Uncovering the Truth: Rigged Elections Exposed

Uncovering the Truth: Rigged Elections Exposed

Table of Contents:

  1. Introduction
  2. The Rise of High Frequency Trading
    1. Stock Ownership at a Record Low
    2. Lack of Trust in Banks and Financial Services
    3. Investigations into High Frequency Computerized Stock Trading
    4. Michael Lewis' Book "Flash Boys"
  3. How the Stock Market is Rigged
    1. The Role of Stock Exchanges and Wall Street Banks
    2. The Influence of High Frequency Traders
  4. The Victims of a Rigged Stock Market
    1. Impact on all Investors
    2. Exploitation of Computerized Trading
  5. The Unlikely Heroes Who Stood Up
    1. Introduction to Brad Katsuyama
    2. Realization of a Changed Market
    3. Front-running and Partial Filled Orders
  6. Unraveling the Mystery
    1. The Role of Plumbing in Trades
    2. Spread Networks and High-Speed Fiber Optic Cables
    3. The Costly AdVantage of Milliseconds
  7. Slowing it Down to Beat the System
    1. Ronan Ryan's Idea to Stagger Trade Orders
    2. Development of Software to Cut Out High Frequency Traders
    3. Success in Reaching 100% Fill Rates
  8. Exposing the Rigged Market
    1. Pitching the Discovery to Mutual Funds and Institutional Investors
    2. Shocking Reactions and Recognition of the Problem
    3. Starting a New Exchange - IEX
  9. The Magic Shoe Box and the Battle for Survival
    1. The Introduction of Coiled Fiber Optic Cable and Speed Bumps
    2. Opposition and Attempts to Discourage Customers
    3. Goldman Sachs' Endorsement of IEX
  10. Conclusion: Restoring Trust in the Financial Markets

Introduction

In the world of finance, the stock market is often seen as the epitome of capitalism, a place where investors can participate in the growth of companies and make money. However, in recent years, there has been growing concern about the fairness and integrity of the stock market. This article explores the rise of high frequency trading and the allegations that the stock market is rigged to benefit a select few. It delves into the role of stock exchanges, big Wall Street banks, and high frequency traders in this alleged manipulation. The article also highlights the victims of this rigged stock market, the unlikely heroes who uncovered the truth, and their efforts to restore trust in the financial markets.

The Rise of High Frequency Trading

Stock Ownership at a Record Low

One of the paradoxes of the Current bull market on Wall Street is the record low stock ownership among Americans. Despite the market's prolonged growth and strength, less than half of Americans trust banks and financial services. This lack of trust is a significant factor in the growing skepticism towards the stock market.

Lack of Trust in Banks and Financial Services

Adding to the skepticism is the fact that both the New York Attorney General and the Commodities Futures Trading Commission have launched investigations into high frequency computerized stock trading. These investigations serve as a testament to the concerns surrounding the fairness and transparency of the market.

Michael Lewis' Book "Flash Boys"

The release of Michael Lewis' book, "Flash Boys," has further fueled the debate on the rigged nature of the stock market. In the book, Lewis argues that the stock market is rigged to benefit a group of insiders who have made billions through computerized trading. The book tells the story of individuals who uncovered this manipulation and devised a plan to correct it, potentially having a significant impact on Wall Street.

How the Stock Market is Rigged

The Role of Stock Exchanges and Wall Street Banks

The rigging of the stock market involves a combination of stock exchanges, big Wall Street banks, and high frequency traders. These players work together to exploit computerized trading and gain an advantage over other investors. The complexity of the system disguises what is happening, making it difficult for outsiders to understand and question its operations.

The Influence of High Frequency Traders

High frequency traders, armed with secret programs and advanced technology, drive the rigging of the stock market. These traders leverage their speed advantage, executing trades in fractions of a Second. Through front-running, they can identify and exploit the orders of other investors, driving up prices and benefiting at their expense.

The Victims of a Rigged Stock Market

Impact on all Investors

The victims of a rigged stock market are not limited to a specific group; rather, they include everyone with investments in the stock market. The manipulation conducted by high frequency traders affects millions of trades every day, costing investors significant amounts of money.

Exploitation of Computerized Trading

Computerized trading, which was initially seen as a way to make the stock market more efficient, has been exploited by a group of insiders. These insiders use their advanced technology and knowledge to gain an unfair advantage over other investors, resulting in significant financial losses for the victims.

The Unlikely Heroes Who Stood Up

Introduction to Brad Katsuyama

At the center of the fight against the rigged stock market is Brad Katsuyama, an unlikely hero who worked at the Royal Bank of Canada. At just 30 years old, Katsuyama realized that the market he thought he knew had changed. He observed that whenever his team tried to buy a large block of stock for a client, their orders would only be partially filled, and the price of the stock would go up.

Realization of a Changed Market

After experiencing the same problem at one of the largest hedge funds in the world, Katsuyama realized that something significant was happening behind the scenes. Determined to find answers, he embarked on a Journey to uncover the secrets of the rigged stock market and correct the injustice.

Front-running and Partial Filled Orders

Katsuyama's investigation revealed that his orders were being front-run, meaning that someone else was buying the stock before he could, driving up the price. This manipulation resulted in his orders being partially filled and significant financial losses for his clients.

Unraveling the Mystery

The Role of Plumbing in Trades

Katsuyama suspected that the problem was related to the plumbing of trades, specifically the way trades were routed through fiber optic cables. However, the details of what happened to his orders after he hit the buy or sell button remained elusive.

Spread Networks and High-Speed Fiber Optic Cables

Katsuyama enlisted the help of Ronan Ryan, an expert on high-speed fiber optic networks, to unravel the mystery. Ryan introduced Katsuyama to a company called Spread Networks, which had laid a high-speed fiber optic cable from the futures market in Chicago to the exchanges in New Jersey. This cable reduced the time it took for trades to reach the exchanges by milliseconds.

The Costly Advantage of Milliseconds

The realization of the colossal sums being spent by high frequency traders to gain a millisecond advantage was a turning point for Katsuyama. It confirmed that the rigging of the stock market involved billions of dollars and needed to be exposed.

Slowing it Down to Beat the System

Ronan Ryan's Idea to Stagger Trade Orders

Ryan proposed a radical idea to beat the high frequency traders - slow down the trade orders. By staggering the orders and sending them to the exchanges in a specific sequence, Katsuyama and his team could ensure that their orders arrived at all the exchanges at the same time.

Development of Software to Cut Out High Frequency Traders

Katsuyama and his team developed software that implemented Ryan's idea, allowing the orders of Royal Bank of Canada's customers to reach all the exchanges simultaneously. This revolutionary approach cut out the high frequency traders and ensured that the orders were filled at 100%.

Success in Reaching 100% Fill Rates

The success of the software was beyond their expectations. The fact that all orders were being filled at 100% was a significant achievement in an environment where partial fills were the norm.

Exposing the Rigged Market

Pitching the Discovery to Mutual Funds and Institutional Investors

Armed with their discovery, Katsuyama and his team began pitching their findings to big mutual funds, pension funds, and institutional investors. These investors had long suspected that they were being front-run, but Katsuyama was the first to provide concrete evidence and a solution.

Shocking Reactions and Recognition of the Problem

The reaction from investors was shocking but validating. The largest asset managers in the world were hearing the story of a rigged stock market for the first time, and they were astounded. The recognition of the problem and the desire for change fueled Katsuyama's determination to make a difference.

Starting a New Exchange - IEX

In a bold move, Katsuyama and some members of his team left their high-paying jobs to start their own exchange called IEX (Investors Exchange). The exchange aimed to restore trust and transparency in the stock market. With the support of major investors, IEX launched with built-in speed bumps to thwart the advantage of high-speed predators.

The Magic Shoe Box and the Battle for Survival

The Introduction of Coiled Fiber Optic Cable and Speed Bumps

IEX sought to eliminate high frequency traders' advantage by using coiled fiber optic cable and speed bumps. The coiled cable added latency to the traders' orders, ensuring arrival at the same time as other orders. The speed bumps created a fair playing field for all investors.

Opposition and Attempts to Discourage Customers

The concept of IEX and its attempts to level the playing field faced opposition from powerful entities that benefit from the status quo. These entities have tried to discourage customers from using IEX, but the exchange has persisted in its mission to restore trust in the financial markets.

Goldman Sachs' Endorsement of IEX

In a significant development, Goldman Sachs publicly acknowledged IEX as a model for a more stable and less complicated stock market. This endorsement has helped validate the importance of IEX's mission and its potential for success.

Conclusion: Restoring Trust in the Financial Markets

The story of the rigged stock market showcases the power of trust and transparency in the financial markets. By exposing the manipulation and creating innovative solutions, individuals like Brad Katsuyama and his team aim to restore trust among investors. Their efforts to level the playing field and protect investors' interests reflect the necessity for a fair and ethical stock market environment.

FAQs

Q: Is high frequency trading illegal? A: Traditional forms of front-running are illegal, but this particular form of high frequency trading has been deemed legal. However, many consider it unfair and are advocating for stricter regulations.

Q: How does high frequency trading affect individual investors? A: High frequency trading can negatively impact individual investors by front-running their orders, driving up prices, and ultimately costing them more money. It creates an uneven playing field and erodes trust in the stock market.

Q: Will IEX survive amid opposition from powerful entities? A: While the battle for survival will not be easy, IEX has received significant support and endorsements, which give it a strong chance of success. Its commitment to transparency and fair practices has resonated with many investors.

Q: How can investors protect themselves from the rigged stock market? A: Investors can research and choose exchanges or platforms that prioritize transparency and fair practices. They can also support initiatives like IEX that aim to level the playing field and restore trust in the financial markets.

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