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TOKYO: A woman plays the popular dating simulation game Ikemen series produced by Japanese mobile content business company Cybird in Tokyo. — AFP
The biggest players on Wall Street? Algorithms
Mysterious programs at the center of ‘Flash Crash’
NEW YORK: They are agnostic on market
direction, but ubiquitous in markets. Firms
like Goldman Sachs and Morgan Stanley may
get the headlines, but algorithms are the real
force today on Wall Street. The mysterious
programs were at the center of the so-called
“Flash Crash” in May 2010, when the US stock
market plunged more than nine percent in a
matter of minutes for no discernible reason.
The swoon, which was reversed within a
matter of minutes, was sparked by a computerized order to sell a large quantity of
S&P 500 futures in a short period. That, in
turn, triggered a chain reaction of other
computerized orders by high-frequency
traders. The quickfire crash and recovery
underscored the pivotal role of algorithms,
which execute automated trades after taking instantaneous readings of inputs that
can include news events, economic data and
stock price movements.
The era of automated trading began with
the 1971 founding of the Nasdaq market,
which introduced computers to Wall Street
in a significant way. Today, algorithms are
the 900-pound gorilla in markets, playing a
role in the vast majority of securities transactions. “I would say it is 90 percent algorithmic, but there is not a great way to quantify
that,” said Valerie Bogard, an equity analyst
at Tabb Group, a research and consulting
firm. “Even though (people) may send an
order through a sales desk, it is possible it is
going through an algo.”
Wide variety
Algorithmic trades vary in complexity and
can be carried out with minimal human
involvement once they are set up. For example, the branding and technology company
T3 has created a robotic, or “bot,” system that
reads US President Donald Trump’s Twitter
feed and implements stock trades if it determines based on a quickfire reading that there
will likely be a negative impact on a company’s shares. Other firms, such as QuantCube
Technology, use algorithms to make trades
following analysis of so-called “Big Data.” But
the most controversial type of algorithms are
those that do high-frequency trading, which
execute buy and sell orders that individually
result in minuscule gains but can add up to
great amounts at large volumes.
High-frequency trades make up a rising
share of overall market transactions and are
often criticized due to their opacity. Traders
in this area have at times engaged in “spoof-
ing”-placing thousands of computer-generated rapid-fire fake trades that are quickly
cancelled. The objective is to coax other
traders into making bets at artificially high or
low prices. “That is just a violation of some of
the rules of trading,” said Eric Noll, chief executive of Convergex Group, a New York brokerage firm.
Link to crises?
The Securities and Exchange Commission
in 2014 levied its first fine for such bogus
trades. Since then, US regulators have
pumped more resources into enforcing the
rules on electronic trading. The SEC now
requires firms to identify those who design
and operate algorithms and can subpoena
documents from firms employing the technology. There has also been a preference
Stop ‘playing with fire,’ Greek
PM warns IMF and Germany
Brussels talks fail to end Greece bailout impasse
ATHENS: Greek Prime Minister Alexis Tsipras
yesterday warned the International Monetary
Fund and German Finance Minister Wolfgang
Schaeuble to “stop playing with fire” in the
handling of his country’s debt. Opening a
meeting of his Syriza party, Tsipras said he
was confident a solution would be found, a
day after talks between Greece and its creditors ended in Brussels with no breakthrough.
He urged a change of course from the IMF.
“We expect as soon as possible that the IMF
revise its forecast.. so that discussions can
continue at the technical level.”
Referring to Schaeuble, Tsipras also called
for German Chancellor Angela Merkel to
“encourage her finance minister to end his
permanent aggressiveness” toward Greece.
Months of feuding with the IMF has raised
ATHENS: Greek Prime Minister Alexis Tsipras speaks during a meeting of his Syriza party
in Athens yesterday. —AFP
fears of a new debt crisis. Greece is embroiled
in a row with its euro-zone paymasters and
the IMF over debt relief and budget targets
that has rattled markets and revived talk of its
place in the euro. Eurogroup chief Jeroen
Dijsselbloem said progress had been made in
the Brussels talks with Greek Finance Minister
Euclid Tsakalotos and other EU and IMF officials. But he provided few details.
The Athens government faces debt repayments of 7.0 billion euros ($7.44 billion) this
summer that it cannot afford without defusing the feud that is holding up new loans
from Greece’s 86 billion euro bailout.
Breaking the stalemate in the coming weeks
is seen as paramount with elections in the
Netherlands on March 15 and France in April
through June threatening to make a resolution even more difficult.
Bailout impasse
Meanwhile, talks between Greece and its
creditors ended with no breakthrough Friday
as months of feuding with the International
Monetary Fund raised fears of a new debt crisis. Greece is caught up in a complicated row
with its euro-zone paymasters and the IMF
over debt relief and budget targets that has
rattled markets and revived talk of the country’s place in the euro. Eurogroup chief Jeroen
Dijsselbloem said progress was made after
five hours of talks in Brussels with Greek
Finance Minister Euclid Tsakalotos and other
EU and IMF officials, but provided few details.
“There is a clear understanding that a
timely finalization of the second review is in
everyone’s interest,” Dijsselbloem said in a
short statement, referring to the long delayed
signing off on the next payment of bailout
loans. The Greek government faces debt
repayments of 7.0 billion euros ($7.44 billion)
this summer that it cannot afford without
defusing the months-long feud that is holding up new loans from Greece’s 86 billion
euro bailout.
Breaking the stalemate in the coming
weeks was seen as paramount with elections
in the Netherlands on March 15 and France in
April through June threatening to make a resolution even more difficult. But Dijsselbloem
also warned that the next meeting of eurozone ministers on February 20 —seen as an
unofficial deadline ahead of the votes-would
still be too early for a breakthrough. “We will
take stock of the further progress (during that
meeting)”, said Dijsselbloem, who is also
Dutch finance minister. The central focus of
the talks was whether Greece can deliver a
primary balance, or a budget surplus before
debt repayments, equal to 3.5 percent of GDP
for several years after the completion of the
current bailout in 2018. —Agencies
among some investors to rein in the
machines. The New York Stock Exchange has
announced plans to slow down transactions
in one of its platforms, following the introduc tion of a similar mechanism by IEX
Group, which delays transac tions by
microseconds.
These moves were taken in response to
criticism that high-frequency traders were
stiffing investors by driving up transaction
costs. But market insiders say there is no evidence of a clear trend as far as whether highfrequency trading makes the market more
prone to crises than with conventional trading. After all, markets were also prone to violent gyrations prior to when the machines
took over. “When the crash in 1987 happened, it was before algos,” said Noll. “It is a
somewhat harsh reality but true.”— AFP
Egypt’s inflation
hits 29.6 percent
CAIRO: Egypt’s annual inflation rate hit 29.6
percent in January, official figures showed
yesterday, three months after the government floated the pound in line with an
International Monetary Fund bailout. Prices
were rising even more quick ly than in
December, when inflation stood at 24.3 percent, the highest level since January 2011
when the Arab Spring uprising was at its
height. Consumers have been hit by surging prices since November when the government floated the currency and slashed
fuel subsidies as par t of an economic
reform package linked to the $12 billion
IMF loan deal.
The Egyptian pound, which had been
pegged at 8.83 to the dollar, has been trading at nearly 19. Food prices have gone up
even more than those of other goods, rising
by 38.6 percent year on year. IMF mission
chief Chris Jarvis said last month that he
expected inflation to ease significantly in the
second half of the year.
He said Egypt had made a “good start” on
the reform package it had signed up to. In
addition to the pound’s devaluation, the
government also raised tariffs on hundreds
of imported items to up to 60 percent in
December and introduced a value-added tax
in September. The IMF approved a first $2.75
billion tranche of emergency loans in
November after Egypt’s foreign currency
reserves plunged. The tourism sector, which
is one the main sources of foreign currency,
has been badly hit by a persistent jihadist
insurgency. Egypt is set to receive a second
tranche of $1.25 billion.—AFP