Yet another wonderful example of the ‘unintended consequences’ of the policy makers desire for permanent market liquidity and zero interest rates. I see regulators and policy makers have been out this weekend calling for yet more regulation. This time for the use of such black box ambush systems.
For the smart cash investor they present wonderful opportunities in fact. Pouring endless liquidity on to market participants will inevitably lead to such approaches. As always policy makers are caught by ‘surprise’.
Here, below, a nice example of an early morning (US eastern time) HFT ambush on NLY.. Absolutely perfect. This 1min chart doesn’t show the volume battle that occurred. The volume surged in minutes with double the days normal volume occurring in a 5 minute black box system battle. Fascinating stuff for those that enjoy these things.
And here below a volume chart of the 5 minute hft ambush. Here im more interested in who was the mystery buyer against the black boxes that was pouring money into defending the attack. I would guess primary dealer type large institutions that have a implicit policy role of supporting markets when liquidity dries up and when volatility becomes too great. This is almost as worrying as the hft’s. Here the volume chart.
Policy makers historically solve one problem by introducing yet another. The idea of liquidity ‘policemen’ in the markets worries me greatly but whoever thinks we have ‘normal’ capital markets is clearly on the wrong planet. So it goes on. Rich
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