SubscribeThe NYSE's retirement of DPTR is of no importance whatsoever.I'm nowhere near knowledgable enough to evaluate it but it sounds more plausible at first blush than the somewhat breathless copy posted upthread.
First, for anyone who thinks program trading means electronic trading from computers, it doesn't. Program trading is trading a “program” of multiple stocks simultaneously (the NYSE defines a program as orders for 15 or more stocks with value > $1m but the definition is loose and sometimes it is described as trading multiple stocks under a “coordinated strategy”). The DPTR reporting was created back in the 80s after a market crash that was suspected (I have my doubts) to have been caused by program trading, specifically arbitrage of index futures vs the underlying stocks. The regulators, ever reactive not proactive, immediately concluded that everyone needed to start reporting their daily program trading activity along with details such as whether the program was for a client or for index arb purposes.
Over time, DPTR evolved. The rules started incorporating more and more flow and interpretation of what constituted a program became much more complex and very subjective. The markets have completely changed since 1980 – then the only traders doing "programs" were specialist desks with expensive IT systems and most of the trading manual. Now nearly all the flow you see is driven by automated trading systems and most of this could be interpreted as a program under the rules. Huge numbers of IT and operations man-hours are wasted at every member firm trying to get the data right, but at the same time the data has become essentially meaningless.
In addition, getting to the top of the rankings became a major status symbol for the big firms. This is why Goldman are at the top — they are proud to be up there with huge volume. The way they have done it is by spending a lot of time and effort dredging through all their various trading businesses and classifying as much as possible as a program trade. Client trading more than 15 stocks in under 10 minutes via your trading API? Call it a program. CDS trading desk automatically sending out equity orders to hedge themselves? Call them a program. They love the fact that their volumes are 50% higher than the nearest competitor. It's a big PR boost and wins them more business from institutional investors. Probably a number of other firms trade the same volume, but haven't spent the time to do the data mining required to report it as DPTR volume. The linked article implies that the DPTR stats are a kind of “name and shame” of Goldman's evil deeds, and that the move to suppress the data is somehow what Goldman wants, but the opposite couldn't be more true.
Regarding transparency - the NYSE are not abolishing these kind of stats, they're just changing how they are gathered. They have stated they plan to start publishing a new kind of ranking based more around overall volumes, broken down by the trade indicator sent on the order at the time of placement (“program” is one such trade indicator). This will cut down on the gaming, while continuing to publish rankings and stats.
CBO’s long-term budget projections raise fundamentalAnd I'd just like to underline that this is coming from the Congressional Budget Office, not the Cato Institute.
questions about economic sustainability. If outlays grew
as projected and revenues did not rise at a corresponding
rate, annual deficits would climb and federal debt would
grow significantly. Large budget deficits would reduce
national saving, leading to more borrowing from abroad
and less domestic investment, which in turn would
depress income growth in the United States. Over time,
the accumulation of debt would seriously harm the econ-
omy. Alternatively, if spending grew as projected and
taxes were raised in tandem, tax rates would have to reach
levels never seen in the United States. High tax rates
would slow the growth of the economy, making the
spending burden harder to bear. Policymakers could miti-
gate the economic damage from rapidly rising debt by
putting the nation on a sustainable fiscal course, which
would require some combination of lower spending and
higher revenues than the amounts now projected.…
Principles-based regulation is high on the regulatory agenda in a number of regulatory domains, most particularly financial regulation. Its supporters argue that it provides a flexible regulatory regime which can facilitate innovation; its detractors argue that it simply lax regulation. This article explores the political rhetoric surrounding principles-based regulation. It identifies four forms of principles-based regulation: formal, substantive, full and polycentric principles-based regulation. It also identifies and explores seven paradoxes which principles-based regulation may encounter in its various forms. These relate to interpretation, communication, compliance, enforcement, internal management, ethics, and above all trust. PBR, in its full form, can provide an effective, durable, resilient and goal based regulatory regime; but at the same time its paradoxical nature means that it is vulnerable in many respects. Unfortunately for the detractors of principles-based regulation, many of these paradoxes are not necessarily avoided by using detailed rules instead of principles. Rather their resolution lies in trust. Yet, it is argued, trust is the ultimate paradox. Principles-based regulation can help to create trust, but the core elements of that trust have to already exist if principles-based regulation is ever to operate effectively, if indeed at all.
Principles based: "A firm must pay due regard to the interests of its customers and treat them fairly"They go on to illustrate that the principles based system is not only much easier to apply / interpret, but also the scope for what they called "creative compliance" (Black, et al define this "as the process by which firms can seek to structure their arrangements or activities in a way that complies with the detailed requirements of rules but which, while compliant, undermines or avoids their purpose." -- pg 14) is low.
Rules based: "A firm must execute all orders for customers within one business day in the following circumstances: [definition of customer, definition of order, restriction as to whether discretionary dealing or execution only, definition of one business day, circumstances where large orders may be worked over a longer period, etc]"
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said, according to a recording of the hearing made public today.So Goldman Sachs has admitted to a Federal prosecutor that their software can be used to manipulate markets? Interesting.
“Hank Paulson is a national hero. I said it last October and I’m sticking by it. And now, there’s actual evidence to back me up. The TARP bailout worked. The Wall Street crisis is over.”And, of course, it turns out Newmark was a GS employee.
-Evan Newmark, It’s Time to Enshrine Hank Paulson as National Hero
So here’s the letter I wrote to the Wall Street Journal after reading Evan Newmark’s paean to Hank Paulson last week:
Dear WSJ,
Just out of curiosity — did Evan Newmark ever work for Goldman, Sachs? And if the answer to the question is yes, don’t you think that might have been a good fact to disclose before he fellated Hank Paulson in his “Mean Street” column?
Sincerely,
Matt Taibbi
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posted by Skorgu at 7:46 AM on July 6 [3 favorites has favorites]