Profile picture
, 21 tweets, 5 min read Read on Twitter
Its a rage to talk buybacks=RAMP BUT:

1. buyback securities have underperformed
2. epic buybacks didnt hold mkt up in Oct/Dec

BUYBACKS are NOT imo whats driven this episode - INTERVENTION via order matching is: THROTTLING

THIS IS OUR THREAD RE THE NEW OFFICIAL INTERVENTION /1
this is going to be an in-depth discussion & a long thread which we will update throughout evening

so come back to check it as it will take an hour or 2 before we’re done with all the posts explaining the conditions/character/repercussions of this new intervention mechanism /2
lets talk abt the types of intervention thatve regularly been used

1. Direct Asset Purchases &/or QE
2. Short Vol (Fed’s favorite technique up till recently)
3. Self-help exchange interruptions

The new one: THROTTLING has huge advantages for the idiot yet intellectual class /3
lets talk about the advantages of ORDER MATCHING CONTROL/THROTTLING 1st by identifying disadvantages of other mechanisms:

forSHORTVOL biggest disadvantages are that Central Banks hold the other side of the derivatives risk. Additionally, they have the potential to be visible /4
When a short-vol book is built (which was up to around $2.7+ Trillion at the @FederalReserve) the CB is literally are using a single mechanism to effect hundreds of thousands of options prices with a single click from their Liberty Street Trading Floor but its not w/o risk /5
there are big problems to this SHORT-VOL mechanism:

1. Its visible as an actively executed trade in the markets
2. Its nefarious and could have blow back (it should)
3. Its risky IF the book blew up BLOWBACK COULD BE HUGE
4. Its unethical

/6
QE/direct asset purchases bring similar risks as short-vol but have VERY LARGE IMPACTS in terms of creation of fractional reserve leverage as these transactions by centralbanks are RESERVES CREATION

PPT direct intervention in bond/stock markets is not the same /7
The problems of all of these programs center are moral hazard, abuse, huge leverage creation & ponzi type fractals. There is no easy way to get out of them once started. And all involve risk of some kind as well as direct fiddling with the economic and market machanism. /8
SO WHAT IF U WANTED TO CREATE SIMILAR EFFECTS AND PSYCHOLOGICAL CONTROL for FREE with no traceable foot prints, no audit risk, no books that might need explaining in the future to irate politicians or others?

MODIFY PRICES/PRICE BEHAVIOR BY CHANGING THE WAY ORDERS ARE MATCHED /9
Last year in the middle of the fall melt down, the @CMEGroup which actively operates for to the benfit or whim of centralbanks/policy makers, began updating servers and implementing the most interventionist moral hazzard order matching intervention we ever saw. /10
we warned last year that IF corruption of order matching were to be pursued that it could have huge effects on markets, prices & structure long-term and would unquestionably breach moral hazard limits - that appears to have happened faster than we every could have anticipated /11
The behavior of prices on the #ES_F and futures specifically have gone though huge changes this year. The nature of the process used merits a closer look at what the process is which we’ll do in the next post /12
-Batch of sell orders are placed
-Arrive at exchange
-If no ready matches, the orders are held for as few miliseconds to a few seconds to wait for enough buy orders to queue
-After buy orders are located the sell orders are released
-This keeps pressure on prices to rise /13
There is something important to note about the above process.

-it’s FREE required no external risk or funds to operate
-it only works in liquid markets
-in globex markets for example orders are often so slow that the throttle mechanism is useless & delays are not effective /14
also, note that these mechanisms are NOT only limited to @CMEgroup @NYSE & @nasdaq likely have build similar modifications to their matching engines /15
NOW what are the downsides? THEY ARE BIG...its seems like throttling orders would be a virtually limitless capability for price levitation...but it does not. WHAT IT ACCOMPLISHES IS INCREASING COMPLACENCY TO LEAD TO A HIGHLY IMBALANCED MARKET /16
For example, a market which has this highly stressed state of forced price levitation can only maintain it when enough buy orders can be queued within the limited amount of time that allotted to the matching engine then the delay actually contributes to faster declines /17
In markets where actual fair transaction are moved to biased transaction picking and choosing who to bail out (to the upside obviously) what happens when many more sellers are queued than buyers can be found? What happens is throttling accelerates the downside but /18
as with central bankers - the answer to all problems is to do more of the trick they know...so in this case, the more throttling is attempted in highly imbalanced order stacks where insufficient buyers can be matched will result in much larger and faster downside /19
It is our view MOST OF THE RAMP off the dec low was NOT exogenously driven by buybacks but rather throttling. OFCOURSE BUYBACKS support prices. BUT ALL BUYBACK INDEXES ARE LAGGING MARKETS & the new official intervention is now order book matching engine sell order throttling /20
we are going to add some documentation to this thread as time permits that refers to the moral hazard breaches in terms of order matching at the @CMEgroup and the evidence that indicates they implemented major upgrades to their servers to support these throttling capabilities /21
Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to mcm-ct.com
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Follow Us on Twitter!

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3.00/month or $30.00/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!