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Information Asymmetry


Matt Levine, Bloomberg, Eric Schneiderman, Wall Street Time -Machine Sheriff, here. You see with code, you can write the slowest-shittiest-obscure code and brag in email about how high performance and robust it is and the NY Attorney General will never question the quality of your code. Ultimately the email extolling the virtues of your code creation, no matter how horrific, will be ignored and then deleted. You can have entire blogs filled with penetrating insight and mirthful comedy devoted to showing how relatively slow, detuned, and apathetic the average Wall Street Coder and their manager is and it will not change the perception of code quality because, of some good reason that I do not know of at the moment. But if you directly mess with the data, even for a blink of an eye, you can be hunted down and have your instant messages published on Clusterstock and other bad things.  Data? Just say No. If you absolutely have to touch data, for goodness sake use code to change the data.

But this is a weird lesson to draw! The lesson is not that you are dumb for buying or selling Thing X at 1pm or 3pm or 10am, when there’s no market moving data about. The lesson is that you are dumb for trying to buy or sell Thing X at 2:00:00.00whatever. Who is doing that? Mostly high frequency traders with slower time machines, one presumes.**** Humans take 300 milliseconds to blink, as the financial press will now tell you, so all you have to do to avoid being picked off by high frequency traders with illicit access to news is blink once before trading. There you go! The danger has passed.

Felix Salmon, Reuters, Inter-dealer brokers’ inside information, here.

It’s hard to keep track of all the charges coming out today, in a coordinated fashion, against inter-dealer broker ICAP. For those of you who like primary documents but who don’t fancy wading through 26 pages of the the English FCA complaint or 58 pages of the US CFTC order, let me recommend the juiciest one of the lot: the Justice Department’s criminal complaint against three ICAP defendants, Darrell Read, Daniel Wilkinson, and Colin Goodman.

Goodman is the cash broker, based in London, who called himself Lord Libor. Every day, he would send an email to the various banks which contributed to the daily Libor fixing, giving them “suggested Libors” for where they should report yen Libor at 1-month, 3-month, and 6-month tenors. Not all of the banks would follow Goodman’s suggestion all of the time. But most of them would take Goodman’s email as an important datapoint, and some of them would simply turn around and submit whatever Goodman told them the rate was. After all, yen Libor was, especially during the financial crisis, something of a fiction: it’s meant to represent the rate at which banks lend to each other in yen, but by the time of the crisis, there was exactly zero interbank yen lending going on. So yen Libor became simply whatever the banks said that it was — a recipe for manipulation.

Julia La Roche, BI, Instant Messages Allegedly Reveal How Brokers Would ‘Fudge’ Libor Rates For A Client, here.  That’s gotta be the most expensive “zipper-de-do-da” uttered in New Jersey ever.

Cash Broker 1: Hi [Yen Desk Head] with ubs how much does he appreciate the yen libor scoop? It seems to me that he has all his glory etc and u guys get his support in other things. I get the drib and drabs. Life is tough enough over here without having to double guess the libors every morning and get zipper-de-do-da. How about some form of performance bonus per quarter from your b bonus pool to me for the libor service ***


1 Comment

  1. […] FIA PTG Statement, here. Interestingly, you really end up back arguing Levine’s point from Information Asymmetry of who is being harmed by this possible information asymmetry and what is the actual point of […]

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