Volatility & Algorithmic Trading (Themis white paper)

John Mauldin, an American CFA with some buddies in the establishment (Stratfor) recommends Themis Trading white paper Toxic Equity Trading Order Flow on Wall Street, in his weekly newsletter 'Out of the Box'.

In short, certain market actors (makers?) are involved in mutually beneficial relationships with certain exchanges wherein they use massive computing resources close coupled to the the exchange infrastructure in order to arbitrage the market through algorithmic trading techniques most likely exploiting certain marginal privileges they enjoy as market-makers, together with their unmatched response times, and presumably unmatched pocket depths (hey, if you owned the Fed ?).

Basically they shake the sieve and collect what falls through. Not much gets through, but if you have a million sieves, then you're in business. And everyone else is not.

On an entirely unrelated topic, Goldman Sachs recently reported an INCREASE in earnings of 33 % (according to Reuters) over the last quarter. Now I'm not exactly sure what the period is, but it must be approximately March-June, which is pretty much the bull period of the last bounce, so all I can say is that it would certainly appear as if they timed things to a tee. It should possible be noted that this is a period in which most participants in the real economy, developed and not, continue to experience almost unprecedented levels of adversity.

In the Reuter's article, NY money manager Michael Holland is quoted as saying "Even though I was prepared for really good results, the magnitude of their success in trading I think is breathtaking.", and "They are showing once again that they are the smartest guys in the room.".

Ahem.