Spoofing, Bonuses and a Pile of Gold

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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The Sarao saga continues.

We're getting a fuller picture of alleged flash-crash spoofer Navinder Singh Sarao, and from what I've read he seems like a recognizable type. Specifically, he's the sort of day-trader who whines a lot about how markets are rigged against him and how he'd be making so much more money if it weren't for those evil high-frequency traders. "I don’t like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN IT," he told the U.K. Financial Conduct Authority last year, though he also told the FCA that his own trading was pretty fast because "I have always been good with reflexes and doing things quick." His correspondence with regulators is all in all pretty nutty -- "I am a trader who changes his mind very very quickly, one second I am prepared to buy the limit of 2,000, the next second I may change my mind and get out" -- but I have to say that I kind of believe that he believed it. He describes some of the modifications that he asked to be made to his trading software, which U.S. authorities have depicted as being spoofing-oriented, but which he saw as a way to "help try and hide my orders from these people," i.e., the high-frequency traders who he thought were front-running him. The line between lying about your trading intent (spoofing) and disguising it (avoiding HFT) can be fuzzy.

My overall impression is that I would rather chew my own ear off than discuss market structure with Sarao, but I'm a little less convinced of his guilt than I was when the charges first broke. And here's my Bloomberg View colleague Michael Lewis:

Lewis says he could keep on listing questions about Sarao’s arrest late into the night, like “Who was his broker?” and “So where did he get the idea that you could game these algorithms — that you could game the Goldman Sachs algorithm?” He continues: “It would be interesting to ask which of the prominent algorithmic trading operations have engaged in spoofing, and have not been called on the carpet for it,” he says. “I don’t know but I could point you to someone who has the data in the market that who claims that they all do it. It seems very unlikely that this kid, this guy in Hounslow, is doing this with such great effect and no one else is.”

Here is Lewis at Bloomberg View, discussing Sarao with Eric Hunsader. And here is Bryan Caplan on the Mellow Heuristic.

Another fun trader.

Oh man, the guy suing the Lehman Brothers bankruptcy estate for his $83 million bonus, despite having received a suspiciously similar $83 million bonus from Barclays when it took over his unit of Lehman, testified yesterday, and it went exactly as you'd expect:

“Were you confident you could get an offer from Citadel,” Mr. Baumstein asked. “I’m still confident I could get an offer from Citadel,” Mr. Hoffman replied.

When Mr. Baumstein later asked Mr. Hoffman what he wished he would have done differently, Mr. Hoffman said, “Worked for Millennium,” referring to Israel Englander’s Millennium Management LLC, a New York hedge fund with which Mr. Hoffman said he interviewed.

Other names were dropped. I have spent some time this morning pondering this question: Would my life be better or worse if I were in a position to be mad about getting only one $83 million bonus in a year when my employer went bankrupt?

"Closed End Fund Arbitrage and Hostile Takeovers."

I really enjoyed this post from pseudonymous financial blogger Kid Dynamite, about an attempt by a shareholder activist to force changes at a company by waging a proxy fight. It is in many ways a very standard story: The dissident argues that his changes will create shareholder value, while incumbent management argues that the proposal is short-term-oriented and not in the best interests of the long-term holders of the company's stock. What makes the story so strange is that the company is not really a company, it is just a pile of gold in a Canadian vault: It's Central GoldTrust (GTU), a closed-end gold fund. The activist, Polar Securities, wants to improve redemption features to make GTU trade at less of a discount to the value of its gold. Somehow management, and even Institutional Shareholder Services, think that this is "short-term and opportunistic."  But it's just a pile of gold! It's not, like, investing in research and development. You can't increase the long-term value of your gold. All you can do is make sure your pile-of-gold fund trades at close to the same price as the underlying pile of gold, which is sort of invariant to timeframe.

Useless skills.

I don't really believe the idea that some business schools are better at teaching "creative problem-solving" and others are better at teaching "strategic thinking," but this Bloomberg matrix of what skills employers want and what skills MBA graduates have is delightful. The worst but most common skill is "entrepreneurship," which makes a kind of sense; lots of MBAs want to be their own bosses but their bosses are less thrilled about the idea. Desirable rarities include "communication skills," which, again, makes sense when you look at the current state of corporate presentations.

Things happen.

People are worried about bond market liquidity. Joseph Cotterill on the Great Bonar Caper. What's Providence Equity Partners up to? So Lynn Tilton Filmed Another Video Address From Her Living Room. "This case originated out of the Government’s long-term investigation into criminal conduct at the Port of New York-New Jersey, which uncovered the charged 'pump and dump' stock fraud scheme." Google chairman Eric Schmidt bought Lehman's 20 percent stake in D. E. Shaw. Lead Activist Lawyer Leaving to Run Morgan Stanley Defense TeamRepo and Securities Lending: Improving Transparency with Better Data. The National Raisin ReserveEntire Treasury Department Competing For Same Goldman Sachs Job Opening. There are a lot of nuns. Apple Watch erotica. Air sex.

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This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net