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By Andrew Ward in Stockholm and Jeremy Grant in London
Published: October 14 2010 22:27 | Last updated: October 14 2010 22:27
A court in Oslo has ruled it was market manipulation. For others, though, it is a tale of how two day traders outwitted the rapid-fire machines that have come to dominate financial markets.
Peder Veiby was trying to earn some money in the stock market to support his studies at the Norwegian School of Management when he was hit by a criminal charge for alleged market manipulation. Now he has found himself at the centre of a landmark legal case involving computer algorithms, or programmes, at the heart of automated trading systems.
Mr Veiby and another Norwegian day trader were handed suspended prison sentences and heavy fines on Wednesday after the court found them guilty of exploiting flaws in the electronic trading platform of a US broker to send “false and misleading signals” to the market.
The two men each worked out how to make money by predicting how the computer algorithm of Timber Hill, a unit of US-based Interactive Brokers, would respond to certain trades. They denied that this amounted to market manipulation but the court disagreed.
The case comes amid growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks.
Algorithms are computer programmes that have emerged in recent years as trading has become fragmented across many different types of trading venues.
The trading landscape has been transformed beyond recognition in the US, where as little as a decade ago, most stock trading was executed manually, either on the floor of the New York Stock Exchange or on traders’ desks.
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Very interesting article Robert. I don´t understand why these guys are beeing prosecuted by Norway... if they were trading the US markets and comitting "fraud" there, shouldn´t they be investigated and in any case charged with something by FINRA or FED or whatever?
[quote="JuanVillar"]Very interesting article Robert. I don´t understand why these guys are beeing prosecuted by Norway... if they were trading the US markets and comitting "fraud" there, shouldn´t they be investigated and in any case charged with something by FINRA or FED or whatever?[/quote]
Hey Juan,
I agree. I don't see that they did anything wrong or unethical. Are we really to believe that if we notice a pattern in bids and asks that we are not to trade based on that or risk going to jail? There was no victim, even IB is not a victim because they put a computer in charge of submitting bids and asks knowing what it does. If they found the results to be poor they for sure would change it.
I don't think they were trading us markets, I think they were trading Norwegian markets and the prosecutors obviously don't have the first clue as to how the markets work. To think that IB or anyone else can just set a computer free to trade without monitoring, and then cry wolf to a regulator when things go poorly shows how little the Norwegian regulators think of the common investor.
[quote="Robert Weinstein"][quote="JuanVillar"]Very interesting article Robert. I don´t understand why these guys are beeing prosecuted by Norway... if they were trading the US markets and comitting "fraud" there, shouldn´t they be investigated and in any case charged with something by FINRA or FED or whatever?[/quote]
Hey Juan,
I agree. I don't see that they did anything wrong or unethical. Are we really to believe that if we notice a pattern in bids and asks that we are not to trade based on that or risk going to jail? There was no victim, even IB is not a victim because they put a computer in charge of submitting bids and asks knowing what it does. If they found the results to be poor they for sure would change it.
I don't think they were trading us markets, I think they were trading Norwegian markets and the prosecutors obviously don't have the first clue as to how the markets work. To think that IB or anyone else can just set a computer free to trade without monitoring, and then cry wolf to a regulator when things go poorly shows how little the Norwegian regulators think of the common investor.[/quote]
I misunderstood about where they were trading... my bad.
I agree with you, in my opinion those guys didn't do anything wrong, but i can imagine that a big broker like IB pulled some strings and forced those regualtors to put an exemplifying punishment so they don't loose money again to a couple of 20ish students with and standard IQ and two hands to trade.
[quote="JuanVillar"][quote="Robert Weinstein"][quote="JuanVillar"]Very interesting article Robert. I don´t understand why these guys are beeing prosecuted by Norway... if they were trading the US markets and comitting "fraud" there, shouldn´t they be investigated and in any case charged with something by FINRA or FED or whatever?[/quote]
Hey Juan,
I agree. I don't see that they did anything wrong or unethical. Are we really to believe that if we notice a pattern in bids and asks that we are not to trade based on that or risk going to jail? There was no victim, even IB is not a victim because they put a computer in charge of submitting bids and asks knowing what it does. If they found the results to be poor they for sure would change it.
I don't think they were trading us markets, I think they were trading Norwegian markets and the prosecutors obviously don't have the first clue as to how the markets work. To think that IB or anyone else can just set a computer free to trade without monitoring, and then cry wolf to a regulator when things go poorly shows how little the Norwegian regulators think of the common investor.[/quote]
I misunderstood about where they were trading... my bad.
I agree with you, in my opinion those guys didn't do anything wrong, but i can imagine that a big broker like IB pulled some strings and forced those regualtors to put an exemplifying punishment so they don't loose money again to a couple of 20ish students with and standard IQ and two hands to trade.[/quote]
Hello Juan,
I think you hit the nail on the head. kinda sad really