Stock Pools And SEC Investigations Into Leaked Trading Data
I must have had a bout of clairvoyance with the announcement yesterday that the SEC is investigating some very big firms on Wall Street. It was just last week when I talked about the possibility we were experiencing the modern day equivalent of stock pools on Wall Street. Nothing has been proven yet but if this is taking place, it would explain alot about pricing behavior this cycle and the parabolic moves in certain stocks and commodities. It might even have some role in broad market moves across commodities and stocks.
So, let's speculate a little. Let's say you are BigCompanyA on Wall Street. You cater to hedge funds and large trading organizations as clients. You see an order come in from HedgeFundA to buy twenty million shares of CompanyX. If known by other hedge funds, this order could tip the direction of CompanyX. Now BigCompanyA shares this information with other large hedge funds. Not only that but they do so before they actually execute the order. In other words, with these tip offs, maybe ten or twenty other hedge funds or trading firms line up to buy the same investment. What would have originally been twenty million shares purchased might be two hundred million shares or four hundred million shares. The benefit? Drive CompanyX via cumulative buying just like stock pools did in the 1920s. In other words, manipulate the stock or commodity or whatever and create a piling on effect. Is this legal today? Well, stock pools are illegal after being banned post 1929. I'm not an attorney but a former SEC chair said if this is happening, it is definitely insider information and definitely illegal. It gives professional investment firms an enormous advantage and an ability to create significant volatility and much higher profits while the market indices are struggling with very low returns. If you, as an individual, had this information, would it be beneficial? Significantly beneficial. It might even guarantee that my trades would be profitable. And, how does an individual investor compete against that? They can't. And how does this help individual investors? It doesn't. And how does this provide a level field based on fair buying and selling in an open market environment? It doesn't.
I've written time and again that Wall Street is doing the same thing today that they did in the 1920s. They are trading in the markets using their own proprietary trading desks and they are trading against individual investors. Individual investor profits at major Wall Street firms now pale in comparison to the money firms make trading their own accounts. If this SEC inquiry leads to proof this is what is going on, and I am not saying it is, who cares about the individual investor? Just a wild thought?
So, let's speculate a little. Let's say you are BigCompanyA on Wall Street. You cater to hedge funds and large trading organizations as clients. You see an order come in from HedgeFundA to buy twenty million shares of CompanyX. If known by other hedge funds, this order could tip the direction of CompanyX. Now BigCompanyA shares this information with other large hedge funds. Not only that but they do so before they actually execute the order. In other words, with these tip offs, maybe ten or twenty other hedge funds or trading firms line up to buy the same investment. What would have originally been twenty million shares purchased might be two hundred million shares or four hundred million shares. The benefit? Drive CompanyX via cumulative buying just like stock pools did in the 1920s. In other words, manipulate the stock or commodity or whatever and create a piling on effect. Is this legal today? Well, stock pools are illegal after being banned post 1929. I'm not an attorney but a former SEC chair said if this is happening, it is definitely insider information and definitely illegal. It gives professional investment firms an enormous advantage and an ability to create significant volatility and much higher profits while the market indices are struggling with very low returns. If you, as an individual, had this information, would it be beneficial? Significantly beneficial. It might even guarantee that my trades would be profitable. And, how does an individual investor compete against that? They can't. And how does this help individual investors? It doesn't. And how does this provide a level field based on fair buying and selling in an open market environment? It doesn't.
I've written time and again that Wall Street is doing the same thing today that they did in the 1920s. They are trading in the markets using their own proprietary trading desks and they are trading against individual investors. Individual investor profits at major Wall Street firms now pale in comparison to the money firms make trading their own accounts. If this SEC inquiry leads to proof this is what is going on, and I am not saying it is, who cares about the individual investor? Just a wild thought?
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