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.
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).
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.
Agreed. My experience with regulators, CFTC and SEC, was they were pretty no-bullshit about auditing and compliance. We jumped through a lot of technical hoops to make them happy.
My colleagues would get called away for hours, days explaining how our systems worked, how we verified it. etc. I recall some had to go testify in court about them!
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.
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!
What they should prove? They are a derivative exchange, it’s obvious that at any single time there are people buying and selling huge quantities of one of the most traded futures in the world...
Vanity Fair didn't prove any evidence though. They just said "trades were made". Were those trades of unusual size? Unasked. Is there reason to believe those trades were made by the same entity? Unasked. They just insinuated things without actually trying to establish anything.
That which is asserted without evidence can be dismissed without evidence.
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.
"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."
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.
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."
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.
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.
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.
At least one person* has claimed that some of the numbers were just obvious lies; that the 386,000 e-Minis Vanity Fair says "someone" bought in the closing 10 minutes on Friday was close to the total volume of thousands of trades in that interval.
Note also that Vanity Fair used an extraordinarily loose definition of "group"; they don't mention any evidence that traders were collaborating, other than that they made the same trade near the same time.
On Friday near the close the volume is much higher. I repeat the same question that I asked in another comment, why they didn’t wait until Monday morning to buy it when the price was much lower? And they would have known it given the current market trend.
I think that Occam’s razor gives the answer in this instance.
If everyone knows that the price will be lower on Monday, then the price will be lower on Friday. You can’t look at a “trend” and know where the price will go, otherwise the price would already be there!
Nobody can know for certain whether the market will be higher or lower on Monday. If you think it’s so easy to infer market trends where’s the billion dollars you made trading the e-mini?
This market opens late Sunday and closes late Friday. People trade a lot of /ES in the final hours before the close, because it's the last opportunity to hedge and set the portfolio before the weekend. Like every week.
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.
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.
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.
> 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.
>> 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.
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.
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.
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.
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.
Probably no one. This is very common, and you don't know why people trade futures, in the sense that you don't know why was this or that trade executed. A lot of that activity is institutions hedging their portfolios.
It's like when people get excited that someone buys a LOT of put options on, say, Apple. But you don't know that someone's portfolio! Perhaps they already own a ridiculous amount of Apple stock. And the option seller may instantly hedge by getting an appropriate amount of short AAPL.
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.
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."
The original article said that X contracts were traded by a single party right before the close, where X was actually the total number of contracts traded by all parties. So either Vanity Fair didn’t fact check their article or zero other people happened to trade during that time frame (which is as about likely as zero people deciding to go to the grocery store on a given day).
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.
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).
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.
I think that it’s not unreasonable to exchange hundreds of thousands of contracts in the direction opposite to the current market trend given the volume of about 1.2M for ESU19.
The instance where 386k were bought may be a little bit more suspicious, but then why they didn’t buy much more on Monday before the news when the price was much lower?
They would have really done a killing doing so.
I’m no trader but I’m quite skeptic of these accusations based on my once in a while glance at the ESU19 L2 market data in the past months.
Edited to add the HN link: https://news.ycombinator.com/item?id=21278009