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This Washington Clown Can’t Juggle

3 | By Shah Gilani

Policing Wall Street is hard work.

The U.S. Securities and Exchange Commission, the undisputed top cop on the Street beat, has its work cut out for it. The enforcers at the SEC have to juggle what and whom they go after because, after all, they don’t have unlimited resources.

We all get that.

What I don’t get is why they drop the ball on some of the biggest schemes staring them right in the face.

Take “fair and orderly” markets for example.

They’re not always orderly, and the truth is they aren’t fair.

The folks at the SEC know this. So why have they taken so long to do so little about it?

They say they’re making progress.

Here’s why you can’t believe that…

Nothing but a Limp Reprimand

Last week, with some fanfare because it was the largest fine in such a case, the SEC came down on UBS Group AG (NYSE: UBS) for not following the rules and regulations that make markets fair and orderly – and also for not being honest to its clients.

The record fine was all of $14.4 million (not billion). Maybe that’s why you didn’t hear about it. It wasn’t newsworthy.

The SEC slapped UBS, which runs the second-largest dark pool in the country, on the wrist for violations that occurred from 2008 through 2012. During that time, UBS’s dark pool offered select market-makers and high-frequency-trading desks illegal order-types. Additionally, UBS broke promises to its own clients, who were told their dark-pool trading data would be strictly confidential.

Because the minimum increment stocks can trade is 1 cent, it is illegal to submit orders in increments of less than a penny. But that’s what UBS allowed its favored clients to do. Not everyone mind you, just select market-makers and HFT traders. That’s illegal because bidding or offering at less than a penny moves those orders up in line ahead of pending orders by others who abide by the rules.

UBS also let 103 employees access confidential trading data that dark-pool clients were promised would be strictly confidential. What’s most galling about this breach is that exposed trading data could have been used by UBS’s own trading desks to trade against its dark-pool clients.

I’m not the kind of guy to say UBS did that. But if I was, I’d sure be saying it now.

Not a lot about dark pools and high-frequency trading is newsworthy as far as the mainstream media is concerned. But it is newsworthy when it comes to trading, to exchanges, to the fabric of the capital markets.

According to a Bloomberg article about the UBS fine, “The proliferation of exchanges and dark pools has also been defended by some at the agency. Gregg Berman, the Princeton-trained physicist who runs the SEC’s analytics office, said last year that the desires of investors and investment managers entails ‘an unavoidable increase in the complexity of our markets.'”

Complexity? Really? Coming from the SEC, that’s shamefully absurd.

Markets are not complex. It’s the quote-stuffing, end-arounds and front-running that the SEC has allowed that’s complex.

What’s complex is how and why the SEC ever allowed the trading shops, market-makers, banks and brokers it sanctifies and coddles to cheat the public and hijack the exchanges and capital markets under its watch.

Remember, these are the entities the SEC is supposed to regulate.

It’s not “regulatory capture.” It’s collusion.

If the SEC regulators weren’t in bed with the harlots who screw us all, they wouldn’t be juggling all these balls – and failing. They’d be displaying a pair of brass… handcuffs… and locking these crooks up.

A $14.4 million fine? UBS probably makes that every half-hour on its HFT desk.

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3 Responses to This Washington Clown Can’t Juggle

  1. T Aveller says:

    Shah, I occasionally pick up your comments and like them.
    As a very slight investor, it is very apparent to me that most of the markets are now rigged, including commodities by the Banks, Hedge Funds and other major investors especially using HST.
    These folk have the funds to move the markets and doubtless, with put and sell etc, are able to make a decent margin on almost every trade, never mind the big market moves!!
    They do this by screwing the small guys and thus stealing their honestly invested money – a $ at a time!!
    You seem to be pretty much alone in calling this what it is – and the collusion of the so-called regulators who are pretty much in bed with the free spending heavyweights [The many Wolves of Wall Street??!!]
    As the English would say – Please keep blowing the gaff on these illustrious crooks!!

  2. ALAN STEINBRONN says:

    Shah Gilani said ”A $14.4 million fine? UBS probably makes that every half-hour on its HFT desk.”

    Looking back in hindsight (this is being posted Jan 24) Shah Gilani’s statement is a major UNDER-statement.

    When one thinks of the latest Swiss Central Bank move – to UNPEG it’s currency which caused MAJOR disruption in the FX market (all within 10 minutes, mind you) – one clearly realizes the BILLIONS, if not trillions, that the Swiss Central Bank ‘insiders’ made while trading that move.

    Or does one think that there were NO ‘insider’ trades set-up WELL before the SCB pulled the plug?

    Call it RETALIATION for US meddling in Swiss banking practices.

    That $14.4 million fine was clawed back within the first 9 seconds of the SURPRISE !

    And the Swiss are laughing their a**es off and thumbing their nose at the stupid US tactics aimed to ‘mess’ with the Master Bankers of the World.

  3. Alec Amos says:

    As a person who has worked hard all his life, I find it shocking to read of such going’s on in the financial world. I follow your writings with interest. I wonder where this is all going to end. In tears I fear.

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