Traders Convicted For Figuring Out Auto Trading Algorithm; How Is That Illegal?
from the no-whammies dept
Slashdot points us to the story of how two Norwegian day traders have been convicted and given suspended jail sentences for outsmarting an automated computer trading system, enabling them to make money. The details are not entirely clear, but from what's in the article, it sounds like they observed some patterns in the way the system responded to certain trades, and then they took advantage of that. Of course, that's exactly what automated computer trading systems, themselves, are supposed to do. They're supposed to notice patterns in trading and take advantage of that. So, would it have been illegal for the same automated trading system to notice patterns in certain human trades and take advantage of it?Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
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Filed Under: algorithms, beating the system, norway, trading
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They must not have had a ruling class elite like Obama in their pocket
I would expect this from socialist Norway. What is the USA's excuse?
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Re: They must not have had a ruling class elite like Obama in their pocket
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Re: Re: They must not have had a ruling class elite like Obama in their pocket
Campaign contributions.
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Re: They must not have had a ruling class elite like Obama in their pocket
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Re: Re: They must not have had a ruling class elite like Obama in their pocket
Maybe, just maybe he is one if the two are synonymous when the term is not referring to the USA ...
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Re: Re: Re: They must not have had a ruling class elite like Obama in their pocket
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Re: Re: Re: Re: They must not have had a ruling class elite like Obama in their pocket
I, for one, never read subject lines for fear of all of these evils....
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Re: Re: Re: Re: Re: They must not have had a ruling class elite like Obama in their pocket
just go on through life with the blinders on sticking your head in the sand and trying to keep on track with the status quo...
ignoring subject lines are nothing more than a fascist plot!
/counterpoint
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Re: Re: Re: Re: Re: Re: They must not have had a ruling class elite like Obama in their pocket
You know it's true. Mandatory subject line reading is just one less civil liberty we all have. Did you know they require subject line readings in Canada? And guess what? There's so many subject lines, it takes FOREVER to read them. People never even get to the actual comments, they're so busy reading subject lines. Is that what you want in your socialist paradise? Please....
Plus, it's well known that subject line reading is a choice. All this crap about how subject line reading is okay, it's natural, we were born with the proclivity to read subject lines....it's just crap, okay? Reading a subject line is a choice, and I've been informed by my local Catholic priest that reading anything except the bible is against God's will. Reading subject lines is a sin!!!!
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Re: Re: Re: Re: Re: They must not have had a ruling class elite like Obama in their pocket
It wasn't sounding so bad until you got to that last one.
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Re: They must not have had a ruling class elite like Obama in their pocket
or are you just glad to see me.
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Re: They must not have had a ruling class elite like Obama in their pocket
Republicans.
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Inside Information
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Re: Inside Information
WRONG. Martha Stewart was not convicted of insider trading. She was convicted of lying.
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Re: Re: Inside Information
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Economic Power Defines the Law
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I'm confused...
For instance, had they figured out how some automated system responded to a run on a certain stock, and then attempted to cause such a run? Whether auto systems do it or not, I'm pretty sure that's illegal....
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Re: I'm confused...
Gaming the market is chance with minor influence while gaming the controls is manipulation with minor chance.
-CF
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Re: I'm confused...
For instance, had they figured out how some automated system responded to a run on a certain stock, and then attempted to cause such a run? Whether auto systems do it or not, I'm pretty sure that's illegal....
No the people who implemented the automated trading system should be prosecuted.
The trouble is that these people think that the market is like a casino (their casino) and that if anyone else wins then they must be cheating.
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The stock market is a rigged game the independent investor really has no business playing - perhaps save for mutuals and growth stocks like utilities and the like.
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I think the bigger point is being missed.
Something smells like fish and it isn't my cat's breath.
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Re: I think the bigger point is being missed.
Must....resist....making disgusting....but funny....sophomoric....comment....
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Re: Re: I think the bigger point is being missed.
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Re: I think the bigger point is being missed.
That being said what they did was was beat a bot at it's own game as the comments on the story Mike linked to point out.
The conviction appears to be for stock manipulation rather than copying the pattern of the automated computer trading system (bot) and used that to manipulate the price of some stock.
It would logically follow, then, that the bot is just as guilty of stock manipulation but the bot and it's writers/controllers weren't being charged here.
Ideally the stock and commodity markets are about transparency so that the investor can see what they're investing in. These markets are far from ideal with all the derivatives and bots running around which are far from transparent which leaves things ripe for manipulation.
Mike's question holds though in that if it's legal for the bots to manipulate stock values then it must be legal for this pair.
Then again, for small investors, there's a better chance of making money on the lottery than investing in stocks these days given such nonsense as the dot com bubble and the housing bubble that damn near brought down the whole house of cards.
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Re: Re: I think the bigger point is being missed.
What do you want to be that they've got better political connections than the two who were convicted?
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Re: Flash trading
flash vs flash, fair enough.
flash vs market maker, not fair (apparently).
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Automated Systems?
CBMHB
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Re: Automated Systems?
Do you really have to ask that? You sound like one of those idiots who believe that the law applies equally to everyone.
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Trading
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The two day traders, Svend Egil Larsen and Peder Veiby, have been charged with “market manipulation” and face up to six years in jail if convicted. Timber Hill is a subsidiary of Interactive Brokers and acts as its market maker.
1. The two were not charged with breaking the Auto Trading Algorithm, a computer crime, but were charged with market manipulation.
2. What they did is illegal in the US too. The key phrase here is "market maker". That means what they did is equivalent to manipulating prices on the New York stock exchange which is a private company too.
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Market Manipulation
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Re: Market Manipulation
And in your post, you actually described "flash trading" pretty well, by the way. It's all about noticing trends and slipping trades in front of the recognized trend. Flash trading can cause stock values to change. It adds friction to trades since by front-running trades, the trades that come after it will go higher.
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Re: Market Manipulation
Wrong - the only mechanism they employed was making trades. They did not provide false information in any other form - although the prosecution claimed they gave "false and misleading signs" all they actually did was to make trades.
How can this possibly be illegal - except in the eyes of those who are annoyed that their own stupidity has been exposed?
Did you read the link?
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Re: Market Manipulation
Yeah, but they didn't do that.
You fail.
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In other news
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By the way - this in no way excuses many of the excesses in the trading arena. In my opinion, algorithmic trading will lead to the next big crash.
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Re:
Several times.
The different HFT computer systems get stuck in a run loop where one programs actions stimulate the others in to move in the same direction.
We've seen this occur multiple times over the past year.
The thing is, since these are computers and are operating at several times our capacity, the bottom drops out before anyone has time to react and "pull the plug," so to speak.
At a certain point, these systems hit a threshhold and stop trading, which freezes the market. Then people step in, move everyone back into their corners, and press the reset button.
Look in the news - every few months, you have a stock or index that plummets dramatically and then rebounds almost instantaneously. That's the system we have at work.
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Re:
What exactly makes the patterns "fake"? If the bot can't detect what is going on then the responsibility lies with the person who deployed the bot.
This is a sour grapes prosecution.
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Cheats
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Auto-trading algorithm
IMHO
JJ
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Re: Auto-trading algorithm
You're using logic and reason and that's just unnacceptable! If everyone started doing that where would we be?
I think the missing bit is that the stock market is an illusion based on the "sheep-ness" of group psychology anyway. If you don't add the illusion of strict (and perhaps arbitary) rules on it the house of cards collapses. The whole thing is based on an idea... don't go trying to burst the bubble!
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Why illegal?
When the price rises high enough, the trader dumps the stock, making a profit and lowering the price. The other buyers are left with a stock which they bought above the current price. In effect, the trader has given false information just by making the stock move, and made money by taking it from other people.
This also destabalises the stock, as well as the market in general (if it happens frequently).
What these two guys did was feed false information to an automated trading system, and they did it deliberately, to make money from the people it was trading on behalf of (that could be a rich fat-cat or it could be your pension fund). If the system was in their own company, then they were possibly also using insider-knowledge and damaging their own company.
Is it harsh to be found guilty of outwitting a machine? I think so, especially as the algorithm clearly sucked if humans figured it out. That's probably why they got off so lightly: suspended sentences and a fine which won't eat too much into their bonuses.
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a) person a created a bot to automaticly trade for them
b) person b noticed the bot was making trades as intended
c) person b setup trades based on that machines trading
isnt person b doing what person a's bot is doing? Trading based off a pre-set of stimuli? Shouldnt the fault lay with the programmer of the bot?
Makes me wonder what the stock market is for, if your not allowed to trade on patterns.
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It's illegal...
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More
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Re: More
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Powerful forces manipulate markets for an essential reason
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For example, fiat currencies and gold - Markov intuitions in the blkbox
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To break their models, you must know their math, motives, and be intuitive.
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The market makers behind the market makers can extract any amt but don't
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Guess what?
We won't be hacked.
We keep moving.
We have the intuitive s.
But the world is so torn apart and unstable, we just profit but why? To be comfortable in a world falling apart? to help others when surely we would be targets when they follow the money from markets to good acts.
The fiat currencies must be maintained at all costs... all instabilities will be delayed and so more people will die.
If however, I profit from my knowledge, what does it matter. I have enough.
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