebody actually built an FTL-com. :smile:


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Nah - they scheduled it for 2pm exactly, thinking they’d get away with it. If they’d scheduled it 10 ms later it wouldn’t have been as noteworthy (would have been suspicious though).

Hopefully someone will actually investigate!

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:cactus: :cactus: :cactus: :cactus: :cactus:

Oughtta be a tumbleweed along any minute now


I agree with @danegeld - somebody leaked the result by calling a phone line and leaving it open, but the phone line that they called tells the other end what they were going to do.

The agreement they signed says:

I understand that I may make no public use of the documents
distributed by Federal Reserve Board (FRB) staff or the information
contained therein, including broadcasting, posting on the Internet or
other dissemination, until the time the FRB has set for their public

It doesn’t seem to me that telling their associates in Chicago this information counts as “public use”, so long as the associates in Chicago don’t use it themselves until the “time the FRB has set for their public release”. It may not be within the intended spirit of the rules, but I think the Federal Reserve needs to a be a bit more specific about the rules if it wants this kind of thing not to occur.

Their associates in Chicago were able to set up a trade in advance of the knowledge being made available to the general public, and then executed it precisely at 2pm. I feel like the setting up of the trade before 2pm would probably fall under “making public use.” - the trade didn’t execute before 2, but the work involved to set up the trade did.

One alternative possibility that I’ve been mulling: maybe somebody just made a big bet that the market was going to move at 2pm. This wouldn’t be a totally unreasonable bet to make, though it would certainly be risky; as I recall, there was some news prior to this that pointed toward this as a likely outcome.

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I think that however they communicated the information back, they still would have set up everything for the trade beforehand; it’s just a case whether the “make it so” or “abort” signals come through 3ms or 7ms later.

Hrmm, that’s true. Well then, I guess it really balances on whether or their associates in Chicago (having not signed the agreement that they signed) count as “the public”, in terms of disseminating the information to them.

Hopefully someone will actually investigate!

I’m looking forward excitedly to court day on that investigation, when the lawyers mount their FTL defense and then they’ll have to demonstrate it.

That’s high frequency trading. They have these crazy algos that monitor the news, make predictions, and execute orders. The industry standard for HFT end to end execution is 3ms. HTF should be banded. It’s more like skimming than trading.

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For me, the real message of high frequency trading is that the naked homo sapiens has no business being in the market. (Naked meaning without the accouterments of a high speed fiber direct to the trading floor, an array of quants to keep up with the algorithm arms race, and compute horsepower to execute the algorithms.)
As they say in poker games, look around for the chump; if you can’t spot them, you’re it.

I can think of some innocent-ish explanations, though.

  1. It’s an un-informed guess. Someone correctly anticipated the Taper decision, and simply set up the system to make the deal at the last possible moment - if they made the deal earlier, it would have given other traders and system a chance to react. Of course, if they were wrong, they would have lost money, but they simply guessed correctly in this case. $600m sounds like a lot of money, but it’s not as if they would have lost all 600 million if the Fed decision was as expected.

  2. These aren’t real cashflow. Imagine someone set up the system in the following way - at a certain, precise time, two simultaneous trades are created - both a buy and a sell order, counterbalancing each other exactly. The media is focusing on the buy order, when actually no real profit was made. Why would someone do this? Well, the net effect would be to create activity on certain assets, which can trigger adversary algorithms to do dumb things.

  3. Someone is playing a trade cancellation trick. As in 2, make both offsetting trades. When the news arrives, cancel the trade that isn’t profitable. Result: money is made.

Just off the top of my head - I don’t know how plausible these possibilities are. I’d note that though 600 mil in assets changed hands, the profit on that isn’t nearly so large, actually.


… or, you buy companies that you’re comfortably planning to hold for a while and ignore the second-by-second noise, which is all HFT contributes to. There are issues with HFT (the flash-crash from a few years back, when liquidity disappeared), which need to be address. But, it’s not “skimming” any more than market specialists have been doing since the stock market began - buying at a fractionally lower price, selling at a fractionally higher one. It doesn’t impact a company’s long-term value. It doesn’t impact whether a firm will pay dividends, or buy back shares. It doesn’t add any structural bias to keep shares artificially high or low. Keep things simple - buy good companies, know what you’re buying, know why you’re buying it - and pay attention to valuations. HFT is just noise.


It seems unlikely that someone in the financial press would risk their job, the reputation of their media company, and future access to Federal Reserve announcements in order to run a one-off caper. Not impossible but very unlikely.

If you’re the sort of person who likes to do shady things with financial transactions you work as a trader, not waste time building a career in journalism just to blow it all one afternoon.

Chill, bro. He’s shaving.

I suspect we are mostly in agreement over the basic model of the market – long term equilibrium around consensus valuation of companies, with perturbations from sources real and imaginary. (Real would include everything from the announcement of interest rates that started this discussion, to weather patterns that affect crop yields. Imaginary would include nonsense of all sorts, from pump’n’dump schemes to the herd psychology of traders.)

Where we disagree is in how well one can separate the dynamics of the valuations from the effects of everything else. Thinking of it as a low-frequency signal with high frequency noise superimposed, is a tempting model, but it’s a model nonetheless. An alternate model might be more like setting the dinner table while a jackhammer is running outside the window. Yes, most of the plates end up a small distance away from their original positions, but every so often a crystal wine glass walks right off the edge.

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Thanks for that, I like your insight. You’re right it could be one element of a larger strategy.