By Michael Kitchen
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launched an investigation into communications between some stock exchanges
and high-frequency trading firms, looking for any collusion to...
By Jean Eaglesham, Jenny Strasburg and Scott Patterson
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said Gary Gensler, the agency's chairman.
By Carla Main,
Britain's Serious Fraud Office, which prosecutes corporate bribery, uses
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for Economic Cooperation and Development said.
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Opening Statement of Commissioner Bart Chilton to the CFTC Technology
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Thanks to Commissioner O'Malia for his leadership of the Technology
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For Immediate Release
Friday, March 23, 2012
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WASHINGTON, March 15, 2012–The annual meeting of the Advisory Committee on
Agriculture Statistics will take place in Washington, D.C. on March 29-30,
2012. The meeting is open to the...
WHY MARKET RALLY IS JUST AN ILLUSION
By JOHN AIDAN BYRNE
No volume except for computers
The surging stock market is a bit of a con job, trading executives say.
According to the pros, the roughly six-month market rally (down days notwithstanding) has nothing to do with any signs of a economic turnaround on Main Street.
You can see the disconnect in the number of shares being traded.
The volume of New York Stock Exchange-listed shares in all markets averaged 3.8 billion in the last quarter-a sharp drop of 14 percent from the same period in 2011. In Standard & Poor's 500 stocks, it's averaging about 5.8 million shares this year, a steep 27.5 percent decline from 8 million in 2009.
The market's overall rise since October is on sharply lower volume, as many hedge funds have disbanded, and skittish investors have rushed to exit equity mutual funds for bonds and other asset classes.
"The volumes are affecting everybody, let's be real about this," Doreen Mogavero, an NYSE floor trader, told The Post. "We have a different participation in the market than in the past.
"These lower volumes indicate that there are now more professional traders than retail investors as a proportion of the market."
Mogavero is talking about professionals who have been around for several years and are at center stage today, driving stock-market performance: high-frequency trading firms. These are the companies who are propping up the new lower volumes. They account for the majority of US stock volume-as much as 70 percent on some individual stocks and more than 50 percent in the overall market, according to researchers.
These Silicon Valley-inspired computerized trading machines flip stocks back and forth all day at lightning speed-faster than the blink of an eye-making money off price anomalies. And they pocket nice rebates on their orders to the NYSE, Nasdaq and other markets.
That flipping is magnifying volume and moving stock prices up and down intra-day. The US markets have seen a 14.23 percent surge in the Dow Jones industrial average since October and a corresponding 20.05 percent rise in the Nasdaq. But much of the activity is phantom and phony, some pros say.
Nicholas Colas, chief market strategist at ConvergEx, says the stock market's recent rise defies the old Wall Street axiom that "volume confirms price." And, he added, "that puts the October-to-present stock rally in some doubt, as total shares traded continue to decline with the same velocity that equity prices maintain their ascent."
Some traders are shaking their heads. "We are extremely worried," said Joe Saluzzi, co-head of equity trading at Chatham, NJ-based Themis Trading, an institutional agency brokerage for mutual and hedge funds. "When people are trading 300 million shares in Bank of America, just flipping it back and forth for a rebate, that's garbage volume. That doesn't do anything for anybody. And yet, day after day, BofA is No. 1 in volume of shares traded."
Nonetheless, many of these high-frequency players have scaled back their trading lately. That's because the volatility that benefits their strategies has subsided on the lower volume. And because there are fewer "real" orders for them to play with from mutual funds and hedge funds that have left the market.
"The only way these high-frequency firms can operate is by kind of feeding off the real orders, the traditional institutions flow," said Saluzzi. "But they are not stock picking like others were in the past."
Meanwhile, average retail investors have run from the stock market. They've been bashed too often, from the famous dot-com bust to the financial crisis that erupted in 2007. And memories are fresh of the May 6, 2010, "Flash Crash" that temporarily erased 1,000 points from the Dow.
In 2011, net US fund equity outflows were a staggering $168 billion. Foreign and US investors last year withdrew the most out of the US stock markets since at least 2004.
Adam Sussman, an analyst at the Tabb Group, said investors are in a state of trepidation. Much of their money has moved into bonds. Bond inflows are outpacing equities 5-to-1, according to a recent Lipper report.
"We've had a great stock market performance, but it hasn't really been on any kind of conviction," Sussman said.
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