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For years Zero Hedge has been exposing the persistent fraud that goes on behind the trading scenes, not only in High Frequency Trading, but also in various dark trading venues, known better as dark pools where exchanges, typically the banks themselves get to match buyers and sellers without any indication of a trade having occurred, until much later if at all. Recently, and very much as we expected, trading firm Pipeline was smacked down by the SEC for gross violation of customer orders, an offense which can be summed up simply as: frontrunning. We now learn that, as the Wall Street Journal reports, Pipeline is pretty much finished after the Chairman and CEO have both quietly left the sinking ship. The WSJ adds: "The case was the SEC's first enforcement action involving dark pools, and it shocked the trading community, according to traders and other operators of electronic-trading systems. People who know Messrs. Berkeley and Federspiel said they were highly regarded among their peers. Mr. Berkeley was a former president and vice chairman of the Nasdaq Stock Market. Mr. Federspiel once worked at the Los Alamos National Laboratory as a nuclear physicist." Well, we certainly were not shocked, having predicted the demise of dark pools as early as the summer of 2009. What will shock the trading community, however, even more is if the SEC decides to go after not some tiny unknown firm, but the real dark pool transgressors, the biggest one of which is and has always been Goldman's Sigma X. Of course for that to happen, Mary Schapiro would actually have to do her job. And that, unfortunately, ain't happening.
Following our earlier post, equities retreated and converged towards the reality of their credit cousins in the last 30 minutes to end only marginally higher (or practically unchanged by futures close). A 30pts rally off the overnight lows was far and beyond the performance of credit markets which never traded green all day but it was EUR weakness (USD strength) that was intriguing given the rally in PMs and commodities. Gold and Silver are very marginally lower on the week while Copper is up around 1% but it was Oil's outperformance on the day that was impressive as the gentle roar of printing presses was heard on both sides of the Atlantic (noting Brent in EUR trades at the top of its nine month channel). Implied correlation diverged (upwards) from VIX into the close suggesting macro overlays were more bid - which reflects also the bid for protection in CDS markets - and signals far less risk appetite than the headlines (until the last few minutes) suggested.
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