
CME Group Statement on Vanity Fair Article - kasey_junk
https://www.cmegroup.com/media-room/press-releases/2019/10/18/cme_group_statementonvanityfairarticle.html
======
CaliforniaKarl
The referenced article: [https://www.vanityfair.com/news/2019/10/the-mystery-
of-the-t...](https://www.vanityfair.com/news/2019/10/the-mystery-of-the-trump-
chaos-trades)

Edited to add the HN link:
[https://news.ycombinator.com/item?id=21278009](https://news.ycombinator.com/item?id=21278009)

------
lefstathiou
If you happened to be one of the lucky people who bought options on a stock,
index or whatever and in 24-48 hours it goes from being out of the money to
deep in the money, all these algorithms kick off and your name ends up on a
list with the SEC. Next they start pulling your bank records and brokerage
account records (which they have instant access to) to check for the obvious
such as how old is this account, how often does it trade, how often you get
lucky, where does your wife work, etc (last one is not a joke, they watch for
people married to lawyers and such). As the flags go off, more people get
involved, phones calls get made and accounts start getting frozen and then
some dude wearing dark glasses on a cloudy day shows up at your office.

Say what you will about government agencies, the SEC takes insider trading
very seriously and they are very well equipped to deal with it. Something so
obvious happens from time to time but rarely works. At least not on a scale to
move markets (a couple million here and there is nothing in grand scheme of
things but even that gets caught). I’m a little skeptical here.

~~~
sneak
Isn't insider trading the crime of trading on confidential information about a
company?

Dealing in securities (in the case of TFA, futures on broad index funds) in
general on non-public information is not itself insider trading, as I
understand it.

There's lots of non-public information, even on specific companies, that one
can legally trade on (provided they did not abuse a confidence themselves,
such as an entirely outside party doing deep research on an investment).

~~~
dan-robertson
I think this is true in the US: insider trading is roughly when you trade on
non public information that comes from inside the company (counting cars in
carparks on satellite photos is not insider trading as that information hasn’t
come from inside the company, even though it is so hard to get as to feel
nonpublic). I understand there are other illegal acts that correspond to
trading on information which most people would consider ill-gotten.

In Europe, I think insider trading tends to be a more broad classification.

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perl4ever
[https://slate.com/business/2019/10/vanity-fairs-trump-
chaos-...](https://slate.com/business/2019/10/vanity-fairs-trump-chaos-trades-
story-is-a-fantasy.html)

~~~
ahnick
Maybe Slate is correct, but if they are attacking Vanity Fair for a lack of
evidence I would expect them to provide something substantial to prove them
"patently false". Spoiler alert they didn't and neither has the CME.

~~~
pnako
Basically the VF article is the equivalent of seeing a group of people wearing
suits, suspiciously waiting in the same spot (e.g. at a pedestrian crossing)
and making the absurd deduction that it must be some sort of conspiracy.

There is literally nothing of substance. They saw something that happens
basically every week, a few hours before Trump did something!

------
S_A_P
This is a pretty big allegation, and though I work in the energy sector and
have a working but limited knowledge of the way these markets work, it’s just
not as simple as the article implies. As mentioned in the slate article, these
are likely but hedges against other trades either in physical markets or other
financial markets. These trades mean someone loses just as much as the winner
wins. Futures markets are typically just risk management trades and not
speculative, at least in my experience with this stuff.

------
perl4ever
Matt Levine wrote today:

"the evidence for this conspiracy theory is not even that sometimes there were
big futures trades shortly before big geopolitical events. The evidence for
this conspiracy theory is that there were futures trades shortly before big
geopolitical events. Like, a lot of futures contracts traded, but not all in
one big trade. Not one person buying 386,000 contracts, but 386,000 contracts
trading, in thousands of individual trades between unrelated traders. The
evidence for the theory is essentially “people traded S&P futures the day
before weird Trump stuff happened.” But people trade S&P futures every day!
Lots of them! Billions and billions of dollars’ worth, in lots of trades! It’s
an incredibly active and liquid market! This is … I mean, this is what a
market is. People buy stocks, and people sell stocks, and if you just add up
all the people who buy stocks before the stock market goes up then they will
have made a lot of money, but that’s not because they were all tipped off,
it’s because there is no other way anything could possibly work, come on."

~~~
akersten
Everything I am reading (especially the Vanity Fair article) heavily suggests
that the large trades in question are a single trader or group of traders. How
else could they mean, when they say "10 minutes before market close, this
trade of XX,XXX e-Mini's happened"? Is there some dark-pooling going on that
I'm not aware of, where transactions clear in bulk, that's making it look like
it's a "single trade"? Otherwise, Matt Levine's argument doesn't seem like
it's addressing the elephant in the room.

~~~
dcolkitt
The electronic order book at the CME is completely anonymous. Unless the CME
provided the de-anonymized dataset, there's no way for a third party to know
that two separate trades were initiated by the same person. None. Nada. Zero.

The fact that the Vanity Fair article is just making the assertion that
separate trades belong to the same person without explaining how they know
this is pretty strong evidence that the journalist is just making shit up. Or
at least is being hoodwinked by a supposed expert who is just making shit up.

I'd be like me claiming that every single slot machine jackpot in Vegas last
Tuesday was won by the same person. Then when I get challenged to provide
evidence of it, saying "no, you provide evidence that it wasn't."

~~~
latencyloser
Even if they got the exchange's order-book they'd probably just see a bunch of
orders from some guys named Morgan Stanley and JP Morgan. So many of these
trades are routed or entered by brokers or other large firms.

~~~
dogma1138
Due to regulations like MIFID you can’t hide trades behind a brokerage all the
parties involved in the trade including the actual individuals (as in their
passports or other government identifications) are recorded for each trade and
reported to the regulators.

You can’t have a broker issuing orders on your exchange without knowing who
they are for and who were the individuals involved in requesting and approving
the trade.

JPM has also a responsibility in ensuring the trades it issues through its
brokers aren’t tainted with insider trading.

~~~
latencyloser
Ah you're probably right. My mistake, I had left the industry before MIFID II
took effect, I was unaware.

~~~
dogma1138
Even without it I’m not sure that a dark pool is even possible on Globex or
any of the large exchanges, these are usually reserved for smaller exchanges
that are set up as an alternative trading system.

CME is also pretty pedantic in regards to who can trade on its platform.

Overall looking at the historical trade data there doesn’t seem to be any
unusual trading patterns in the trades that VF reported as suspicious either
in volume or position.

As far as the last minute trade goes this is very common not only on Fridays
but at the end of every trading day where traders push a large number of
trades just before the bell hits it’s pretty common practice it’s pretty much
like taking out the trash.

------
m0zg
IMO this won't stop until someone with a good amount of cash sues one of these
mainstream outlets for slander/libel/defamation and wins, taking down the
outlet, Gawker-style. The larger the target, the better.

I'm all for freedom of the press, but in recent years there's complete lack of
accountability, where people write complete bullshit, _knowing_ it's not true,
to chase the clicks or score political points, and then retract it on the back
page days later, or not at all. And of course, nobody reads the retractions.
There needs to be a modicum of fact checking applied to all this, as it was,
say, 20 years ago.

~~~
dna_polymerase
Case in point the whole Bloomberg Apple Spy-Chip fiasco. Turns out Bloomberg
reporters are paid for moving markets...

------
lordnacho
As an ex-derivatives trader, the Vanity Fair article leaves me short of
evidence for anything nefarious.

First of all, Trump tweets a lot. You wonder if he does anything else.

Second, the market trades a lot. S&P minis are possibly the most liquid market
anyone can think of (10yr future? Dunno).

Third, a lot of derivs trades are misunderstood. For example, when I was
running a fund someone sent me an article suggesting China had abandoned
capitalism. Their evidence was a massive open interest in some S&P put strike.
Turned out it was just a big box trade, which by its nature can take up a lot
more contracts than risky bets.

[https://en.wikipedia.org/wiki/Box_spread_(options)](https://en.wikipedia.org/wiki/Box_spread_\(options\))

My main thought about these big trades is they might well be hedges. Perhaps
someone running an ETF or other index linked product managed to land some
customers and needed to match the exposure.

In any case, I doubt it's insider trading. The regulators are very good at
finding even very small cases. You read about it now and again that someone
who isn't even in the US got busted making themselves a few hundred grand.

~~~
speedplane
> I doubt it's insider trading. The regulators are very good at finding even
> very small cases.

I am not a trader, but I have anecdotally come across many instances where
minutes or hours before a company releases big stock-moving news, the stock
price creeps up or down in the direction that the news will eventually move
the stock. It seems like insider trading is rampant.

~~~
kasey_junk
That’s not insider trading, thats market sentiment being correct. Thats an
expected and desired outcome.

~~~
speedplane
>> I have anecdotally come across many instances where minutes or hours before
a company releases big stock-moving news

> That’s not insider trading, thats market sentiment being correct.

In the instances I have seen, the news that came out was not expected to come
out at the time it did. It was not a scheduled quarterly report or public
filing: these were surprise announcements. The market moving up or down
before-hand seemed like pretty obvious proof of insider trading.

------
darawk
I'm honestly shocked that anyone here would take that Vanity Fair article
seriously. It made no attempt whatsoever to link the trades to one another.
The events in question were diverse, and would have required access to many
very disparate sources of insider information. And most importantly, the
article made no attempt to establish that these trades were unusual. How
common are trades of that magnitude? Such a basic question, left completely
unaddressed. It's mind numbing that they would think it's acceptable to
publish something that lacking in critical thinking.

~~~
dogma1138
You can’t link the trade the public data that CME publishes for free or under
their paid service is an aggregate they will never disclose individual trades
other than through their mandatory regulatory reporting.

~~~
darawk
Of course. But they could try to provide _some_ circumstantial evidence that
they were the same. Similar trade sizes, similar execution patterns, etc..
There are way they could have attempted to make their case. If they cared at
all about making a case, that is.

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wdn
30 points in S&P is 1%, that’s an everyday range.

Beside, who said the short there is not profit taken or people bailing out or
even arbitrary trades.

------
crb002
Two sides to every trade. More curious which side lost their shirt.

~~~
svd4anything
It seem possible the journalists are just looking at huge end of session
volumes, which happens every day, and then writing their fantasy fiction news
article.

CME transactions are anonymized in the market data feed there is a seller for
every buyer, but one side is an aggressor or initiator. Now even if they are
aggregating initiator transactions in a specific direction it is perhaps
slightly more meaningful and could indicate a rush of orders from an informed
trader or group of traders. However most likely these journalists are clueless
and have been misinformed by some amateurs.

------
latencyloser
Disclaimer: I used to work there years ago as a programmer and got a lot of
exposure to this stuff. My opinions are my own and that's all these are.

I think this article is a bit over-hyped. I know in my circle we sorta joke
that trump trades on his tweets, or has cronies/staffers/friends that do, and
he probably does. I'm sincerely not sure how anyone would know for sure,
that's beyond me.

In any case, by the time things hit the exchange it's mostly just brokers and
market makers. There's few "people" that trade directly on exchanges. Some big
firms, sure. But I doubt any one person profited heavily from this. Another
thing to remember, you've gotta have the money to actually buy all these in
the first place and that's a lot put on the table. 82k contracts at the money,
about a month out right now would cost me ~$84mm. I'm sure insiders get better
margin rates than me but that still gives some idea as to the barrier of entry
for this kind of trade.

If the traders expected a large move, why trade all at the final hours? Why
not spread the volume over a few hours or, hell, even days like the article
alleges they had on occasions?

There's entire teams of people at large brokerages and banks that work
specifically on hiding their large trades among the normal volume, so
competitors don't intentionally try to ride the large, incoming volume. Any
coordinated effort would've probably participated in such a process or done
something similar.

The article also mentions just the futures, but doesn't say what strike and
expiry. Depending on these, it greatly effects the actual outcome and cost of
entry. These would also be interesting bits of journalism as it would speak to
the level of risk assumed in these bets: way in the money = safe, way out =
risky, short-dated=risky, far-out=safe. This suggests to me that the author
doesn't really know how these contracts work?

Similarly, these types of securities are a more of a zero-sum game than
equities, someone was on the losing side of those trades and they thought
whatever position they took was worth the premium paid to them. There's really
no "averaging down" in derivatives in the same way as equities, they expire
and so does their value. Again, how quickly this happens depends on the
contract expiry which the author omitted.

Lastly, derivatives traders love volatility. This presidency and recent world
events have created lots of volatility. It's no surprise these contracts are
seeing lots of activity.

I guess I just don't really see the plausibility to this and the article
itself is painfully uninformative.

Somewhat related story time:

I used to sit and watch the pit the e minis traded in close on occasion--
always kinda quiet towards the end of the day until the very end when things
picked up. E minis still got quite a bit of volume through the pits at the
time. Trading in my own time years later--much of the volume is on the open
and the close electronically as well.

Going to meetups with pit traders, I remember a few here and there getting
blitzed and rambling about market makers front-running them somehow and being
able to out compete them because "AI" and "algorithms." But really they just
moved faster and could act on more data than small shops or retail.

The CTO of a market-maker gave a talked I attended and he described how people
yelling and arguing in the pits was such an obvious battle at the "forefront
of capitalism" and people sort of understood and accepting of that. However,
the fear the silence and all that they don't know about the computer and it's
algorithms.-- I think all people somewhat fear finance, derivatives
especially, in the same sort way. What you don't understand or see regularly
can be strange or unsettling.

Obviously I have somewhat rose-tinted glasses on the subject.

------
joeldg
In related news: "People don't understand financial markets ... AT ALL"

------
blondie9x
Literally one sentence response. Why so little? If it’s patently false prove
it.

~~~
dcolkitt
The Vanity Fair article would be like me claiming that every single jackpot in
Vegas last week was won by the same person. Without any supporting evidence of
that assertion, or any explanation about how I came to this conclusion.

Then Bellagio just responds "Uhhh... No... That didn't happen."

Before demanding that Bellagio compromise the privacy of their customers to
explicitly dis-prove it, maybe, just maybe the original journalists should
provide some actual evidence. Something besides "Nah-ah. They totally were all
the same person. Don't ask me how I know it. I just do."

------
akersten
Oh, "These transactions were entered into by a significant number of diverse
market participants."? So, the insider info was shared widely?

Well CME - if the allegations in Vanity Fair are indeed false, why not sue
them for libel/publishing materially false information harmful to your
company? Surely it would be a slam dunk case. Otherwise, I'm tempted to side
with the investigative journalism that resulted in a dozen-paragraph article
with facts and figures, over your "that's not true" one-liner.

~~~
H8crilA
Look, this is perhaps the most traded future contract in the world. There are
billions in nominal value rolling over all the time, it's just business as
usual. The last hour of Friday is especially important because participants
hedge their portfolios before the weekend starts and all markets are closed.
US is the last big market to close each Friday.

What really happened is that people traded contracts like always, and then big
events happened. And one party of the transaction won, the other lost (on this
particular position; you don't know their full portfolios nor you know their
reasons for getting into that trade).

Matt Levine (see Hanky-panky 2):

[https://www.bloomberg.com/opinion/articles/2019-10-18/half-a...](https://www.bloomberg.com/opinion/articles/2019-10-18/half-
a-share-of-stock-is-better-than-nothing)

I doubt the CME cares much about the "problem" to sue some low quality
publisher. I'd say it warrants no more from them than this short paragraph
written by their PR intern.

