Market Curiosity: Exploring Markets And Systems

May 6, 2011

Deconstructing Mr. Chilton’s interview… (update 1, Nov 5)

Filed under: Editorials, Systems — Tags: , — Jeff Fitzmyers @ 11:13 am

CNBC interview: Sure, just keep blaming “speculators”, instead of doing your job.

This is extreme volatility that we’ve seen and I don’t think that’s good for markets, for traders or, most importantly, for consumers.

It is very likely the volatility is a result of imbalances, not a cause. So a proper statement could be, “The extreme volatility is a result of imbalances and shows the system is not currently set up, nor managed properly.”

We just need to make sure that prices are based upon fundamentals.

How do you propose to do that? That’s why free markets work and centrally controlled ones don’t.

… everything can’t be a safe haven against the dollar.

Why not? All fait currencies have died. So near the end literally everything is a safe haven to one degree or another. If you don’t understand that, how can you possibly decide what fundamentals are worth?

We’ve got to make sure that these programs that some of these cheetah traders let loose…don’t go feral … if they cost people money, we need to ensure there is some accountability,” Chilton said. “So I think we need some testing, I think we need kill switches.”

“Some” accountability? How about full accountability. Any trading mistakes I make cost me 100% and me alone 100%. Why not everyone else? Test what? under what conditions? What is the goal? Who is going to manage the kill switch? Who is responsible for the aftermath? Just empty sound bites.

High frequency trading has been around for a while. Why have you not done something if its a problem?

If we did “doge a bullet” last year, it was likely in spite of the CFTC not because of it. And this is the person who many regard as the most helpful.

A simple recipe for efficient markets. This fixes HFT, naked shorting, position limits, margin determination, and questionable floats.
+ Margins for everything and everybody: 90% of maximum 24 hour high/low price range for the past 3 months, updated every minute. That way everyone knows what the margins are, and will be. NO exceptions.
+ Bids and asks are cued up and batch executed in 1 second intervals. NO exceptions.
+ All things traded, and all traders, trade on a exchange, where all parties meet margin. NO exceptions.
+ Every exchange is monetarily responsible for all failures. NO exceptions. NO bailouts.
+ Only published bids and asks (fee, free, or delayed) can be executed. No dark pools. NO exceptions.
+ For deliverables, maximum position limit of 150% of trailing 12 months of “Issued” or “Stopped” warehouse activity on all futures contracts. With a maximum 5% of open interest. NO exceptions.
+ If you cause a miss trade, you pay for it in full. NO exceptions.
+ No naked shorting in stocks. All shorts must borrow stocks first, then short. NO exceptions.
+ Shareholders transparently indicate the interest they charge (0 to 100% — the default) to have their shares shorted. NO exceptions.
+ If any entity owns more than 1% of anything, who, what, and when, must be disclosed in realtime. NO exceptions.
+ All shares, contracts, and total float, are created and verifiable via cryptography.
+ Anyone caught pays 5 times the notional value of the transaction.

A simple recipe for fraudulent markets:
– Have PLENTY of exceptions.
– Take 6 eons to “study” or “investigate, or “test” something nebulous.
– Have 16 trillion rules that only apply to some people, some of the time.
– Try to figure out what prices “should” be, with exceptions.
– Make sure a lot of politics and blame are involved — but only blame those who have little political power.
– And never address, nor make amends, nor make changes for something like:

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