In the middle of 2014, the world finally got a look at how brokers and hedge funds manipulate the stock markets through High Frequency Trading (HFT) computers that see every trade before it happens, and can submit billions of trades before the regular investor’s request is filled. The outlay of this fraud was described in the fictional novel by Michael Lewis titled, Flash Boys, and led to a full blown propaganda campaign by brokers and the mainstream media to discredit Lewis’s assertion that the entire market is rigged.
But within all of this were the traders who actually knew for a long time that computer algorithms were at the top of the market food chain, and one trader in particular, Nav Sarao, not only learned how to analyze these algo’s but he also discovered how to use them to profit on his own by following their trends and patterns.
Which of course is why the CFTC on April 21 decided to indict the foreign national who dared profit from their own fraudulent mechanisms and attempt to make him the scapegoat to turn the public’s eye away from the real wizard behind the curtain.
As we first observed yesterday, the real reason Nav was picked as a scapegoat is because he threatened to expose the “mass manipulation of high frequency nerds.” This was validated last night when Bloomberg reported that “the sleuth who pieced together Navinder Singh Sarao’s pattern of spoofing isn’t an FBI agent or regulator. He’s an academic whose research has taken the view that high-frequency trading is good for markets.” Hence, Sarao is bad for the HFTs and should be “eliminated.”
Today, we find precisely how and why Sarao was singled out: he not only exposed out the parasitic trading strategies of the real culprits behind the broken market, the massive HFT firms (such as Virtu which went public 24 hours before the Sarao charges were filed) which gave the “regulators” no choice: one of them had to be put away for good, but found a way to capitalize on the algos’ stupidity, and actually make money by beating them at their own game. - Zerohedge
Wall Street has evolved into a market for the elite, where commercial brokers now bet as much against their clients and customers as they do for them. And the advent of HFT systems has made it where markets can not only be easily manipulated up or down dependent upon the whims of the algorithms, but the new phenomenon of ‘flash crashes’ can wipe out retail investors when these computer programs get out of control, and send billions of trades in one direction in less than a second.
Like with Bernie Madoff and his long time ponzi scheme, the Department of Justice and other U.S. financial regulators always look for individual scapegoats to indict, arrest, and make into a public spectacle to mask the fact that the real criminals and perpetrators work at institutions like J.P. Morgan, Deutsche Bank, Goldman Sachs, and HSBC. And while no banker from any of these firms has been indicted, arrested, or held beyond bread and circus’s hearings on the floors of Congress, if you are not part of the elite cabal, traders like Nav Sarao are not allowed to make money in the markets doing the same thing the big boys do.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.