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JPMorgan to pay nearly $1B for metals market manipulation
- rjkennedy98 6y agoMaybe I'm misunderstanding the case here, but why is spoofing orders a crime? If the answer is: because algorithmic trading computers get screwed up and try to front run and buy the asset when they think there are buyers - I just can't feel sympathetic. Who exactly is the victim here?
- mrfox321 6y agoIt's similar to questioning the morality of a scam artist who hires his friends to pretend to bid on something in front of the victim to influence them or drive up the price.
- doublesCs 6y agoActually not a bad analogy, thank you.
- the_jeremy 6y agoIt's worth pointing out that this holds true for the inverse scenario: dark pools (trading between large firms off-exchange) are legal. The metaphor would be an artist selling only to his friends, and not putting every piece for sale for everyone.
- abduhl 6y agoSpoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons. Commodities markets are underpinned by the idea of real price discovery happening: supply meeting demand at an agreeable price. Fake supply or demand undercuts this goal. Algorithmic traders just happen to be the ones taken advantage of here because they move fastest. If there were no algorithmic traders and everything was done manually the distortion in the market would still exist. An imperfect analogy: imagine you go out to the gas station to buy gas and see that there is a line of cars at the gas station charging $2.00/gal but there is no line of cars at the gas station charging $2.01/gal. You go to the $2.01/gal gas station, because you see that there's huge demand and you need gas now. As you drive back, you pass all of the $2.00/gal cars and realize they are all empty. You've been cheated by spoofing. Whether this is paternalistic or not is up for debate.
- uzakov 6y ago>Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons. Commodities markets are underpinned by the idea of real price discovery happening: supply meeting demand at an agreeable price. Fake supply or demand undercuts this goal. Does this logic apply to non-financial field? If someone (person X) creates a fake demand for a SaaS service Y and company Z builds service Y, should X pay money because Z decided to build Y, without a written contract between X and Z?
- yellowstuff 6y agoI don't think that line of thinking will get you very far. You can pick up the ball and run with it in American football but not soccer. You can insider trade in US commodity markets but not US equity markets. Spoofing is illegal in US equity markets because that was the result of the rule-making process. I'd argue that banning spoofing is a good rule for equity markets, but it's not necessarily a good rule in other contexts.
- uzakov 6y agoThat is exactly my point, see parent comment - "Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons." banning spoofing in different markets/fields isn't necessarily a good thing.
- bleepblorp 6y agoThis will vary between jurisdictions but my understanding is that, yes, you can be sued for making a false promise to buy from a specific seller even if you don't get to the stage of a formal contract. Putting out a press release, or RFP, saying 'we want to buy X quantity of Y' without the intent to follow up isn't illegal. However, getting to the point of a handshake agreement with a specific vendor but then backing out means that you will be expected to pay compensation even though no formal contract was signed.
- hogFeast 6y agoYou are correct. This was semi-frequent before 2008 but the spoofers were often individuals, and the exchange operators usually tolerated them because they did so much volume (Paul Rotter being the most famous). After 2008, the big algo traders got involved and spoofing was a huge issue because algos are often based on market depth. And the law was changed overnight (and the heavy-handed way that the federal govt came down on individuals, often at the request of algo traders, is unusual). Just generally: "spoofing" was always seen as unethical but it rarely mattered before 2008 because humans learned fairly quickly that when someone piled in orders around the price, it wasn't necessarily real. Equally, what we have also seen is that certain order types that were being used to conceal intention from algos (concealing your intention is a fundamental part of how markets operate) were also being lumped in with "spoofing". On JPM specifically, everyone knew they were spoofing for decades before this. I am not aware of an IB that did spoofing like JPM, and the reason why is that they did a ton of volume in these markets and used spoofing to control the price.
- raziel2701 6y agoIt's illegal because the exchanges are the victims. If this was being done to retail traders there would be no crime. The message here is that it's illegal to mess with the algos but not illegal for algos to mess with your order.
- SpeckOfDust 6y agoIt's crazy that this kind of thing is tolerated in financial markets. It should be criminal to manipulate markets like this. Time and again I'm convinced that it is extremely difficult to succeed as a retail trader. The odds of you succeeding given false signals like this are just depressingly low. And this is just one instance where the prosecution was able to prove wrongdoing.
- missedthecue 6y agoIt's not tolerated? They're paying a billion dollars in fines for doing it.
- jjoonathan 6y agoHow much did they make from it?
- hu3 6y agoIf companies can get away with repeatedly breaking the rules then it is not forbidden. Just taxed in the form of fines.
- moneytide1 6y ago"The accord would end probes by the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission into whether traders on JPMorgan’s precious metals and treasuries desks rigged markets, two of the people said." So $1B paid will stop further investigations? Meaning it can continue to manipulate and the fee is just the cost of doing business?
- mlindner 6y agoNo? The fine is there to prevent them doing it further. They'll start investigations again if they see more of such activity.
- ponker 6y agoYou use italics for the word “billion” but JPMorgan doesn’t.
- gmuslera 6y agoNot sure if its related, but this piece of news (https://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html https://www.nytimes.com/2013/07/21/business/a-shuffle-of-alu...) made the headlines several years ago.
- beambot 6y ago> While submitting and then canceling orders isn’t illegal, it is unlawful as part of a strategy intended to dupe other traders. So if you build an algorithm that "learns" this behavior, it's OK since human intent is removed?
- tombert 6y agoIANAL, but I would think that it would be your (as the person deploying and maintaining this algorithm) responsibility to make sure this algorithm doesn't do anything illegal or disingenuous, either by putting safeguards into it or by constantly tracking it to make sure it doesn't do something bad.
- willdearden 6y agoYou are legally responsible as if you had submitted the orders yourself.
- beambot 6y agoI understand that... But as stated, the orders themselves are not illegal. It all hinges on intent of "your strategy to dupe other traders", but I fail to see how the algorithm creator would understand a black-box strategy developed by the algorithm. Eg let's say they algo was some form of reinforcement learning; it's not clear to me that you could even represent the policy space in a human-interperable way. All you have is inputs & outputs -- the AI has no "intent" beyond it's objective function -- say expectation maximization or risk minimization.
- summitsummit 6y agobeam bot, im guessing the law would not be on your side.
- tootie 6y agoWriting the algorithm is the intent. Same as hiring a hitman.
- hashtagmarkup 6y agoMore like "US Taxpayers to pay nearly $1B for bailing out corrupt JPMorgan, and enabling them to manipulate metals market"
- alexbiet 6y agoThey made $5B and payed $1B as fine. Pocketed $4B and gov got their cut.
- blantonl 6y agoAs they say on WSB... this is the way :)
- huac 6y agoWhere do you see $5B? Per WSJ and CFTC: > The total fine includes a penalty of $437 million, restitution of $311 million and disgorgement of $172 million, the CFTC said. Disgorgement is the requirement to pay back profits that were illegally earned. It appears that they made less than $200M in profit (spoofing is usually a relatively low margin trade).
- H8crilA 6y agoWell, they've been running the biggest silver operation for a while, including the SLV ETF.
- tibbydudeza 6y agoThey probably made more than a billion USD in profit. Just the cost of doing "business".
- deleted 6y ago[deleted]
- smabie 6y agoThey definitely did not. Spoofing orders isn't going to let you post 1bn. Instead, it will only slightly/moderately improve the alpha of your existing trading operations.
- bradj 6y agoThe entire precious metals desk did $250 million in profit a year. I doubt spoofing is responsible anything close to a majority of that.
- x87678r 6y agoTo be clear the biggest losers from spoofing are HFTs and other market makers. This action is not to directly protect retail traders or normal 401k investments. By protecting the HFTs and MMs they make the market more liquid for everyone, which is good for big investors but still not important for retail traders.
- 02020202 6y ago...just dont ask about the silver...
- deleted 6y ago[deleted]
- donor20 6y agoWow - Don't mess with the high frequency traders! There must be some big money behind these types of enforcement actions! What's crazy is the algos try to push around the price themselves but I suppose it is legal because it is a computer? Remember flash orders? Quote stuffing to generate delays for arbitrage?
- bleepblorp 6y agoThe sick thing about these kind of scams is how much top-tier human talent has been sucked up by the financial sector, essentially to find ways to scam people legally (or at least without getting caught). It doesn't say much for society's conception of value that there's more money to be made through finding ways to squeeze more revenue out of socially useless financial transactions rather than by solving real problems.
- bob33212 6y agoIt is an unfortunate aspect of capitalism. Making investments is much easier than making actual things, so more people do it. Lucky there is a counter ballance in the system . If 100% of the population started investing only, the one person to start building would get all the investment. You can see it now with TSLA and NKLA. All these "professional investors" realized that sustainable transportation is a real thing and it is our future. At the end of the day Elon could be far richer than any investors.
- hnracer 6y ago> Making investments is much easier than making actual things, so more people do it A talented person will make as much money or perhaps more money in software engineering than financial services. Most people in financial services make very little money, 60k-150k being a common range.
- collyw 6y agoI see you have been down voted. It would be nice if you (or the down voters) could provide some evidence either way.
- raziel2701 6y agoAre you not aware that NKLA is a fraud company? I don't think that's a good example of what we want people to do.
- bob33212 6y ago
- Mc_Big_G 6y agoAs long as the profits are more than the penalty, this will continue to be business as usual.
- yalogin 6y agoWhy aren't there any jail terms in this case? I am 100% sure they are fined much less than the profit they made on it. Unless people are jailed, let me be precise here, unless the CEO is jailed for knowingly leading the scam it will not stop. There is no incentive for them to do financial fraud as long as they are just fined.
- summitsummit 6y agoi think that's the point. it's all a big club and we're not part of it.
- Gys 6y agoI assume this market is global, do other countries and companies felt the effects as well. Why do other country’s justice departments not fine them as well?
- stevespang 6y ago"More than two dozen individuals and firms have been sanctioned by the Justice Department or the CFTC" . . . only sanctioned ? How bought prison time for these white collars ?