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Comment by anonu | Hacker News Reader

The crux of this trade was the TAS order type. It seems like these guys arbed the liquidity difference beyond their wildest dreams... But now they're probably spooked about it because it sounds borderline manipulation.

Order types are constantly getting traders or exchanges in trouble. If you know about the less popular ones you always stand to beat out your competitors who dont. TAS reminds me of D-quotes on NYSE.

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It isn't an order type. In many institutional markets, trades are settled at a price that isn't known when the trade is booked. This happens in rates (LIBOR rigging was an example, it happens elsewhere), it happens in forex (the daily fix, masses of shenanigans there).

You also find it in derivative markets (equity options on expiry dates) or, indeed, in any situation where certain dates matter (fund manager with a big position in an illiquid stock ramping the stock before their reporting period ends).

But yeah, all the people involved with this trade were locals in London, and every local I have ever met has these "scams". London's forex market is huge, and the stuff that used to happen at the fix was legendary (I don't know how much business is done at the fix today, I used to know a big institutional trader, and all he talked about was rigging the fix...no, it wasn't illegal).

I worked on the computer system that determined what the spot FX rates were at the "fix". This was almost 20 years ago, I guess. (Crazy to think how many trillions of dollars were touched by my contribution).

I can confirm that not only was rigging the fix common, it was so common that there was (is?) a blacklist of institutions whose trades would be discounted when figuring out what the price of each currency should be.

That is, the people who were responsible for calculating the spot FX rates knew there were enough people trying to game the system that the software was designed to mitigate that as far as possible. To a large extent, they even knew who those people were (by no means all were UK-based).

And then the Libor scandal comes along, and everyone's like "oh noes... who knew there was manipulation and collusion!". Hmmm...

For those that are curious about the fix that hog speaks of:

https://www.investopedia.com/articles/forex/031714/how-forex...

Also, Local = trades with their own money, rather than working for a bank or other financial institution.

Yes, it’s curious that the traders didn’t participate in similar trades in subsequent months — appears they may have been shocked and spooked at the outsized bonanza. If this is indeed just a good trade going great, the investigation will hopefully clear their names and they’ll simply get credit for their success.

If you do it once, it may have been an accident. If you try to repeat the success, it starts to look like intentional manipulation.

If you've just had a $500 million pay day, the action in subsequent months presumably was going to be pretty dull (and not lucrative) by comparison. Maybe they've just decided to take some time off to spend time with their families and think about how they're going to spend it!

Interesting read about how TAS destabilizes markets.

https://www.transtrend.com/en/insights/market-not-a-shop/

Good link. Relevant part on TAS from the link:

  One way of facilitating this demand has been the introduction of trading-at-settlement (TAS) orders. TAS allows market participants to buy or sell relative to the daily settlement price before that price has been determined. Over the years, TAS has been associated with several efforts to artificially influence the settle. Exchanges respond to these signs of manipulation by stating that such trading activity will be subject to disciplinary action. But why does an exchange even offer an order type that at the very best can be used as a tool for market participants to walk away from their responsibility to negotiate a fair price?

You're not wrong that Order Type choices are complex and venues need to be careful what they allow. But at the same time, if you're a trader, you really should know all the order types a venue supports and what they let traders do. There are not that many of them. I did trade support from the IT side for a few years and I knew all the orders and which venues would accept which types and that was in European equities...

I've been on both sides (front office and IT). And it surprised me how much market structure knowledge some side had (and not always the front office) and other was clueless about.

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