EU Basics – Your Guide to the Referendum
The British people should be clear about just what they will be voting on at the EU referendum this Thursday. What does it actually mean to stay in the EU? What does it mean to exit?
Concerning the second question, the dominant issue in the debate has been the question whether there will be a significant negative economic impact on the UK from exiting the EU. Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts?
I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone. The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps). We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.
As for the first question, namely what it means to stay inside the EU, we should consult the EU itself. Happily, the EU released a major official report about its key policies and what it plans to achieve in the near future in October 2015. This report was issued in the names of the “Five Presidents“ of the EU. In case you had not been aware that there was even a single, let alone five presidents of the EU, these are: The unelected president of the European Central Bank, Goldman Sachs alumnus Mario Draghi, the unelected president of the European Commission, Jean-Claude Juncker, the unelected Brussels Commissar and “president of the Eurogroup“, Jeroen Dijsselbloem, the “president of the Euro Summit“, Donald Tusk, and the president of the European Parliament, Martin Schulz. What is the message of this not negligible number of EU presidents concerning the question of where the EU is going? The title of their joint report is a give-away: “The Five President’s (sic) Report: Completing Europe’s Economic and Monetary Union“.
The report starts with the frank admission that “with 18 million unemployed in the euro area, a lot more needs to be done to improve economic policies” in the EU. Well said. But what exactly needs to be done?
“Europe’s Economic and Monetary Union (EMU) today is like a house that was built over decades but only partially finished. When the storm hit, its walls and roof had to be stabilised quickly. It is now high time to reinforce its foundations and turn it into what EMU was meant to be…“

“ we will need to take further steps to complete EMU.”
The central planners in Brussels and at the ECB in Frankfurt are not unaware that under their command, a historically unprecedented economic dislocation has taken place in the EU during the past ten years, including massive asset and property bubbles, banking crises and large-scale unemployment in all the periphery countries – with over 50% youth unemployment in Greece, Spain and Portugal, as well as the lack of any serious controls of the EU external borders to prevent an influx of unparalleled numbers of illegal immigrants and economic migrants.
However, the EU central planners are in denial about the fact that these problems have been caused entirely by their own misguided and disastrous policies. As a result, they argue that the solution to such problems can only be further concentration of powers into their hands: “We need more Europe“, as Mrs Merkel put it (source: please read these Merkel claims about the EU This is what they propose to implement in the coming years, by turning all EU members into one single country.
So the Five Presidents‘ Report makes clear that the EU is not simply a free trade area. That project had been left behind with the 1992 Maastricht Treaty and a very different kind of Europe has become enshrined with the 2007 European Constitution (called ‘Lisbon Treaty‘, since the people of Europe in several referenda rejected it. Source: please read what the author of the rejected European Constitution says: ). Instead, the EU is the project to abandon all national sovereignty and borders within and melt away all European nations that don’t succeed in exiting in time, into a merged, joint new single country, with one central European government, centralised European monetary policy, centralised European fiscal policy, centralised European foreign policy, and centralised European regulation, including of financial markets and banking. This United States of Europe, an undemocratic leviathan that the European peoples never wanted, is the culmination of the much repeated mantra of “ever closer union“.
This project has been implemented steadily and stealthily over several decades, despite major and consistent policy blunders and scandals involving the central planners (e.g. in 1999 the entire European Commission – the unelected government and cabinet of the European superstate – resigned in disgrace, as it was found to have taken bribes and engaged in fraud, while the EU’s own Court of Auditors has repeatedly refused to sign off the EU’s official books).
The economics is clear: there is no need to be a member of the EU to thrive economically, and exiting does not have to impact UK economic growth at all. The UK can remain in the European Economic Area, as Norway has done, or simply agree on a trade deal, as Switzerland did, and enjoy free trade – the main intention of European agreements in the eyes of the public. The politics is also clear: the European superstate that has already been formed is not democratic. The so-called ‘European Parliament‘, unique among parliaments, cannot propose any legislation at all – laws are all formulated and proposed by the unelected European Commission! As a Russian observer has commented, the European Parliament is a rubber-stamping sham, just like the Soviet parliament during the days of the Soviet Union, while the unelected government is the European Commission – the Politibureau replete with its Commissars.
Big business and big banks, as well as central bankers and the IMF, constitute the financial elite that is behind this purposeful concentration of power – giving ever more power into the hands of ever fewer people. The undemocratic nature of EU institutions has reached such an extent that I have heard a recently retired member of the ECB governing council in private confessing that his biggest worry is the undemocratic nature and extent of the ECB’s powers, which have increasingly been abused for political ends. These facts have been drowned out by the constant drip of propaganda emanating from the powerful elites behind the creation of the United States of Europe.
During these years and decades of steady transfers of powers and sovereignty from nation states and their democratically elected assemblies to the unelected Brussels bureaucracy, I had always been puzzled by the apparent strong US support for all this. Whenever the ‘process‘ of ‘ever closer union‘ seemed to have hit an obstacle, a US president – no matter the post holder’s name or party affiliation – would intervene and in no uncertain terms tell the troublesome Europeans to get their act together and speed up unification of Europe into one state. In the naivety of my youth this had struck me as surprising. Likewise, the British public has recently been told by US president Obama that dropping out of the EU was not a good idea and they had better vote to stay in.
While it is not surprising that the global elite that has benefitted from the trend towards concentration of power is getting increasingly hysterical in their attempts to cajole the British public into voting to stay inside the EU, it is less clear why the US president and his government should be so keen on the EU project. We had been told in the past by the European media that the concentration of economic and political decision-making in Europe was being engineered in order to create a counter-weight against the US dominance. This seemed to motivate some pro-EU voices. Surely the US president must have heard about that?
There is another mystery. Only yesterday, an impressive-looking leaflet was dropped into the letterbox of my Winchester home, entitled “EU Basics – Your Guide to the Referendum“. It was issued by an organisation called the “European Movement“. The 16-page colour and high gloss booklet argues for Britain to stay in the EU. Who is this “European Movement“, and who is funding it? This little-known organisation seems financially powerful enough to drop a high-quality print booklet into every household in the entire UK.
The declassification of formerly secret records has solved both mysteries. For as it turns out, they are connected. In the words of Nottingham University academic Richard Aldrich:
“The use of covert operations for the specific promotion of European unity has attracted little scholarly attention and remains poorly understood. … the discreet injection of over three million dollars between 1949 and 1960, mostly from US government sources, was central to efforts to drum up mass support for the Schuman Plan, the European Defence Community and a European Assembly with sovereign powers. This covert contribution never formed less than half the European Movement’s budget and, after 1952, probably two-thirds. Simultaneously they sought to undermine the staunch resistance of the British Labour government to federalist ideas…. It is also particularly striking that the same small band of senior officials, many of them from the Western [note: this means US] intelligence community, were central in supporting the three most important transnational elite groups emerging in the 1950s: the European Movement, the Bilderberg Group and Jean Monnet’s Action Committee for a United States of Europe [ACUE]. Finally, at a time when some British antifederalists saw a continued ’special relationship‘ with the United States as an alternative to (perhaps even a refuge from) European federalism, it is ironic that some European federalist initiatives should have been sustained with American support.“
There is much more to read in this explosive piece of scholarly research (Richard J. Aldrich (1997), OSS, CIA and European unity: The American committee on United Europe, 1948-60, Diplomacy & Statecraft,8(1), pp. 184-227, online at )
UK journalist and former Brussels correspondent Ambrose Evans-Pritchard was the only journalist to report on such academic research findings, in two articles in 2000 and 2007:
“DECLASSIFIED American government documents show that the US intelligence community ran a campaign in the Fifties and Sixties to build momentum for a united Europe. … US intelligence secretly funded the European Movement, paying over half its budget. Some of Europe’s founding fathers were on the US payroll….

“The documents confirm suspicions voiced at the time that America was working aggressively behind the scenes to push Britain into a European state. Lest we forget, the French had to be dragged kicking and screaming to the federalist signing table in the early 1950s. Eisenhower threatened to cut off Marshall aid unless Paris agreed to kiss and make up with Berlin. France’s Jean Monnet, the EU’s mastermind, was viewed as an American agent – as indeed, he was. Monnet served as Roosevelt’s fixer in Europe during the war and orchestrated the failed US effort to stop de Gaulle taking power.

“One memorandum, dated July 26, 1950, gives instructions for a campaign to promote a fully fledged European parliament. It is signed by Gen William J Donovan, head of the American wartime Office of Strategic Services, precursor of the CIA. … Washington’s main tool for shaping the European agenda was the American Committee for a United Europe, created in 1948. The chairman was Donovan, ostensibly a private lawyer by then. The vice-chairman was Allen Dulles, the CIA director in the Fifties. The board included Walter Bedell Smith, the CIA’s first director, and a roster of ex-OSS figures and officials who moved in and out of the CIA. The documents show that ACUE financed the European Movement, the most important federalist organisation in the post-war years. In 1958, for example, it provided 53.5 per cent of the movement’s funds. The European Youth Campaign, an arm of the European Movement, was wholly funded and controlled by Washington.

The leaders of the European Movement – Retinger, the visionary Robert Schuman and the former Belgian prime minister Paul-Henri Spaak – were all treated as hired hands by their American sponsors. The US role was handled as a covert operation. ACUE’s funding came from the Ford and Rockefeller foundations as well as business groups with close ties to the US government.

“The head of the Ford Foundation, ex-OSS officer Paul Hoffman, doubled as head of ACUE in the late Fifties. The State Department also played a role. A memo from the European section, dated June 11, 1965, advises the vice-president of the European Economic Community, Robert Marjolin, to pursue monetary union by stealth.

“It recommends suppressing debate until the point at which “adoption of such proposals would become virtually inescapable“.

“Fifty years after the Treaty of Rome, the architects of post-war US policy would be quite pleased, I think, if they were alive today. …
(excerpted from: Ambrose Evans-Pritchard (2000), Euro-federalists financed by US spy chiefs, The Daily Telegraph, 19 September 2000; and Ambrose Evans-Pritchard (2007), The scare of a superstate has passed, but do we want to lose the EU altogether? The Daily Telegraph, 7 April 2007)
No wonder Mr Evans-Pritchard has now concluded that he will vote for Brexit:
The revelation that the EU is the result of a major US secret service operation – effectively just yet another secret creature of deception launched by the CIA (taking seat of honour in the hall of infamy that includes false flag operations, invasions, coup-detats, and the establishment of organisations such as Al Qaida and ISIS) solves the third mystery, namely how on earth the allegedly democratic European nations could design such an undemocratic, virtually dictatorial structure. With the EU/United States of Europe the US not only achieves its geo-strategic goals in Europe, but it has also eliminated the role of pesky national parliaments that could on occasion get in the way of US or CIA foreign policy. And another puzzle is solved, namely why the EU had so readily agreed to a US request a few years back that US spy agencies get access to all European emails and telephone calls….
A vote to stay in the EU thus is a vote to abolish the United Kingdom as a sovereign state and merge it into the undemocratic United States of Europe which the European elites are building under US tutelage. That the European public – and, it seems, even European politicians – have little or no input in key European decisions can be seen from the increasingly aggressive NATO stance against Russia (Brussels-based NATO being the military arm of the EU, which is overtly under direct US control), and the one-sided sanctions against Russia that the US could simply order the Europeans to implement (causing significant losses in incomes and jobs in Europe, while boosting US business interests). Immigration policies are another case in point. If the US had in the past considered the largely homogeneous European populations a source of potential European resistance against its plans for Europe, then the policy to replace them with balkanised failed ‘melting pots‘ also makes sense.
Norway voted in 1995 on EU membership. Leading parties were all in favour. Big business and central banks, major media outlets and the talking heads on TV were frantically bullying and cajoling the Norwegian public to vote ‘in‘. The people remained steadfast and voted ‘out‘. Norway did splendidly. And so much more will the UK.
Professor Werner is Director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton. He is known for proposing the concept of ‘Quantitative Easing‘ in Japan. His 2003 book Princes of the Yen warned of the dangers of excessive central bank independence and predicted that the ECB was likely to create credit bubbles, banking crises and recessions in the eurozone.

When one thinks of lines of people waiting patiently to obtain "hard currency", one may think Russia, as was the case in December 2014 when the currency was plunging...

... or Greece in the summer of 2015...

... one would certainly not expect it in the city considered by many as the capital of capitalism: London.
And yet, as the FT shows in what may be the first of many such stunning images, "long queues stretched outside foreign exchange bureaux in the City of London on Thursday as people cashed in their pounds ahead of the EU referendum."
Behold: London, circa right now.
Line in front of a Longon foreign exchange bureau.
In scenes reminiscent of the queues that formed outside branches of Northern Rock and led to its collapse in 2007, City workers queued impatiently around the block outside forex bureaux on Wednesday afternoon. Summaya, a 31-year-old employee of a retail bank who declined to give her surname, lined up outside the Foreign Exchange Services shop on Cannon Street. She said she was going to change “several thousand pounds” into US dollars and euros because she was convinced the public mood was shifting in favour of Brexit.

“I’m protecting my money. I will stick it under the mattress until Friday,” she said, adding that Tuesday night’s televised debate had swung opinion among her friends and colleagues in favour of Brexit. “People are changing their views.”
Odd: one would not get that impression based on the several moneyed bettors who were skewing the bookies lines. Luckily, sentiment on the ground is avaiable and much more actionable than manipulated indirect data. In any case, this is what is really taking place in the UK as of this moment:
The Post Office said Tuesday’s sales of foreign currency were nearly four times higher than the same date last year, while sales in branches were nearly 49 per cent higher. Currency sales on Tuesday were up 74 per cent year on year, said the Post Office.

Thomas Cook said: “There’s been a surge in customers buying euros in the last six weeks and euro sales have been consistently strong, building day by day.”

Several economists predict a Leave outcome would trigger a dramatic fall in the pound when markets open on Friday, while a vote to Remain should see the pound rally. But several analysts said this week’s sharp sterling recovery probably limited the scope of the currency’s rise.

Daniel Priori, an Italian who has been working as a cashier at the International Currency Exchange kiosk at Waterloo station for a year, said he and his two colleagues had dealt with many more customers than usual.

Asked why, he replied: “Because they are scared about tomorrow.” He said the majority of transactions were people changing sterling into euros.
To be sure, not everyone is terrified of the inevitable collapse in sterling in case of Brexit (which is what the Scaremongering campaign is all about). Some just want some vacation money...
[S]everal of those queueing were exchanging their holiday money. Standing in a queue outside Thomas Exchange on Cannon Street, 44-year-old Chris Nobbs, who works in insurance, said: “I go to Alicante in Spain in a couple of weeks, so I’m just taking my euros out today instead of next week. I do not take more than what I need on holiday, but who knows, maybe this will earn me some extra cups of coffee.”

In the queue outside City Forex, on Leadenhall Street, City worker Ed was planning to change “a few hundred quid” before travelling to Greece on holiday next week. “I don’t have a strong sense of the [referendum] result, but just want to hedge against the downside. I’ll change half now and half later,” he said.
... But it's safe to say that the vast majority of those lining up have far more existential concerns. Whether or not these are validated will be revealed as soon as the FX markets open for trading after the Brexit vote is released.

Earlier this week when we reported that the SEC staff had unexpectedly granted approval of the IEX exchange, the culmination of a long battle between free and unrigged market supporters on one hand and the HFT lobby and the NY Fed's "arms length" HFT operation and gargantuan retail order internalizer better known as Citadel on the other, we warned not to get too excited: "it is possible that the final vote will contain some variation on "protected quote" clause, thereby giving IEX its long-awaited exchange status but stripping its clients of the much needed anti-HFT protections, which are precisely the reason why so many vocal supporters of IEX have emerged in recent months."
We were wrong: in a late vote on Friday evening, the Securities and Exchange Commission voted to certify IEX as the U.S.’s 13th national stock exchange, giving the startup a license to challenge the Intercontinental Exchange, Nasdaq. and BATS. More importantly, the SEC’s decision resolved a clash over whether its rules, which sped the transition to fully electronic markets, allow IEX to use a “speed bump” that slows orders by just 350 millionths of a second, as popularized in Michael Lewis' book Flash Boys. Ultimately IEX will get unconditional status.
We were also partially right on the "protected quote" debate: as the WSJ writes, SEC Chairman Mary Jo White, and Commissioner Kara Stein, a Democrat, approved IEX’s bid. Republican Commissioner Michael Piwowar backed the broader move to approve IEX as an exchange, but dissented from a decision to give IEX what is known as a “protected quote,” which - as noted above - requires brokers to send orders to IEX when it shows the best price across all 13 national stock exchanges.
Having won approval, IEX will effectively become the first HFT-free venue, and will likely attract substantial institutional interest as the risk of being frontrun by HFT parasites is no longer present. Ironically, its competitors had said that IEX' model threatens investor benefits, when the reality was precisely the opposite.
Citadel and high-frequency trading firms deluged the SEC with letters that argued IEX’s speed bump would violate rules that require orders be “immediately accessible” to traders. Intercontinental Exchange Chief Executive Jeff Sprecher, whose firm owns the New York Stock Exchange, told analysts in February that granting IEX permission would be “un-American” because it would create a new “monopoly,” with IEX as the only exchange with a speed bump.

Citadel’s founder, billionaire Kenneth Griffin, got personally involved in the fight against IEX, meeting with the SEC as recently as June 3 to lobby against its exchange bid, according to a regulatory notice.
We are delighted, if stunned, that the SEC disagreed.  That said Citadel's anger was palpable: “Today’s decision will test and potentially reverse the gains in fairness, efficiency and transparency that have been made to our markets over the last decade,” Citadel said. “We must be vigilant to identify unintended consequences, and firm in our commitment to equitable and consistent treatment for all investors.”
What is surprising is that it is well-known among market participants, and originally reported here, that the NY Fed transacts by way of Citadel at key market inflection points, when bursts of momentum ignition out of the Chicago HFT powerhouse prevent ther market from tumbling when they break a downward spiral in prices. A question thus emerges if the SEC's snub to Citadel was also an indirect snub to the NY Fed and market manipulation.
While it remains to be seen what the SEC's rationale was for granting IEX exchange status, one possible explanation is that even the SEC had noticed the unprecedented collapse in investor and trader interest, especially at the retail level, as the topic of how rigged the market has become is now a daily occurrence. As such the SEC felt compelled to take a stand. Or maybe not, and there is some other ulterior motive. We hope to find out.
For those unfamiliar with the IEX story, the exchange says its 350 microsecond delay is just long enough to protect investors from predatory high-speed trading that can front-run the orders of slower investors. Opponents such as Citadel LLC, the hedge-fund manager and electronic market maker, had warned that any delays would create stale prices and the potential for manipulation.
“It does mark a pendulum shift where ‘speed is king’ may have reached the furthest point it can go,” said Andrew Upward, head of market structure at brokerage Weeden & Co. “They’ve had a victory in this debate about the importance of speed in markets, and it’s a setback for those who think speed and efficiency are the end all and be all.”
On its website, Brad Katsuyama, CEO of IEX wrote the following letter of gratitude:
To our Sell-Side and Buy-Side Partners,

On behalf of the entire IEX team, I would like to sincerely thank you all for supporting us throughout our application to become an exchange. We are thrilled that the SEC has approved our Exchange Filing which puts us on track to commence a symbol-by-symbol roll-out on August 19th, concluding on September 2nd.

It's been quite a journey from working in a windowless room with no money in 2012, to launching our ATS, and now completing the lengthy (and I'm sure for many…tiring) Form 1 process.

We have faced several obstacles along the way and we learned along the way, but we hope our partners realize that our team's hearts and minds are in the right place – our goal is to bring real competition to the exchanges by challenging the rising cost model for data and technology while also protecting investors and delivering superior execution quality.

The IEX team is extremely excited about the road ahead, and we are grateful to be in the position to improve fairness, simplicity and transparency in our industry.

Thank you again for your support.
That said, the SEC’s decision may not be the end of the fight. Last month, attorneys for Nasdaq argued that the SEC could be sued if it approves IEX. The lawyers said the SEC would first have to change its own rules to explicitly allow for a speed bump. Absent that step, the lawyers wrote, the SEC lacked the authority to approve IEX’s proposal.
To this, the SEC issued an interesting response: addressing concerns about the legality of speed bumps - widely used by most of IEX's exchanges however in an inverse way, where premium paying clients are exempt from delays which are then abused by HFT frontrunners, the SEC separately said that delays of less than one millisecond (less than the time it takes to blink an eye) are consistent with its Regulation NMS. This is what the SEC said in its updated guidance under Reg NMS:
The Staff believes that, consistent with the Commission’s interpretation regarding automated quotation under Rule 600(b)(3) of Regulation NMS, delays of less than a millisecond are at a de minimis level that would not impair fair and efficient access to a quotation, consistent with the goals of Rule 611.  The Staff’s view is informed by the efficient operation of the markets and the geographic and technological latencies experienced by market participants. Today, a one millisecond intentional access delay is well within the current geographic and technological latencies already experienced by market participants when routing orders between trading centers.  Accordingly, the Staff believes that such a delay would be de minimis and consistent with the Commission’s interpretation of “immediate” as used in Rule 600(b)(3) of Regulation NMS.

The Staff notes that the Commission’s proposed interpretation included guidance reflecting a sub-millisecond standard.  Though the Commission did not adopt that guidance as part of its final interpretation, the Staff notes that commenters on the proposed interpretation were divided on the appropriateness of an intentional access delay but did not advocate for a different specific standard.  Further, the Staff believes the sub-millisecond standard is a reasonable line to draw, as it is broadly consistent with the latencies experienced by market participants today when routing orders around the primary exchange data centers, and is well within the maximum geographic latencies experienced when routing orders to the most geographically remote exchange data center.

The Staff acknowledges that market participants using the most sophisticated technology may today encounter access delays of substantially less than one millisecond when accessing the quotes of a single exchange whose data center is co-located with their own or located nearby.  However, even the most technologically advanced market participants today encounter delays in accessing protected quotations of other “away” automated trading centers that can substantially exceed one millisecond, that either are transitory (e.g., as a result of message queuing) or permanent (e.g., as a result of physical distance).  In today’s market environment, the Staff considers that intentional delays of less than a millisecond in quotation response times are de minimis in that they would not impair a market participant’s ability to fairly and efficiently access a quote, consistent with the goals of Rule 611.  While the Staff believes that intentional access delays that are less that one millisecond are de minimis, that does not necessarily mean that all intentional delays that are one millisecond or more are not de minimis.
The technical interpretation of the above is that according to the SEC, IEX's 350 microseconds delay is negligible, and thus the market is automated and the quote is protected.
The far more important practical interpretation, is that the SEC has set a ceiling for what it deems the speed race among HFT firms, which over the past decade have moved from fiber optics, to microwaves to lasers in their endless quest to be faster and quicker than their competitors in order to frontrun them.
Well, no more, because with its decision, the SEC has capped what technological advancement in trading can achieve going forward, as now a 350ms delay will become the norm, while anything below 1 millisecond is deemed a de minimis delay. 
This is catastrophic for HFTs for whom microseconds mean all the difference between profit and loss.
And once the vast majority of the trading public shifts over to IEX which is by definition HFT free, it will mean that the HFT scourge, already having largely cannibalized itself over the past several years, is about to end.
This is tremendous news, as it puts to rest a key part of our crusade launched in April 2009 when we first explained just how destructive for market functioning HFTs really are.
Now we can shift all our attention to central banks, the last remaining violator of free and efficient markets.

Far from Wall Street in a Chicago neighborhood once synonymous with urban blight, two futures industry veterans are using secrecy and speed to mint fortunes.
Their firm, Jump Trading LLC, was all but invisible until it was among six companiessubpoenaed in April by New York prosecutors. Jump has ascended the ranks of high-frequency traders during the past 15 years to become one of the top firms on the Chicago Mercantile Exchange, where $925 trillion of derivatives changed hands last year. Its annual revenue has exceeded half a billion dollars.
The company was founded by traders Bill DiSomma and Paul Gurinas, whose level heads caused them to stand out in the cacophony of a Chicago trading floor. Today, the pair parcel money among 20 or so teams, each guarding its computer models from the others to trade stocks, bonds and commodities with strategies that go almost as fast as light.
Billy was one of the few upright, stand-up guys in the pits,” said Yra Harris, owner of Praxis Trading who knew DiSomma when they worked in the Chicago trading pits during the 1990s. “He had a very good presence. There were all kinds of games being played in the pits, but he wasn’t one of those who messed others around.”
Befitting its history of stealth, neither the firm nor its principals spoke for this article, and three people familiar with the matter said former employees were told not to speak with Bloomberg News.

‘Low Profile’

Jump’s reluctance to speak comes as arrangements between financial exchanges and HFT firms are being examined by New York Attorney General Eric Schneiderman and the U.S. Commodity Futures Trading Commission. Jump hasn’t been publicly accused of wrongdoing by any government investigator.
“Although Jump is well known and respected within the industry, they keep a very low profile beyond the narrow confines of electronic trading,” said William Sterling, former chief of UBS AG’s global equities electronic business who co-runs Headlands Technologies LLC, a quantitative trading firm.
Jump’s headquarters are north of Chicago’s financial district in an area once dominated by one of the nation’s most dangerous public-housing projects, the Cabrini-Green Homes, whose high-rises were demolished during the last decade. Its offices are in the former warehouse of Montgomery Ward, a remnant of the city’s days as the mail-order capital of the U.S.
Jump has about 350 employees who also work in offices in New York, London and Singapore, according to a version of its website that was deleted earlier this year. While the closely held company, which trades with its own money, makes few disclosures about its inner workings or finances, there are clues to its size.

Public Filings

Some of its financial filings are public. In 2010, Jump reported net income of $268 million and operating revenues of $512 million for that year, according to documents filed with the U.S. Securities and Exchange Commission. Profit amounted to $316 million in 2008, according to another filing with the regulator. At the end of March 2014, it owned U.S. stocks valued at $239 million, according to data compiled by Bloomberg from an SEC filing.
Last year, Jump paid CME Group Inc., the world’s largest futures exchange, $83 million in trading fees while receiving about $17 million for market making activities, according to a separate SEC filing that doesn’t identify Jump by name.
In April, Jump sought to force Twitter Inc. to reveal who was posing as one of its employees posting tweets. After Bloomberg News in April revealed that Schneiderman subpoenaed Jump as part of an industry investigation, the trading firm erased most of its website.

‘Made Billions’

“From what I understand, they’ve made billions in profits,” said James Koutoulas, chief executive officer of Typhon Capital Management LLC in Chicago, who said he has friends with ties to Jump. After the controversy stirred by Michael Lewis’s book “Flash Boys,” which said the U.S. stock market is rigged, “the high-frequency trading guys are trying to avoid any type of publicity,” he said.
Neither DiSomma, 49, nor Gurinas, 46, responded to phone or e-mail requests for interviews, and Jump didn’t respond to messages sent to its “media inquiries” e-mail address. The firm declined to meet with Bloomberg News on an unscheduled visit by a reporter to their offices in April. Subsequent meetings with Jump’s chief operating officer, Matt Schrecengost, arranged by Tessa Wendling, the firm’s general counsel, were canceled. She didn’t return phone calls or e-mails seeking comment.

Innate Humility

Humility is innate in Gurinas, according to his mother.
“He doesn’t like stories about him, and so wouldn’t want any of his friends to talk about him,” Nola Gurinas said in a phone interview.
While some high-frequency firms were created by computer programmers, DiSomma and Gurinas were pit traders at the CME -- the guys who shout and wave their arms to get the best prices. They met in 1992, and, as financial markets started migrating to electronic trading, they saw the potential of using computers to take advantage of price discrepancies in different markets, a tactic called arbitrage.
In 1999, DiSomma and Gurinas left to start their own firm, Akamai Trading LLC, partnering with John Harada. William Shepard, a board member of CME Group since 1997, bought a stake while agreeing not to get involved in management, according to a former Jump employee. Harada left to co-start rival Allston Trading LLC, and DiSomma and Gurinas changed Akamai Trading’s name in 2001 to Jump, a nod to how traders attract attention to themselves on exchange floors.

CME Link

Shepard is the only CME Group director without a photo next to his biography on the exchange’s website. His links to Jump require the exchange to disclose any financial relationship between the two companies because of his status as a board member. CME Group didn’t name the firm he works for in the regulatory filing earlier this year that disclosed the payments between Jump and the exchange. Shepard didn’t return phone calls or e-mails seeking comment.
CME Group’s conflict of interest policy prohibits board members from voting on matters where they could stand to benefit, said Anita Liskey, a spokeswoman for the exchange. She declined to comment on Shepard or Jump.
Jump hired scientists, mathematicians and programmers to build complex algorithms for trading U.S. and European equities, futures, currencies and bonds at speeds measured in fractions of a second. Unlike other firms that lease microwave towers to shave milliseconds off the time it takes to send trade orders in the U.S. and Europe, Jump buys them through a subsidiary, including one tower in Belgium that was once used by the North Atlantic Treaty Organization.

‘Industry Leader’

“We have become an industry leader, quietly setting the standard for sophisticated trading strategies,” Jump said on a now-erased version of its website.
Jump is one of the few HFT firms that have made the investment to become a clearing member at Chicago-based CME Group. That means it pays the lowest trading fees in return for maintaining preset capital minimums, according to CME Group’s rules. It also must contribute cash and securities to CME Group’s clearinghouse default fund.
DiSomma and Gurinas, who grew up in the Chicago area and graduated from the University of Illinois at Champaign-Urbana, are opposites, according to former employees. DiSomma is outgoing and cracks jokes, while Gurinas is reserved and prefers the quiet life, people who know them said.

‘Quiet Guy’

Scott Davis worked alongside Gurinas in the Standard & Poor’s 500 Index futures pit during the late 1990s. “He was not your typical loudmouthed, boisterous guy in the pit,” said Davis. “He was a quiet guy. He went about his business.”
DiSomma lives modestly by Wall Street standards. He sometimes drove to work in a pickup truck and owns a 111-year-old house in Chicago’s Oak Park suburb -- an area known for the diverse economic backgrounds of its residents. DiSomma bought his house, located a block south of railroad tracks, for $645,000 in 1999, according to county records. By contrast, the founder of another high-speed trading firm, Virtu Financial Inc.’s Vincent Viola, is selling his 19-room Manhattan townhouse for $114 million, real-estate listings show.
DiSomma also owns a 623-acre (2.5 square kilometers) farm in Cuba, Illinois, about 200 miles (322 kilometers) southwest of Chicago where he hunts for deer, pheasant and turkey and fishes for largemouth bass, according to photos on the property’s website.

Hospital Donation

His family foundation had $29.8 million at the end of 2012, according to the latest tax filings. DiSomma donated $25 million to a hospital and medical college in Peoria, Illinois, in 2011, according to the Journal Star, a newspaper in the city. The hospital had treated his daughter after she was injured in an all-terrain vehicle accident.
“At Jump Trading, what we do ... it’s not exactly God’s work,” DiSomma said in February 2010 interview with the Journal Star. “What you guys do down here is closer to God’s work,” he said referring to OSF Saint Francis Medical Center’s children’s hospital, which used DiSomma’s donation to build a training facility called the Jump Trading Simulation and Education Center.
Gurinas, whose wife is a recruiter at Jump, lives with his family in Lincoln Park, an upscale neighborhood on Chicago’s north side. He spent $3.1 million in 2006 on a 3,690-square-foot home, according to the Cook County Assessor. Gurinas also owns land and aranch in Montana. A Jump affiliate has a microwave license in Missoula, Montana.

Government Reports

One of the firm’s specialties is trading quickly on the information contained in government statistical releases, according to two competitors of the firm and a former employee. Jump pre-loads its trading algorithms based on whether, say, the unemployment rate will rise or fall, then executes the strategy within tiny fractions of a second following the announcement, the former employee said.
The programmed trades often exploit price differences between exchange-traded funds based on the S&P 500 stock index and futures based on the S&P traded at CME Group, the former employee said. They follow this arbitrage across many equity indexes and futures, such as the Nasdaq or Russell groupings of stocks, as well as in markets in the U.K. and Germany, the person said.
To succeed in the U.S., Jump needed the fastest connection between the data center for the New York Stock Exchange in New Jersey and CME Group’s facility outside Chicago.

Saving Time

Then, as now, firms competed fiercely to shave milliseconds off the round-trip time. That meant if Jump had signed a lease on one fiber-optic network and then a faster one was built later, it would rent space on that one, too, the former employee said. At one point, the firm had access to four distinct fiber-optic lines, the former employee said.
The firm was also among the first to use microwave towers to send information between Illinois and New Jersey, according to executives at rival firms. Jump also uses microwaves in Europe, including a tower it bought last year that relayed messages for the U.S. military during the Cold War. Though it can carry less data, microwave can travel distances in roughly half the time of even the most advanced fiber-optic cables.
Jump guards its brand. In April, it filed a petition in an Illinois circuit court to compel Twitter to disclose who was behind an account using the name “jumptrading@algoswild.” Jump said the account was unauthorized and it needed the name of the account holder “who may be responsible in damages for impersonating Jump Trading and infringing Jump’s intellectual property, including its trademarks.”

Case Dropped

Without specifying why, Jump and Twitter requested that the case be dismissed at the end of June, which it was, according to court records in Chicago. The Twitter account is no longer active. Stacie Hartman, a lawyer for Jump listed on the petition, and Twitter’s legal representative, Jade Lambert, didn’t return phone calls requesting comment.
Jump’s industrial-style offices, which occupy two floors of the eight-story building, are amishmash of concrete pillars, exposed overhead cabling and sleek lighting and glass doors.
The office atmosphere is akin to a Silicon Valley startup, with employees dressing casually. They have catered lunch every Friday, company-sponsored happy hours and sporting events. The firm holds annual summer picnics and holiday parties have been held at the Art Institute of Chicago and the Field Museum.

‘Highly Sought’

“Jump is among the high-frequency trading shops that is highly sought after by our candidates, who’ve often told us they have a very strong work-hard-and-reward-hard culture,” said Deepali Vyas, founder of VnV Partners, a recruitment firm in New York.
While Jump describes itself as having a “casual atmosphere and flat organizational structure,” according to a former version of its website, it has an unusual setup compared with rivals.
Jump rents out computers and other infrastructure to its traders, who are organized into independent trading teams. The groups operate as separate cost centers and are staffed by as few as two people or as many as about 20, according to two former employees. Some groups trade across markets while others focus on one.
Jump applies its secrecy ethic within the firm. The teams don’t share information about trading strategies with each other -- profitable groups are rewarded with more technology or money to trade with, former employees said.

Founders’ Teams

DiSomma and Gurinas sit with the traders and each have their own teams. Jump Core Strategies, run by Gurinas, caused resentment within the firm because of the growth of its assets, former employees said.
Among the successful teams are Statistical Trading Group, or STG, which has been run by former Citadel LLC traders Tom Gallagher and Satyanarayana Dharanipragada. Other groups have been led by Igor Pavlovsky, a Massachusetts Institute of Technology graduate who trades currencies, and ex-Citadel employees Ken Terao and Alexei Kamenev. Messages left for Gallagher, Dharanipragada, Pavlovsky and Terao weren’t returned, and Kamenev declined to comment.
An exodus of employees to Jump from Citadel was the subject of a clash between billionaire Ken Griffin’s Chicago hedge-fund firm and Jump in 2012. Citadel said former workers may have taken proprietary trading strategies and computer code worth hundreds of millions of dollars to Jump. Jump said that Citadel was misusing the courts to get information on a competitor.

James Chiu

An Illinois judge rejected Citadel’s bid to compel Jump to identify ex-employees who joined the firm since 2005, and any strategies they later developed. The case was dismissed in October 2012.
At Jump, James Chiu -- whom ex-employees said was in the trading firm’s Oceans group -- broke CME Group rules in 2010, according to a CME Group disciplinary memo from 2014.
A CME Group panel found that from Aug. 30 through Sept. 15, 2010, Chiu manually entered orders, supplementing trades that he had already placed, then canceling them before his other orders could be executed, the exchange said in a March 3, 2014, notice on its website. His actions potentially disrupted the market, the panel said.
The exchange said Chiu was employed as a proprietary trader by a member firm, but didn’t name Jump in the disciplinary action. The panel found that Chiu broke the exchange’s rule prohibiting “dishonorable or uncommercial conduct,” among others. Chiu, whose LinkedIn Corp. profile says he was a former team leader at Jump, settled with the CME Group without admitting or denying wrongdoing. He was ordered to pay a $155,000 fine and was suspended from any trading on the exchange’s markets for two months.

Predicting Future

Chiu, who now runs his own proprietary-trading firm, Vatic Labs, in San Francisco, said in a phone interview that CME Group issues disciplinary actions all the time and his was nothing out of the ordinary. Vatic is a word meaning something that describes or predicts what will happen in the future.
About two months after the CME Group rule violations that Chiu was later punished for, DiSomma, Gurinas and Schrecengost met with then-chairman of the CFTC, Gary Gensler. They discussed the definition of spoofing -- or illegally canceling bids and offers quickly after placing them in order to create a false impression of demand -- as well as high-frequency trading and the May 6, 2010, market plunge known as the flash crash, according to themarket regulator’s website. The meeting was part of the regulator’s efforts to implement new market rules stemming from the Dodd-Frank Act.

As for his old firm, Chiu hewed to the company line.
“I’m not allowed to talk about my time at Jump,” he said.

Every year, the world's richest and most powerful business executives, bankers, media heads and politicians sit down in some luxurious and heavily guarded venue, and discuss how to shape the world in a way that maximizes profits for all involved, while perpetuating a status quo that has been highly beneficial for a select few, even if it means the ongoing destruction of the middle class. We are talking, of course, about the annual, and always secretive, Bilderberg meeting.
And, as the Guardian notes, "you know Bilderberg’s about to begin when you start seeing the guns."

Workers erect a barricade outside the Taschenbergpalais hotel in Dresden
The Taschenbergpalais hotel in Dresden - the venue of "Bilderberg 2016" which starts tomorrow and continues until June 12 - is filling up with pistol-packing plainclothes security as the last guests are ushered out. The frowning gunslingers head up and down the corridors with their hotel maps, trying door handles and checking the lay of the land while, down in the hotel lobby, corporate goons gather in muttering huddles.
A glimpse at what is about to unfold: according to the local newspaper DNN, at least 400 police officers will be surrounding the venue for the three days of the talksThere’s already a ring of concrete blocks around the entrance.

Is that not enough? What are they expecting? The charge of the light brigade?

The hotel is being trussed up tighter than Reid Hoffman’s trousers. No one gets in or out without the right lanyard. As Ed Balls remembers only too well, from that awkward business in Copenhagen. Inside the security cordon, the final nervy tweaks are being made by conference staff. They’ve got to make sure Henry Kissinger’s curtains don’t let any light in. A single ray could be fatal.
Year after year, a sizeable number of extremely rich and powerful workaholics seem to think it’s worth strapping on their Bilderberg lanyard. But why? What’s getting the head of Google, two prime ministers, a vice-president of the European commission and the chairman of HSBC together in the same hotel basement for the same three days in June?  On its official website, Bilderberg attempts an answer. It describes itself as “a forum for informal discussions” that are “designed to foster dialogue between Europe and North America”. Dialogue which is designed to foster dialogue. Talk for talk’s sake.
Of course, as Charlie Skelton notes, that’s nonsense. And yet Bilderberg insists “there is no desired outcome”. That’s like a Club 18-30 rep saying there’s no desired outcome of his tequila groin-slurping contest. Someone’s getting something out of the event. Even if that something is chlamydia.

Taschenbergpalais hotel in Dresden
What is really discussed is how to take the existing trends in the world, some favorable, some undesired, and mold them in such a way as to create even more wealth for the world's 0.01%, while perpetutating the existing system, one which even the IMF agrees is no longer working.
This time, as Paul Joseph Watson infers, the secretive Bilderberg Group whose Steering Committee Advisory Group consists of one David Rockefeller, will discuss how to prevent Donald Trump from becoming president, the possibility of mass riots as a result of wealth inequality, the migrant crisis, as well as the United Kingdom’s vote on leaving the European Union.
As noted above, the official list of "key topics" to be discussed is both broad quite vague and includes:
  1. Current events
  2. China
  3. Europe: migration, growth, reform, vision, unity
  4. Middle East
  5. Russia
  6. US political landscape, economy: growth, debt, reform
  7. Cyber security
  8. Geo-politics of energy and commodity prices
  9. Precariat and middle class
  10. Technological innovation
That's just for public consumption. After all, who needs massive concrete blocks and 400 police officers for protection to discuss "technological innovation" - better yet, just open up the session to the press and public.
Of course, that won't happen, because the real agenda must remain under wraps. However one can infer from the agenda and some of the names on the participant list what the group will be discussing in more detail. As PJW writes, the attendance of anti-Trump Senator Lindsey Graham is an obvious sign that Donald Trump will be a prominent topic of discussion at this year's Bilderberg meeting, with the likely focus on how to prevent Trump from defeating Bilderberg’s chosen candidate, Hillary Clinton, who has already raked in tens of millions in fees from "speaking" before numerous participants at the meeting that begins tomorrow.
In 2015, the Bilderberg elite was confident that Clinton could shake off her GOP challengers, but Trump’s self-funded campaign and his public opposition to globalism and internationalist trade deals like NAFTA has shocked the Bilderberg elitists. As a result, it will now have to spend much more time dealing with the damage control.
Brexit will be another major topic. With the British referendum vote to leave the EU taking place in just two weeks, and withDavid Cameron getting concerned, a vote to secede threatens the future of the European Union federal superstate that was the brainchild of Bilderberg in the first place.
The inclusion of “precariat and middle class” on the list also means that the powerful lobby group will be ruminating on how they can exploit and manage the inevitability of more riots and civil unrest in the west - and increasingly, the east with an emphasis on China whose government is terrified about the prospect of rising social unrest - a topic that elitists were also concerned about at the 2015 Davos Economic Summit. “Precariat” describes those who are struggling to survive in today’s economy and who have no long term wage security. Studies have shown that wealth inequality increases the likelihood of mass social disorder. Furthermore, as the Fed itself admitted recently, it is the Fed, by way of manipulating markets higher, that has been an instrumental catalyst behind record wealth inequality.
The flooding of Europe with third world migrants, a process which has driven European voters into the arms of nationalist parties that typically oppose Bilderberg’s wider agenda, will also be a key topic of discussion, as per bullet point 3.
As Watson observes, aone interesting name that pops up on this year's list is that of Richard Engel, NBC News’ chief foreign correspondent.  "Normally, a semi-secret meeting of over 100 of the most powerful people on the planet would be a monumental news scoop, but don’t expect Engel to utter a word." After all, real journalists are not allowed anywhere on the premises; Engel likely has to sign an NDA.
Indeed, Bilderberg operates under Chatham House Rules, which means that none of the participants are able to reveal any comments made during the conference. As the Guardian floridly puts it, "after the politicians drag their drained and bloodless bodies back to their respective parliaments, they don’t say a word about what happened. They act like abuse victims. “It’s just our little secret,” murmurs Kissinger as he pops the politicians back in their limos. “Chatham House rules. You remember? Yes, of course you do. Now off you go.” And he nimbly licks a heart shape on to the car window with his black tongue before it speeds off."
Although it was reported in the German media that German Chancellor Angela Merkel would attend this year’s conference, her name does not appear on the list. However, it is a common practice for Bilderberg to omit names from the official list if the individual’s attendance is politically sensitive.
* * *
So what do the politicians and public officials get from the deal? For the more ruthless, it’s a chance to line up future employment. As the Guardian reminds us of the then head of MI6, Sir John Sawers, networking with the chairman of BP on a Copenhagen patio in 2014. A year later he was sitting on the oil firm’s board of directors.
For those who don't use the event as a glorified LinkedIn mixed for billionaires, the motive is far simpler: make even more money. In this regard the Guardian's amusing conclusion is spot on:
Tony Blair admitted he found the 1993 conference “useful”. And I’m sure it was. It’s useful to know in what direction in the world is being led by the people that own it, so you can trot along in the right direction. And if you learn to play the game, to fit in with the in crowd, then maybe, like Blair, you can end up with a cushy job with US investment bank JP Morgan.
Ultimately, what is decided will never see the light of day, or rather it won't over the next 4 days. Instead it will emerge as official policy, fiscal but mostly monetary as central bankers live to serve the Bilderberg elite, laws, regulations, and social norms. And if history is any indicator, it will only make the current global situation even worse.
* *  *
  • Castries, Henri de (FRA), Chairman and CEO, AXA Group
  • Aboutaleb, Ahmed (NLD), Mayor, City of Rotterdam
  • Achleitner, Paul M. (DEU), Chairman of the Supervisory Board, Deutsche Bank AG
  • Agius, Marcus (GBR), Chairman, PA Consulting Group
  • Ahrenkiel, Thomas (DNK), Permanent Secretary, Ministry of Defence
  • Albuquerque, Maria Luís (PRT), Former Minister of Finance; MP, Social Democratic Party
  • Alierta, César (ESP), Executive Chairman and CEO, Telefónica
  • Altman, Roger C. (USA), Executive Chairman, Evercore
  • Altman, Sam (USA), President, Y Combinator
  • Andersson, Magdalena (SWE), Minister of Finance
  • Applebaum, Anne (USA), Columnist Washington Post; Director of the Transitions Forum, Legatum Institute
  • Apunen, Matti (FIN), Director, Finnish Business and Policy Forum EVA
  • Aydin-Düzgit, Senem (TUR), Associate Professor and Jean Monnet Chair, Istanbul Bilgi University
  • Barbizet, Patricia (FRA), CEO, Artemis
  • Barroso, José M. Durão (PRT), Former President of the European Commission
  • Baverez, Nicolas (FRA), Partner, Gibson, Dunn & Crutcher
  • Bengio, Yoshua (CAN), Professor in Computer Science and Operations Research, University of Montreal
  • Benko, René (AUT), Founder and Chairman of the Advisory Board, SIGNA Holding GmbH
  • Bernabè, Franco (ITA), Chairman, CartaSi S.p.A.
  • Beurden, Ben van (NLD), CEO, Royal Dutch Shell plc
  • Blanchard, Olivier (FRA), Fred Bergsten Senior Fellow, Peterson Institute
  • Botín, Ana P. (ESP), Executive Chairman, Banco Santander
  • Brandtzæg, Svein Richard (NOR), President and CEO, Norsk Hydro ASA
  • Breedlove, Philip M. (INT), Former Supreme Allied Commander Europe
  • Brende, Børge (NOR), Minister of Foreign Affairs
  • Burns, William J. (USA), President, Carnegie Endowment for International Peace
  • Cebrián, Juan Luis (ESP), Executive Chairman, PRISA and El País
  • Charpentier, Emmanuelle (FRA), Director, Max Planck Institute for Infection Biology
  • Coeuré, Benoît (INT), Member of the Executive Board, European Central Bank
  • Costamagna, Claudio (ITA), Chairman, Cassa Depositi e Prestiti S.p.A.
  • Cote, David M. (USA), Chairman and CEO, Honeywell
  • Cryan, John (DEU), CEO, Deutsche Bank AG
  • Dassù, Marta (ITA), Senior Director, European Affairs, Aspen Institute
  • Dijksma, Sharon A.M. (NLD), Minister for the Environment
  • Döpfner, Mathias (DEU), CEO, Axel Springer SE
  • Dyvig, Christian (DNK), Chairman, Kompan
  • Ebeling, Thomas (DEU), CEO, ProSiebenSat.1
  • Elkann, John (ITA), Chairman and CEO, EXOR; Chairman, Fiat Chrysler Automobiles
  • Enders, Thomas (DEU), CEO, Airbus Group
  • Engel, Richard (USA), Chief Foreign Correspondent, NBC News
  • Fabius, Laurent (FRA), President, Constitutional Council
  • Federspiel, Ulrik (DNK), Group Executive, Haldor Topsøe A/S
  • Ferguson, Jr., Roger W. (USA), President and CEO, TIAA
  • Ferguson, Niall (USA), Professor of History, Harvard University
  • Flint, Douglas J. (GBR), Group Chairman, HSBC Holdings plc
  • Garicano, Luis (ESP), Professor of Economics, LSE; Senior Advisor to Ciudadanos
  • Georgieva, Kristalina (INT), Vice President, European Commission
  • Gernelle, Etienne (FRA), Editorial Director, Le Point
  • Gomes da Silva, Carlos (PRT), Vice Chairman and CEO, Galp Energia
  • Goodman, Helen (GBR), MP, Labour Party
  • Goulard, Sylvie (INT), Member of the European Parliament
  • Graham, Lindsey (USA), Senator
  • Grillo, Ulrich (DEU), Chairman, Grillo-Werke AG; President, Bundesverband der Deutschen Industrie
  • Gruber, Lilli (ITA), Editor-in-Chief and Anchor “Otto e mezzo”, La7 TV
  • Hadfield, Chris (CAN), Colonel, Astronaut
  • Halberstadt, Victor (NLD), Professor of Economics, Leiden University
  • Harding, Dido (GBR), CEO, TalkTalk Telecom Group plc
  • Hassabis, Demis (GBR), Co-Founder and CEO, DeepMind
  • Hobson, Mellody (USA), President, Ariel Investment, LLC
  • Hoffman, Reid (USA), Co-Founder and Executive Chairman, LinkedIn
  • Höttges, Timotheus (DEU), CEO, Deutsche Telekom AG
  • Jacobs, Kenneth M. (USA), Chairman and CEO, Lazard
  • Jäkel, Julia (DEU), CEO, Gruner + Jahr
  • Johnson, James A. (USA), Chairman, Johnson Capital Partners
  • Jonsson, Conni (SWE), Founder and Chairman, EQT
  • Jordan, Jr., Vernon E. (USA), Senior Managing Director, Lazard Frères & Co. LLC
  • Kaeser, Joe (DEU), President and CEO, Siemens AG
  • Karp, Alex (USA), CEO, Palantir Technologies
  • Kengeter, Carsten (DEU), CEO, Deutsche Börse AG
  • Kerr, John (GBR), Deputy Chairman, Scottish Power
  • Kherbache, Yasmine (BEL), MP, Flemish Parliament
  • Kissinger, Henry A. (USA), Chairman, Kissinger Associates, Inc.
  • Kleinfeld, Klaus (USA), Chairman and CEO, Alcoa
  • Kravis, Henry R. (USA), Co-Chairman and Co-CEO, Kohlberg Kravis Roberts & Co.
  • Kravis, Marie-Josée (USA), Senior Fellow, Hudson Institute
  • Kudelski, André (CHE), Chairman and CEO, Kudelski Group
  • Lagarde, Christine (INT), Managing Director, International Monetary Fund
  • Levin, Richard (USA), CEO, Coursera
  • Leyen, Ursula von der (DEU), Minister of Defence
  • Leysen, Thomas (BEL), Chairman, KBC Group
  • Logothetis, George (GRC), Chairman and CEO, Libra Group
  • Maizière, Thomas de (DEU), Minister of the Interior, Federal Ministry of the Interior
  • Makan, Divesh (USA), CEO, ICONIQ Capital
  • Malcomson, Scott (USA), Author; President, Monere Ltd.
  • Markwalder, Christa (CHE), President of the National Council and the Federal Assembly
  • McArdle, Megan (USA), Columnist, Bloomberg View
  • Michel, Charles (BEL), Prime Minister
  • Micklethwait, John (USA), Editor-in-Chief, Bloomberg LP
  • Minton Beddoes, Zanny (GBR), Editor-in-Chief, The Economist
  • Mitsotakis, Kyriakos (GRC), President, New Democracy Party
  • Morneau, Bill (CAN), Minister of Finance
  • Mundie, Craig J. (USA), Principal, Mundie & Associates
  • Murray, Charles A. (USA), W.H. Brady Scholar, American Enterprise Institute
  • Netherlands, H.M. the King of the (NLD)
  • Noonan, Michael (IRL), Minister for Finance
  • Noonan, Peggy (USA), Author, Columnist, The Wall Street Journal
  • O'Leary, Michael (IRL), CEO, Ryanair Plc
  • Ollongren, Kajsa (NLD), Deputy Mayor of Amsterdam
  • Özel, Soli (TUR), Professor, Kadir Has University
  • Papalexopoulos, Dimitri (GRC), CEO, Titan Cement Co.
  • Petraeus, David H. (USA), Chairman, KKR Global Institute
  • Philippe, Edouard (FRA), Mayor of Le Havre
  • Pind, Søren (DNK), Minister of Justice
  • Ratti, Carlo (ITA), Director, MIT Senseable City Lab
  • Reisman, Heather M. (CAN), Chair and CEO, Indigo Books & Music Inc.
  • Rutte, Mark (NLD), Prime Minister
  • Sawers, John (GBR), Chairman and Partner, Macro Advisory Partners
  • Schäuble, Wolfgang (DEU), Minister of Finance
  • Schieder, Andreas (AUT), Chairman, Social Democratic Group
  • Schmidt, Eric E. (USA), Executive Chairman, Alphabet Inc.
  • Scholten, Rudolf (AUT), CEO, Oesterreichische Kontrollbank AG
  • Schwab, Klaus (INT), Executive Chairman, World Economic Forum
  • Sikorski, Radoslaw (POL), Senior Fellow, Harvard University; Former Minister of Foreign Affairs
  • Simsek, Mehmet (TUR), Deputy Prime Minister
  • Sinn, Hans-Werner (DEU), Professor for Economics and Public Finance, Ludwig Maximilian University of Munich
  • Skogen Lund, Kristin (NOR), Director General, The Confederation of Norwegian Enterprise
  • Standing, Guy (GBR), Co-President, BIEN; Research Professor, University of London
  • Svanberg, Carl-Henric (SWE), Chairman, BP plc and AB Volvo
  • Thiel, Peter A. (USA), President, Thiel Capital
  • Tillich, Stanislaw (DEU), Minister-President of Saxony
  • Vetterli, Martin (CHE), President, NSF
  • Wahlroos, Björn (FIN), Chairman, Sampo Group, Nordea Bank, UPM-Kymmene Corporation
  • Wallenberg, Jacob (SWE), Chairman, Investor AB
  • Weder di Mauro, Beatrice (CHE), Professor of Economics, University of Mainz
  • Wolf, Martin H. (GBR), Chief Economics Commentator, Financial Times
* * *
Finally, for those who are skeptical about the massive power and reach of the relatively small Bilderberg group, here is a recent graph which shows the members' connections to virtually every important and relevant organization, company and political entity in the world.

With Saudi Riyal forwards plunging back above 3.81, dramatically weaker than the current pegBloomberg reports that Saudi authorities are cracking down on currency traders as speculation mounts that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges.
Saudi Arabia ordered banks in the kingdom to stop selling some products that allow speculators to bet against its currency peg just days after demanding information from lenders on the offerings, according to people with knowledge of the matter.

he Saudi Arabia Monetary Agency sent a circular to banks this week saying that dollar-riyal forward structured contracts are banned with immediate effect, said the people, asking not to be identified because they are not authorized to comment publicly. Forward foreign-currency transactions backed by actual goods and services will still be allowed, the people said.

The regulator, also known as SAMA, has asked lenders for details on derivative deals dating to January, saying they hadn’t informed the central bank about some products. An e-mailed request for comment to the agency outside of normal office hours on Friday wasn’t immediately returned.
"The directive shows the continuing disconnect between the Saudi foreign-exchange policy and market expectations,"Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. "SAMA appears committed to the exchange-rate peg despite the cost to foreign-exchange reserves, large fiscal deficits and consensus forecasts that see only a very gradual rise in oil prices."
SAMA ordered banks to stop selling options contracts on riyal forwards at a meeting in Riyadh on Jan 18., people with knowledge of the matter said at the time, which explains the surge in the chart at that time, but it appears funds have found another vehicle to implement their bets.
It makes sense, since as's Eugen von Bohm-Bawerk explains, the Saudis have two tough choices:
1) maintain the peg, control price inflation through continued deflation of the money supply and get a full-blown banking crisis; or

2) alternatively, reflate the money supply, increase speculation in riyal forwards, devalue and get massive price inflation through the extremely important import channel.
During the reign of the mighty petro-dollar standard, it was necessary for major oil exporters to recycle their dollar holdings back into the dollar-based financial system to maintain their self-imposed exchange rate pegs. US government bonds are the very centrepiece of this elaborate system and it is thus no surprise to see the dollar price correlate well with overall OPEC TSY holdings. In other words, when oil prices were high, oil exporters amassed a capital surplus that were channelled into, among other things, US treasury bonds. When oil prices fell, oil exporters had to liquidate TSY holdings to cover capital shortfalls.
 Oil Price vs OPEC TSY Holdings
It is interesting to note that the more money and credit issued in the US the more foreign goods could be purchased by Americans and by extension the more foreign demand for US TSYs rose. The savings glut proposed by Bernanke was, and still is, nothing more than exported dollar inflation. There were no savings glut, but rather an indirect form of QE long before QE became an official policy. Home equity withdrawal lines through commercial banks, based on phony asset appreciation promoted by an accommodative Federal Reserve policy stance, increased Americans purchasing power, which inevitably leaked into global markets. Growing financial imbalances were exacerbated by the fact that there were no functioning pricing mechanisms to correct these flows.
With dollars flowing into oil exporting countries it would be natural for the recipient exchange rate to appreciate whilst the dollar depreciate. However, many oil exporters have pegged their exchange rate to the dollar so no such effect took place. Instead, local monetary authorities bought up dollars by inflating their own local currency to maintain the pre-set price. As the chart below shows, in a fixed exchange rate system pegged to a freely floating, and thus rapidly inflating and deflating, currency the LCU will have to inflate and deflate accordingly. With no price effect to soften the impact, any change in demand will be borne by supply. Compared to a flexible exchange rate regime, the inflation and deflation of the LCU will have to be larger with a fixed price of the LCU in relation to the dollar.
    Fixed and flexible FX regime
In the boom time it is easy to adjust as the monetary authorities can inflate the LCU to buy up dollars and create the consequent phony boom in the domestic economy. Local businesses thrive, credit is plentiful and asset prices rises. Very few complain.
However, as the dollar deflation takes hold the very opposite effect must by necessity occur. To maintain the exchange rate peg monetary authorities must buy up LCU through sales of previously accumulated dollars.
The key metric to watch for dollar dependent economies with exchange rate pegs is the value of domestic money supply (at the fixed dollar price) relative to FX reserves. If domestic claim to dollars, id est money supply, exceed FX reserves it is highly likely that the monetary authorities will be forced to devalue in order to realign the two metrics. If we look at an economy like Saudi Arabia, where there have been a lot of talk about devaluation, we find that there are more than enough FX reserves to cover the outstanding money supply. Since there will be no positive effect from a devaluation, there are no immediate devaluation threat.
SA FX vs M2
However, at current trends the FX reserves will drop below M2 by late 2017 or early 2018. Current trends does not lead to very pleasant outcomes for the Saudi economy because the domestic money supply is and will continue to deflate. This will expose internal malinvestements, which will show up as increasing NPLs in the banking sector, which in turn will lead to further deflation.
It is thus tempting for the Saudi government to reflate their economy by pushing more Riyals into the system; but this runs the risk of exacerbating the possibility of devaluation as the money supply will soon exceed falling FX reserves.
As most of the rest of the world, also the Saudis have become path dependent; 1) maintain the peg, control price inflation through continued deflation of the money supply and get a full-blown banking crisis; or 2) alternatively, reflate the money supply, increase speculation in riyal forwards, devalue and get massive price inflation through the extremely important import channel.
This obviously begs the question; at what oil price can the Saudi’s mange to muddle through without ending up in either 1 nor 2.  At today’s price of around USD50 / bbl Saudi Arabia will burn through USD90bn worth of reserves per year.Change in FX reserves vs oil price
This means under a mild deflationary scenario FX reserves will fall below M2 already by early 2018; even with a 10 per cent cost reduction. At 60 dollar and only 2 per cent reduction in cost Saudi Arabia will probably not have to worry about severing the peg. FX vs M2 under different scnearios
Unless prices continue upwards, it will be interesting see what route, and which risks, the Saudi government is willing to take on.For now it appear route 1 is the preferred one, but as the banking crisis escalates we expect a gradual movement toward route 2. Unless oil prices spikes back to USD60 /bbl plus, and save the day. We doubt it!
*  *  *
Finally, given the ban on FX products - and the seemingly inevitable de-pegging discussed above - one potential way to play the devaluation is via CDS...

In fact, as the FX ban comes into play, it's clear CDS is starting to become more active and more indicative of Saudi stress that forwards.

Elite E Services has released Liquidity version 3.3 - in this version, we've included an optional trailing stop on all orders.  See Liquidity on the MQL Marketplace

Checkout the parameters:

  • BuyOrSell = B (default) or S – Buy or Sell. This parameter defines if the system is in buy mode, or sell mode. If set to “B” the system will only Buy. If set to “S” the system will only sell. To use liquidity in grid fashion – load the EA on 2 charts – set one to “B” and the other to “S”
  • GridLevel = Ladder – This is the level, in pips, the system will place a buy or sell order. Default is set to 5.
  • Lots = Lots – Number of lots for each order. (static value)
  • TakeProfit = Take Profit – Take profit for each order. (static value)
  • UseTrailing = Use Trailing? Yes or No. Default is No. This means a trailing stop will be placed on each individual trade.
  • TrailingStop = Trailing Stop (10) Default is 10. Only applicable if UT is set to Yes. If UT is Yes, place a TP and Trailing stop on all new orders.
  • UseGPoint = Use G? Yes or No. Default is Yes. If No, do not utilize the below parameter, and subsequent functions.
  • G = Point at which system reset and reverse. Default is 0 – meaning whatever price the system is loaded at, will always be the price where system reverse. In the chart example, once the price reach the original price, the system will go into buy again mode. If G value is 10 (in pips), then add 10 pips to the price when system will reverse from buy mode to sell mode. (number of legs before reverse)
  • F = Pips to go into the reverse trade. Default is 5, should be same default as ladder. (To count the number of legs to wait to enter, multiply by the ladder value, i.e. 2 legs, if ladder is 5, this value should be 10.)
  • P = Account protection, in % equity from peak. Default is 10 (which is 10% peak to valley, for this EA only NOT the entire account). This means if the peak to valley draw-down is 10%, close all positions, and display the message “Account Protection Hit – Restart to resume trading”
  • CloseAll = Close All – Default is “No” – If set to Yes, EA will close All trades for this EA only, and stop trading.

One of the recurring concerns voiced by Bank of America's Michael Hartnett is that with May now in the rearview mirror, we are entering "the event risk month" of June (incidentally,over the weekend, the credit strategist presented several ideas how to trade said event risk, either bullish or bearish). Now it is UBS' turn to reiterate the warning that June may see a spike in volatility due to "an unusual number of known unknowns."
According to UBS, in June there will be "an unusual number of known unknowns from several sources. June 2016 is a month in which the number of event risks is particularly high. In our baseline scenarios we do not see market upsets, but the potential is there: Japanese fiscal policy; meetings of the ECB, Fed and BoJ; new ECB policy implementation; a German Constitutional Court ruling; the UK referendum; elections in Spain; and a decision on the FTT are all thrown into the mix."
Here is the full breakdown, first in table format.
And then the chronological narrative:
1 June: Closing day of the Japanese Diet – new fiscal action?
We expect Japanese Prime Minister Shinzo Abe to announce new fiscal policy on 1 June – the closing day of the current session of the Japanese Diet. We think that the scheduled rise in the consumption tax will be delayed and a supplementary budget of ¥5-10tn could be announced. It is also possible that the Lower House is dissolved and new elections called.
2 June-16 June: Central bank meetings
On balance, we do not expect any change in monetary policy to be announced by the ECB, the Federal Reserve or the BoJ in June, but statements and guidance will be watched closely.
First up is the ECB on 2 June. The ECB will present its new staff forecasts at the press conference. We think the key challenge for Mr Draghi will be to not appear too hawkish amid rising oil prices and robust Eurozone Q1 GDP growth, and we believe it too early for the ECB to send strong signals about the duration of QE beyond March of next year. But much will be discussed.
After that, the FOMC will meet on 15 June. We think that it will wait until September before it next raises rates (in part because of upcoming event risk). However, the minutes of the April meeting and recent Fed rhetoric has kept this meeting “live” and expectations higher than they might otherwise have been.
We don’t think that the BoJ will announce a further easing on 16 June, but it will be a close call. We see a 40% chance that it does, and a 60% chance that this takes place by July. If conducted in combination with a fiscal expansion (see above), Japan would in effect be conducting a policy of 'helicopter money' and we would expect the polemic to increase in global markets on this subject
6-10 June / 24 June: TLTROs, and other ECB policy implementation
While we do not expect new ECB policy to be announced at the June meeting (see above), June is the month in which some already-announced policies are implemented for the first time. The first auction of the new Targeted Long-Term Refinancing Operations (TLTRO II) will take place on 23 June, with the publication of the results on 24 June. Market focus has been on the ability of banks to borrow 4-year money at an interest rate (to be set by ex-post calculations) as low as the current deposit rate of -0.40%.
However, we think that more important will be the first voluntary repayment of TLTRO I to be announced at 11.00am London time / 12.00pm CET on 10 June. (The repayment itself will take place on 29 June, coinciding with the first settlement date of TLTRO I). It is likely that the bank repayment of  LTRO I will be larger than the take-up of TLTRO II – and result in the first significant reduction of the ECB's balance sheet since QE began in March of last year. In turn, this might appear as an involuntary tightening of monetary policy.
The reason this might happen is that one of the effects of QE has been a largescale creation of deposits in euro area banks. But TLTRO I took place before QE was announced and banks have been unable to repay it until now. Many of them – particularly in core countries – have been burdened with large excess liquidity as a result. In turn, this has meant a drag on Net Interest Margins (NIM) for these banks as risk free rates have been negative while they are (by and large) paying 0% to depositors.
Also in June, we expect the Eurosystem to begin its purchases of corporate bonds in its Corporate Sector Purchase Programme (CSPP). It is likely that this will begin in the days shortly after the ECB’s press conference on 2 June. The corporate bond market will be watching the implementation of purchases on a daily basis. We believe that once the CSPP settles in, the Eurosystem will be buying around €12bn a month in corporate bonds. Last Wednesday Reuters reported that – citing “several bank sources” – these will amount to €5-10bn per month initially.
21 June: German Constitutional Court ruling on OMTs
On 21 June, the German Federal Constitutional Court in Karlsruhe will give its final ruling on the acceptability of the ECB’s Outright Monetary Transactions (OMTs) programme in the field of German law. In our view, this represents less of an immediate market risk than a contingent one. In a scenario where the Court ruled against OMTs, uncertainty might increase over the ability of the ECB to respond to another period of extreme volatility in European sovereign markets
Some appear to think that a ruling against OMTs might impede the purchase of peripheral bonds in the ECB’s current QE programme. We believe this to be unlikely. Bundesbank opposition to QE as a monetary policy tool in principle (even if not in timing) seems slight.
It is widely accepted that the announcement of OMTs in the summer of 2012 was the beginning of the end of the sovereign debt crisis in Europe. But in October 2014, the German Constitutional Court found that the policy was “incompatible with primary law”. At the same time, the judges in Karlsruhe passed it on to the European Court of Justice for review, which last year came to the opposite conclusion (though in the context of European law).
24 June: Result of the UK referendum on EU membership
The recent rally in sterling and the tightening of peripheral sovereign spreads have been widely attributed in the media to an increase in confidence that the UK referendum will result in a vote to remain. If correct, this would mean that there would be potential for sterling to fall and peripheral spreads to widen once more in a scenario where there is either a vote to leave or if opinion polls showed increased support for that outcome.
Figure 3: Average Italy and Spain 10-year spread to Germany and EURGBP; past 6 months
26 June: Elections in Spain
Spain will hold another general election on 26 June, after its 21 December 2015 election resulted in no government being formed. In general, we think that Spanish yield spreads to Germany should tighten over the coming months as the relatively strong growth heals the economy and improves debt dynamics.
However, Spain missed on its deficit targets in 2015 by a wide margin and is likely to miss again this year, according to the European Commission. In part, this can be attributed to the dominance of elections in the public calendar. But there is a risk to sovereign spreads if a government is formed after the elections which might take an anti-austerity stance and widen the public deficit even more.
30 June: A decision on the European Financial Transaction Tax
A group of European governments have been proposing a European Financial Transaction Tax (FTT) for several years. In the most recent statement, the proponent governments indicated that “taxation should be based on the principle of the widest possible base and low rates and it should not impact the cost of sovereign borrowing”.
The statement also directs governments to decide on further details – including, importantly, the levels of the tax – by the end of June: “in order to prepare the next step, experts in close coordination with the commission should elaborate adequate tax rates for the different variants. A decision on these open issues should be made until the end of June 2016.”
It should be noted, however, that aside from the 10 countries currently promoting the tax there is opposition among other EU member states, most notably the UK. Under the “Enhanced Cooperation” framework, the countries will pursue the policy only if 9 or more member states support it. In December, Estonia withdrew its support for the project.

DAHLGREN, Va.—A warning siren bellowed through the concrete bunker of a top-secret Naval facility where U.S. military engineers prepared to demonstrate a weapon for which there is little defense.
Officials huddled at a video screen for a first look at a deadly new supergun that can fire a 25-pound projectile through seven steel plates and leave a 5-inch hole.
The weapon is called a railgun and requires neither gunpowder nor explosive. It is powered by electromagnetic rails that accelerate a hardened projectile to staggering velocity—a battlefield meteorite with the power to one day transform military strategy, say supporters, and keep the U.S. ahead of advancing Russian and Chinese weaponry.
In conventional guns, a bullet loses velocity from the moment the gunpowder ignites and sends it flying. The railgun projectile instead gains speed as it travels the length of a 32-foot barrel, exiting the muzzle at 4,500 miles an hour, or more than a mile a second.
“This is going to change the way we fight,” said U.S. Navy Adm. Mat Winter, the head of the Office of Naval Research.
Watch the Video: Pentagon officials believe the high-tech railgun could pave the way for a military advantage defending assets on sea and on land. Photo: U.S. Department of Defense
The Navy developed the railgun as a potent offensive weapon to blow holes in enemy ships, destroy tanks and level terrorist camps. The weapon system has the attention of top Pentagon officials also interested in its potential to knock enemy missiles out of the sky more inexpensively and in greater numbers than current missile-defense systems—perhaps within a decade.
The future challenge for the U.S. military, in broad terms, is maintaining a global reach with declining numbers of Navy ships and land forces. Growing expenses and fixed budgets make it more difficult to maintain large forces in the right places to deter aggression.
“I can’t conceive of a future where we would replicate Cold War forces in Europe,” said Deputy Secretary of Defense Robert Work, one of the weapon’s chief boosters. “But I could conceive of a set of railguns that would be inexpensive but would have enormous deterrent value. They would have value against airplanes, missiles, tanks, almost anything.”
Inside the test bunker at Dahlgren, military officials turned to the video monitor showing the rectangular railgun barrel. Engineer Tom Boucher, program manager for the railgun in the Office of Naval Research, explained: “We are watching the system charge. We are taking power from the grid.”
Wires splay out the back of the railgun, which requires a power plant that generates 25 megawatts—enough electricity to power 18,750 homes.
The siren blared again, and the weapon fired. The video replay was slowed so officials could see aluminum shavings ignite in a fireball and the projectile emerge from its protective shell.
“This,” Mr. Boucher said, “is a thing of beauty going off.”
The railgun faces many technical barriers before it is battle ready. Policy makers also must weigh geopolitical questions. China and Russia see the railgun and other advances in U.S. missile defense as upending the world’s balance of power because it negates their own missile arsenals.
The railgun’s prospective military advantage has made the developing technology a priority of hackers in China and Russia, officials said.
Chinese hackers in particular have tried to penetrate the computer systems of the Pentagon and its defense contractors to probe railgun secrets, U.S. defense officials said. Pentagon officials declined to discuss the matter further.
The Navy began working on the railgun a decade ago and has spent more than half a billion dollars. The Pentagon’s Strategic Capabilities office is investing another $800 million—the largest share for any project—to develop the weapon’s defensive ability, as well as to adapt existing guns to fire the railgun’s high-tech projectiles.

Railgun Components

A 25 megawatt power plant and large capacitor bank are required to provide enough pulse power to fire the weapon 10 times a minute.
Electromagnetic railgun
32 feet
A non-explosive bullet filled with tungsten pellets; weight: approx. 25 pounds.
An aluminum jacket that supports the bullet in the gun barrel; also provides a bridge for the current between the rails.
Approx. 24 inches
Source: Office of Naval Research
Some officials expressed concern the technology has commanded too large a portion of resources and focus. “This better work,” one defense official said.
The age of the gun faded after World War II, hampered by the limited range and accuracy of gunpowder weapons. Missiles and jet fighters dominated the Cold War years, prompting the Navy to retire its big-gun battleships. The railgun—and its newly developed projectiles—could launch a new generation of the vessels.
“Part of the reason we moved away from big guns is the chemistry and the physics of getting the range,” said Jerry DeMuro, the chief executive of BAE Systems, a railgun developer. “The railgun can create the kind of massive effect you want without chemistry.”
The Navy’s current 6-inch guns have a range of 15 miles. The 16-inch guns of mothballed World War II-era battleships could fire a distance of 24 miles and penetrate 30 feet of concrete. In contrast, the railgun has a range of 125 miles, officials said, and five times the impact.
“Anytime you have a projectile screaming in at extremely high speeds—kilometers per second—the sheer kinetic energy of that projectile is awesome,” Mr. Work said. “There are not a lot of things that can stop it.”
Star Wars sequel
Railguns have for years been limited to laboratories and videogames.
Former President Ronald Reagan ’s Strategic Defense Initiative—the so-called Star Wars missile defense—at one time envisioned using the railgun to shoot down nuclear missiles. Those plans were stalled by 1980s technology. One problem was that the gun barrel and electromagnetic rails had to be replaced after a single shot.
The Navy now believes it has a design that soon will be able to fire 10 times a minute through a barrel capable of lasting 1,000 rounds.
Besides speed, the railgun also has a capacity advantage. A typical U.S. Navy destroyer can carry as many as 96 missiles—either offensive cruise missiles or defensive interceptors. A ship armed with a railgun could potentially carry a thousand rounds, allowing the vessel to shoot incoming missiles or attack enemy forces for longer periods and at a faster rate of fire.
Unlike the Reagan-era initiative, the Pentagon doesn’t see the railgun as a shield against intercontinental ballistic missiles but defense against shorter-range conventional missiles.
The U.S. has kept its military dominance over the past quarter-century largely through such precision weaponry as guided missiles and munitions. It also has spent billions of dollars on interceptor-missile based defense systems to shoot down ballistic missiles fired at the U.S. or its allies.
That monopoly is about over. China is perfecting a ship-killing ballistic missile. Russia mostly impressed U.S. military planners with the power and precision of its cruise missiles deployed in Syria, and its improved artillery precision revealed in Ukraine.
“I am very worried about the U.S. conventional advantage. The loss of that advantage is terribly destabilizing,” said Elbridge Colby, a military analyst with the Center of a New American Security.
Defense planners believe the U.S. needs new military advances. Russia, for example, is believed to be developing longer-range surface-to-air missiles and new electronic warfare technology to blunt any forces near its borders.
Prospects for an armed conflict among the great powers still seem remote. But for the first time since the end of the Cold War, the Pentagon is again looking closely at responses to rising tensions with China and Russia.
Military planners say the railgun would be useful if the U.S. had to defend the Baltic states against Russia, or support an ally against China in the South China Sea.
Moscow and Beijing are investing in missile systems aimed at keeping the U.S. out of those respective regions. A railgun-based missile defense could defend naval forces or ground troops, making it easier to move U.S. reinforcements closer to the borders of Russia or China, officials said.
Deputy Secretary of Defense Robert Work, right, views the hole made in a steel plate by a railgun projectile during testing last year at a top-secret Naval facility in Dahlgren, Va.
Deputy Secretary of Defense Robert Work, right, views the hole made in a steel plate by a railgun projectile during testing last year at a top-secret Naval facility in Dahlgren, Va. PHOTO: U.S. DEPARTMENT OF DEFENSE
“You can’t ignore the fact that Russia has great ability to mass conventional munitions and fire them over great range. We have to be able to fight through those salvos,” said Mr. Work, of the Pentagon. “And the railgun potentially will give us the means to do that.”
Russian officials, meanwhile, including Alexander Grushko, Moscow’s envoy to the North Atlantic Treaty Organization, have said technological advances by the U.S., including missile defense, could undermine the strategic stability currently guaranteed by the relative balance between the Russian and U.S. nuclear arsenal.
Faster, smarter
Hitting a missile with a bullet—a technical obstacle that hampered Mr. Reagan’s initiative—remains a challenge. Railgun research leans heavily on commercial advances in supercomputing to aim and on smartphone technology to steer the railgun’s projectile using the Global Positioning System.
“Ten years ago, we wouldn’t have been able to build a projectile like this because the cellphone industry, the smartphone industry, hadn’t perfected the components,” said William Roper, the director of the Pentagon’s Strategic Capabilities Office. “It is a really smart bullet.”
Development of the railgun guidance system is about done, officials said, but circuits in the projectile must be hardened to withstand gravitational forces strong enough to turn most miniaturized electronics to scrap.
Missile defense by the railgun is at least a decade away, but Pentagon officials believe the weapon’s projectiles can be used much sooner. They are filled with tungsten pellets harder than many kinds of steel, officials said, and will likely cost between $25,000 and $50,000, a bargain compared with a $10-million interceptor missile.
The electrical energy required to fire a railgun means it is likely to be used first as a ship-mounted weapon. Only one class of Navy ship, the Zumwalt-class destroyer, has such a power plant, officials said. The Navy is building just three of those destroyers, so the Pentagon is working to adapt the projectile to use in existing Naval guns on other vessels, as well as for Army artillery.
While slower than a railgun, a powder-fired railgun projectile still flies at 2,800 miles an hour, which extends the range and power of existing weapons.
At Dalhgren last year, military engineers test-fired 5- and 6-inch Navy guns loaded with a version of the railgun projectile. The range of the Navy’s 6-inch guns was extended to 38 miles from 15 miles.
The Pentagon also tested the railgun projectile in 155mm Army howitzers, successfully extending its range.
“The Navy is on the cusp of having a tactical system, a next generation offensive weapon,” Mr. Roper said. “It could be a game changer.”

Last September (when bitcoin was trading at $230) we said that "As China Scrambles To Enforce Capital Controls, This Is Great News For Bitcoin" and that it is only a matter of time before Chinese buyers figure out that in a world in which the freeflow of capital out of China is increasingly more suppressed and where physical gold is actively being stored in China but is next to impossible to get it out of the country, it is only a matter of time before bitcoin explodes as China's bubble berserk population scrambles to buy.
One month ago, we showed a chart according to which it was almost time for the bitcoin breakout, in "Is Bitcoin About To Soar?" At the time bitcoin was trading in the low $400s.
Then, just yesterday, something snapped, and as we reported "Bitcoin Surges To 2016 Highs On Rising Chinese Demand."
It is unclear if that something is fears about an imminent round of Chinese devaluation following Friday's dramatic move higher in the US Dollar, something we also hinted at on Friday afternoon...
... or simply because China's $30 trillion in deposits had finally found the most efficient way to get their funds out of the country.
Whatever the reason, moments ago - as we expected - bitcoin finally broke out of its long-term range, and was trading at $520 moments ago on Coinbase...
... the highest price it has hit since the summer of 2014.

What is the reason for this dramatic move higher? It appears to be coming out of China, because moments ago Bitcoin traded in CNY on the Huobi exchange soared as high as 3820, or over $580, implying a massive local-demand driven arb to the US price of "only" $520.
It looks like the Chinese have finally awoken to bitcoin, just as we expected them to last September, when the price of bitcoin was over 50% lower.

With bitcoin now 100% higher than when we first said China would send it soaring,and 15% higher in the past two days, why do we remain in the bullish camp? Simple: China has $30trillion in deposits - which concerns about devaluations will make very "flighty" while the market cap of bitcoin is under $8 billion. If Chinese depositors have finally figured out to use bitcoin to get their funds out of the country, watch out BTC shorts.


The Brexit would change the dynamic of the EU.
Brexit is bad for the EU, not just the GBP.
A Brexit will impact all who deal with the pound.
Volatility peaking June 23 is guaranteed for GBP-related assets.
For Americans, a referendum is a vote whereby voters determine a political decision. America is largely a Representative Republic. Only some U.S. states, like California, have direct social democracy in which referendums determine state law.
There's a referendum in Great Britain that can change the structure of Europe. The question in this case: Should Great Britain stay in the European Union, or leave? (The BBC has complete coverage of Brexit.)
In Britain, polls show the vote would lead to a stay — but it's very close. From the Financial Times Brexit poll tracking:
Analysts agree a vote to leave the EU would cause major volatility, and the British Pound would decline. From CNBC:
A U.K. vote to leave the European Union on June 23 would cause major currency fluctuations and dent growth in the country, according to Ramin Nakisa, global macro strategist at UBS. He estimated it would have an approximately "2 percent impact on GDP (gross domestic product) in the U.K. over the long term." However, the "biggest effect would be on FX (foreign exchange), so we're saying euro/sterling would go to parity if there was an exit," he told CNBC Friday.
For traders, the ETFs to watch are:
  • The Currency Shares British Pound Sterling Trust ETF (NYSEARCA:FXB)
  • The iPath GBP/USD Exchange Rate fund (NYSEARCA:GBB)
Or in your Forex account, watch all GBP pairs. The vote is June 23, and there is constant polling leading up to this historic vote, to gauge public sentiment.
Because the vote is so close, there's tail risk to any assets connected to the GBP currency and to a lesser extent, to the EU. This will also affect the Euro (EUOFXE).
The European Union is an idea. Great Britain is one of the periphery states that joined the EU but still uses its own currency. This leads to confusion: Is Britain in the EU or not? They are. That means they enjoy the privilege of traveling and doing business inside the EU without visas or permits, taxes, and other barriers that would exist were Britain not in the EU.
If they vote to leave, all that can change. It will be a net negative for the EU as well. Not only will the EU lose economically, it will send a message to other breakaway members: If Britain can leave, you can too! The EU is a fragile idea, and there exists in most European countries strong movements against the EU.
A short list of regions that have the potential to 'breakaway' and form their own states, outside the EU, from The Washington Post:
Venice (Italy), Catalonia (Spain), Corsica (France), Flanders (Belgium), The Basque Region (Spain), Bavaria (Germany), Wales, Cornwall, Northern Ireland (The United Kingdom), Galicia, Aragon (Spain), Silesia (Poland), Frisia (Netherlands, Germany), Sardinia, Brittany, Occitania, Alsace, Savoy (France), and Aaland (Finland).
A yes vote on Brexit could break the threads holding the EU together. Again, the EU is an idea, an economic business plan, and as such it relies on the consensual participation of its members. As explained in Splitting Pennies, Forex is a derivative, just like the EU, an idea that underpins the euro. Ideas can unravel, and if the euro idea unravels, it could lead to a return of European national currencies like the Italian lira, French franc, Spanish peseta, and so on. A country is a currency. Britain maintained their currency and stayed part of the EU. But now, if they completely leave, it will further destabilize the euro.
The boards of many of Britain's largest listed companies have made no contingency plans for a possible Brexit amid polls showing rising public support for leaving the European Union. The Financial Times contacted every FTSE 100 company, and only four- EasyjetPersimmonGKN andStandard Life - said they were engaged in detailed planning for a Brexit. Asked what measures it was taking to prepare, Vodafone, on the other hand, said "none of note required".
Europe often will surprise us, and investors would have been wrong betting against the will of the people. Investments in GBP companies can be partially hedged by trading.
On a longer-term view, the GBP is down from its highs, as seen on this chart:
GBB Chart
GBB data by YCharts
A vote to leave the EU could see the pound go down even further. But it's more likely Britain will stay. If Britain votes to stay, the pound could shoot back up near its highs. Investors should stay tuned to the Brexit channel, because this will be a great straddle trade opportunity, with guaranteed volatility no matter what the outcome of the vote.

As we warned previously, the devaluation, or breaking of the Saudi Riyal peg to the dollar, could be the black swan event for crude oil and the recent weakness in SAR forwards - while not as violent as Nigeria's Naira - certainly signals a renewed market fear that breaking the peg is imminent. It appears Saudi officials are none too pleased with the free markets speculating on this devaluation and as Bloomberg reports, banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter, which were supposedly banned in January.
SAR Forwards signal a renewed interest in betting on a devaluation...

As Bloomberg reports, The Saudi Arabia Monetary Agency has asked lenders to explain why they are offering dollar-riyal forward structured products to customers less than four months after the regulator banned options contracts that let speculators place wagers on a currency devaluation, the people said. The authority, known as SAMA, didn’t reply to requests for comment.
There has been renewed speculation that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges and the kingdom weighs paying government contractors with IOUs. Riyal forwards for the next 12 months rose to 590 points, the highest since Feb. 19, according to data compiled by Bloomberg, signifying increased speculation of a devaluation.

SAMA is asking banks to explain the rationale and relevance of the structured products for the economy and explain why they’ve entered into the products without informing the central bank, according to the people. It also wants transaction details of the derivatives since Jan. 18.

It’s also seeking to understand the impact of the products on Saudi banks’ U.S. dollar buy positions from the central bank as well as the risks to customers and banks, they said. The central bank warned any future structured derivative product should be submitted to SAMA for review and approval before they’re launched.
As The Telegraph's Ambrose Evans-Pritchard recently wrote, Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system.
Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008.

Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest.

Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.

Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.

The country’s remaining reserves of $582bn are in theory ample – if they are really liquid – but that is not the immediate issue. The problem for the Saudi central bank (SAMA) is that reserve  depletion automatically tightens  monetary policy.
Bank deposits are contracting. So is the M2 money supply. Domestic bond sales do not help because they crowd out Saudi Arabia’s wafer-thin capital markets and squeeze liquidity. Riyadh now plans a global bond issue.
Eventually the next cyclical oil spike will come to the rescue. The question is whether the Saudis can batten down the hatches and make it through the financial storm in a very leaky ship.
As for what happens if (or perhaps "when" is now the more appropriate term) the peg does fall, we close with the following bit from BofAML, who calls the breaking of the riyal peg the "number one black swan event for the global oil market in 2016": 
For oil, however, the most crucial point is what happens to Middle East currencies and in particular to the Saudi Riyal. In fact, Saudi Arabia’s FX reserves are still high and point to an ample buffer for now, but they have been falling at a relatively fast rate (Chart 21). However, should China allow for significantly faster FX depreciation than is currently priced in by markets, we believe oil prices could fall further. Naturally, the FX reserve drain on Saudi could accelerate to $18bn per month if Brent crude oil prices average $30/bbl (Chart 22), sharply reducing the Kingdom’s ability to retain its currency peg. 

However, if Saudi cannot resist the gravitational forces created by a persistently strong USD and depegs the SAR to follow Russia or Brazil, oil prices could collapse to $25/bbl. Weaker commodity prices would in turn add more downward pressure on EMs (Chart 26). Thus, even if micro supply and demand dynamics are improving, the path for oil prices in 2016 will heavily depend on how the USD moves against the CNY and the SAR. Or on a Saudi supply cut. 

Inflation is out of control.  Now, we mostly agree that the Fed's official inflation numbers are just - ridiculous.  But the real inflation, is even harder to quantify, and more subtle - as we explain in Splitting Pennies - Understanding Forex.  What drives inflation is NOT Adam Smith's "Supply and Demand" - an interesting idea but completely static, and completely irrelevant for practical applications - and certainly not useful for business, or economic forcasting.  Inflation is a simple function of monetary policy, multiplied by FX.  That means, in today's world, inflation must be counted including the FX markets because - no matter how much USD the Fed prints, it's constantly being exchanged for Euros and Yen on the open FX markets.  FX is a limited, finite system.  But the USD itself - is not.  It's defined by other currencies, and the market value of the USD vs. others.
Other less quantitative signs of inflation:
  • Reduction of quality
  • Less quantity, but for the same price (less chips in the bag, every year)
  • Intentional, engineered 'appearance' of more (there are less chips, and bag is bigger too)
  • Accompanying marketing 'feel good' slogans 
The best signs of real inflation, not the academic mumbo jumbo Fedspeak produced by The Fed and Federal Economic Departments (like BEA), is FX - and consumer goods.  Because we need energy, we need food.  Without food and energy, society can't function.  We can live without iphones, we can live without Tesla, we can live without many 'industries' - but we can't live without food, at least based on our modern consumption system used by most human beings on this small planet Earth.  And speaking of iphones, they all rely on energy - Apple (AAPL) investors should hedge their bets with energy stocks.  We can expect that high-tech products have inflation, but take a look at the real inflation, the rising prices of raisins:
You wouldn't think this is unusual, based on data from the raisin growers:
So what gives?  Here's the deal.  Recently I learned my wife is pregnant and so we've changed our diet (in addition to our whole lives - that's another topic).  Having a dash of chemicals here and there for an adult is one thing, but for a developing newborn and pregnant mother, it's out of the question.  We have in the south Earthfare, which is notably much more picky and choosy than WholeFoods, their customers more fussy and thus everything is much more expensive.  But the point here is that these raisins, are like the raisins we used to get really cheaply, 20 or 30 years ago.  Now you have to go to a place like Earthfare to get real food, by real I mean not artificial, loaded with chemicals, fillers, and other things that make for a good science experiment.  Health is another topic, but economically speaking - this is an excellent example of what inflation is.  Inflation isn't necessarily when prices go up, although $6.99 a pound for raisins is alot.  It's about deteriorating quality.  When the Fed picks a basket of goods to calculate CPI, what 'goods' do they choose?  Certainly, NOT products from Earthfare or Wholefoods.  Quality is qualitative, so it's hard to overlay a deterioration of quality line against the CPI or do statistical analysis.  There are methods though, to evaluate quality and its deterioration.  
The problem is that - in order to prove the status quo establishment method -  quality is deteriorating, by using methods by establishment institutions, and from data by establishment institutions, is a paradox.  In other words, we have to think outside of the box, and use our intuition.  For example if we look to the CDC for a correlation, we'll get nothing:
But, this is the same CDC that tells us to wash our hands to fight disease, the same CDC that exposed its own worker to Ebola.
You must see for yourself.  The raisins you eat - are they like when you were a child?  How do you remember, the taste of tomato, apple, grape, melon, and veggies?  The organic movement itself is riddled with misleading information and corruption.  But at the end of the day, if a consumer wants a 'real' raisin, not frankenfoods sold by major grocers, you have to pay the price, and buy Organic, or grow your own.
How does FX enter the raisin market?  If the Currency markets were fixed, something could be said about supply and demand.  Raisin growers now compete with farms from around the world.  The world's flat, and payment is instantaneous.  Farmers don't only compete domestically, they compete internationally.  Farmers outside the USD world maybe aren't subsidized like those in the US, but they sure are subsidized (indirectly) by their central banks, who like to make their currencies worthless, thus making the prices of these inferior raisins much cheaper, and more attractive.  Farmers at least can hedge this risk by opening a forex account and trading, but the end result of the current capitalistic system we have in the world is one thing:  garbage.  Our brains are deteriorating, health, quality of life, society, relationships, all the way down the maslow pyramid to what Americans used to love: food.  In major chains there's not much difference between pork and beef.  Not that many could notice the difference.
At least, there are methods to fight this disease we call inflation, as we explain in our book - Splitting Pennies.  We've released a slightly longer paperback edition which is really popular - get a copy for only $14.98.  The book is only the beginning.  It's only a key - you must use it to unlock the door to your new life.

Common sense has prevailed at the 2nd U.S. Circuit Court of Appeals in litigation over an alleged conspiracy among 16 global banks to manipulate the London Interbank Offered Rate (Libor), a key interest rate benchmark. The appeals court held Monday that price-fixing collusion among competitors is a violation of antitrust law, even if it takes place in the context of an ostensibly cooperative rate-setting process.
The 2nd Circuit’s 61-page opinion, written by Judge Dennis Jacobs for a panel that also included Judges Reena Raggi and Gerard Lynch, vacated a controversial 2013 decision in which U.S. District Judge Naomi Reice Buchwald of Manhattan tossed classwide antitrust claims because the Libor rate-setting process is collaborative, not competitive. The ruling revives the banks’ exposure to potentially billions of dollars in damages from investors who say they were victimized by artificial Libor rates.
Rate and market-rigging class actions against banks have become all the rage among antitrust plaintiffs’ lawyers, who’ve won nearly $2 billion in settlements in consolidated litigation over alleged tampering with the market for credit default swaps and hundreds of millions of dollars in settlements tied to manipulation of foreign exchange benchmarks. The 2nd Circuit’s Libor decision will only make the class action bar more excited about claiming collusion in the rate-setting process.
International regulatory and criminal investigators have levied about $9 billion in fines and penalties against some of the banks involved in the Libor rate-setting process, including Barclays, Deutsche Bank and UBS. Internal documents released in government probes have shown some defendants manipulated the rate-setting process to make themselves appear more stable in the financial crisis and to give particular traders an advantage over counterparties. To derive the Libor rate, banks would submit reports of the rate at which other banks were willing to lend them money; those rates were winnowed and averaged to come up with a daily Libor figure.
Judge Buchwald had said plaintiffs could not show their injury was tied to antitrust violations because banks did not compete with one another in the rate-setting process. The 2nd Circuit, however, said her reasoning was flawed. As sellers of securities that incorporated the Libor rate, the banks are competitors. Investors in Libor-pegged instruments, according to the appeals court, are buyers affected by the conspiracy. Plain and simple.
“Schematically, appellants’ claims are uncomplicated,” the appellate opinion explained. “They allege that the banks, as sellers, colluded to depress LIBOR, and thereby increased the cost to appellants, as buyers, of various LIBORbased financial instruments, a cost increase reflected in reduced rates of return. In short, appellants allege a horizontal pricefixing conspiracy, ‘perhaps the paradigm of an unreasonable restraint of trade.'”
The panel rejected as “immaterial” the banks’ arguments that Libor itself is not a product or a price and that the rules for setting the rate were implemented by the British Bankers’ Association, not by the banks. “The crucial allegation is that the banks circumvented the LIBOR-setting rules, and that joint process thus turned into collusion,” the 2nd Circuit said. Investors “have alleged an anticompetitive tendency: the warping of market factors affecting the prices for LIBORbased financial instruments. No further showing of actual adverse effect in the marketplace is necessary.”
The 2nd Circuit also held there’s no question that investors have raised plausible claims of a conspiracy so their case can’t be dismissed as inadequately pleaded. “Close cases abound on this issue, but this is not one of them,” the opinion said. “These allegations evince a common motive to conspire – increased profits and the projection of financial soundness – as well as a high number of inter-firm communications, including Barclays’ knowledge of other banks’ confidential individual submissions in advance.”
The one sliver of hope for the banks in the appellate opinion is a remand to Judge Buchwald to determine whether investors in Libor-pegged financial instruments are the right plaintiffs to enforce antitrust law. As the panel pointed out, plaintiffs have to meet two requirements to establish antitrust standing: They have to show an antitrust injury and they have to show that they are “efficient enforcers.” Judge Buchwald never reached the second issue in her 2013 decision. Now she will have to decide what the 2nd Circuit called “a closer call” than the question of whether investors properly claimed an antitrust injury.
The banks, taking a cue from the appeals court, will doubtless argue on remand that governments around the world are already punishing them for Libor transgressions. “There are many other enforcement mechanisms at work here,” the appellate opinions said. “This background context bears upon the need for appellants as instruments for vindicating the Sherman Act.”
And even the 2nd Circuit agreed that private litigation may turn out to be a bust if, for instance, “the corrupted LIBOR figure on competition was weak and potentially insignificant, given that the financial transactions at issue are complex, LIBOR was not binding, and the worldwide market for financial instruments – nothing less than the market for money – is vast, and influenced by multiple benchmarks.”
Nevertheless, the 2nd Circuit opinion answers a question about benchmark rates and antitrust claims that has divided trial judges in federal court in Manhattan. At least one of Judge Buchwald’s colleagues followed her reasoning, in a 2014 opinion dismissing a case alleging manipulation of Japanese yen Libor. But, as I’ve written, Judges Lorna Schofield and Jesse Furman squarely rejected Judge Buchwald’s interpretation of antitrust injury in more recent decisions. Schofield and Furman, in cases involving supposed tampering with the foreign exchange and ISDAfix benchmark rates, took care to distinguish the facts the in class actions before them from the Libor allegations. In particular, they emphasized that the forex and ISDAfix rates were determined through actual trades, not just by banks’ voluntary submissions.
They also, however, said Judge Buchwald had misread U.S. Supreme Court precedent to reach her conclusion. In Monday’s opinion, the 2nd Circuit agreed. The important cases to consider, the 2nd Circuit said, are 1940’s U.S. v. Socony Vacuum Oil, the seminal ruling on the per se illegality of horizontal price-fixing schemes; and 1982’s Blue Shield of Virginia v. McCready, which said consumers can sue over supposedly collusive schemes that ended up costing them money.
Investors in the various Libor classes had to go to the U.S. Supreme Court to win the right to bring an interlocutory appeal of Judge Buchwald’s antitrust decision to the 2nd Circuit. Thomas Goldstein of Goldstein & Russell, who won the Supreme Court case, argued for plaintiffs at the appeals court as well. (It took an additional nine pages to list all of the plaintiffs’ firms and amici involved in the 2nd Circuit appeal.) Robert Wise of Davis Polk & Wardwell, who argued at the 2nd Circuit for all of the banks, declined to comment.
For more of my posts, please go to WestlawNext Practitioner Insights

Ask any trader what they believe to be the hallmark feature of any "rigged market" and the most frequent response(in addition to flagrant crime of the type supposedly demonstrated every day by Deutsche Bank and which should not exist in a regulated market) will be an institutionally bifurcated and legitimized playing field, one in which those who can afford faster, bigger, more effective data pipes, collocated servers and response times - and thus riskless trades - outperform everyone else who may or may not know that the market is legallyrigged against them.
Think of it as baseball game for those who take steroids vs a 'roid free game, only here the steroids are perfectly legal for those who can afford them. Or like a casino where the house, or in this case the HFTs, always win.
However, as it turned out, the vast majority of the public had no idea that a small subset of the market was juicing, despite our constant reports on the topic since 2009, until the arrival of Michael Lewis' book Flash Boys, which explained the secret sauce that made all those HFT prop shops into unbeatable "trading titans": frontrunning.
That's really all one had to know about the mystical inner working of the modern market. All Reg NMS did was legitimize and legalize frontrunning at a massive scale for those who could afford (and hide) it, all the while the technology race ran in the background making it increasingly more expensive to stay at the top: fiber optics, microwaves, lasers, FPGAs, PCI-Express and so on.
And, as we have also discovered in recent years especially since the advent of IEX, for many exchanges providing a two-tiered marketplace was the lifeblood of the business model: the bulk of the revenues for "exchanges" such as BATS and Nasdaq would come from selling non-HFT retail and institutional orderflow to HFT clients. Since the HFTs made far more than the invested cost in permitting such perfectly legal frontrunning, they were happy, the exchanges were happy too as they betrayed only those clients who didn't pay up the "extra fee", and only the true outsiders lost. And any time they complained how rigged the system was against them, the HFTs would scream that "they provide liquidity" as they are the real modern-day market makers.
Except that's not true: the only time HFTs provide liquidity it when it is not needed. When liquidity is truly scarce and required in the market, such as on days like the May 2010 flash crash, or August 2015...  they disappear.
Meanwhile, nothing changes, because the regulators are just as corrupt as the exchanges and the HFTs, and their role is not to bring transparency to a broken, manipulated market, but to keep retail investors in the dark about just how rigged everything is.
It appears that the CME was doing just that as well.
According to Bloomberg, the CME Group - the world’s largest exchange operator - just completed an "upgrade" traders said would eliminate a shortcoming that gave some participants an advantage.
Under the old system, data connections that linked customers to CME - where key products like Treasury futures and contracts tied to the Standard & Poor’s 500 Index trade - had noticeably different speeds, opening up the potential for gaming, according to traders and other experts. Those who knew how to gain faster access could increase their odds of being first in line to trade.
The new design supposedly stamps that out.
Oh, so it was a design glitch that allowed those who "knew" how to frontrun everyone else to do so. That's the first time we have heard of the particular excuse. Usually the scapegoat is a "glitch", only in this case the CME didn't even bother.
"It’s an excellent step forward,” said Matthew Andresen, co-owner of Headlands Technologies LLC, a quantitative trading firm. “The new architecture is flat and fair, a great improvement,” said Andresen, whose knowledge of market infrastructure goes back to the 1990s, when he worked for electronic trading pioneer Island ECN.
But, wait... if it is an "excellent step" that some traders can no longer frontrun other traders on the CME, why is it not a "poor step" that virtually every other exchange still enables precisely this kind of tiered marketplace, which is neither flat nor fair?
Actually, scratch that: that's precisely what IEX is trying to resolve. The reaction? An exchange which explicitly profits from providing a two-tiered market and charging an arm and a leg for those who can afford it (and thus frontrun everyone else) namely the Nasdaq, has threatened to sue the SEC if it permits IEX to become a full-fledged stock exchange.
As Bloomberg adds, the situation involving CME’s data connections highlights a fresh set of difficulties ensuring a level playing field in the era of light-speed markets, in which even the smallest bits of a second matter. The race to shave off milliseconds has spurred efforts to carve through mountains, span continents with microwave networks and prompted a backlash championed by the likes of IEX Group Inc., the upstart stock market that delays trading to impose fairness.
Unlike some of today's state of the art means of being faster than everyone else, frontrunning orderflow on the CME was more of a "brute force" mechanism: CME customers are allotted data connections to the exchange. Some have more, some have less. Given that their speeds varied noticeably under the old architecture, the more lines a trading firm had, the better odds it could find a faster one. Trading firms with a lot of links had the chance to fish around for the fastest way to get trades done. Other firms that didn’t have as many connections or the computer programming resources to test around and find the quickest, most efficient way in were at the mercy of the connections they had.
“The performance could vary widely” with data connections under the former CME architecture, Andresen said. By which he meant that those who could afford to pay much more than everyone else, would also be able to frontrun almost everyone else.
But no more. The new system “is an important innovation that will set a new standard for fair and efficient access to the futures markets,” said Benjamin Blander, managing member of Radix Trading, a Chicago-based trading firm.
CME declined to comment on claims the old system was unfair, Bloomberg adds. “We are continuously enhancing our infrastructure in order to provide the latest and best technology architecture for our clients,” said Michael Shore, a spokesman for CME.
CME has been installing the new architecture since February. The last group of futures and options became available on the new system last week, according to CME. Traders aren’t required to switch over to the new system and can keep trading the old way if they want.
This isn’t the first time CME revamped its systems to stamp out an imperfection. Before an upgrade more than two years ago, traders were notified that their own orders were completed before everyone else found out, potentially giving initiators of transactions time to buy or sell on other exchanges with knowledge of their executions.
We expect more violations of "accidentally" rigged markets to be uncovered in time, both on the CME and elsewhere, although we wonder at this time does it even matter: besides central banks trading with other central banks (especially courtesy of the CME's own Central Bank Incentive Program), does anyone else even bother? If judging by the total collapse in trading volumes over the past decade in virtually every product class, the answer is clear.


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