Guest Post: Goldman Sachs Principal Transactions Update: Collapse In Agency Program Trading Volume

Submitted by Tyler Durden of Zero Hedge

In the week ended May 22, NYSE program trading dropped to a statistically significant low of 2.9 billion shares, down from 3.3 billion the week before, and from a 3.8 billion prior 52 week average. As for specific actors, no surprise, Goldman leading the government’s SLP team with a 7:1 ratio of principal to facilitation/agency.

As for today’s market close, with a literally parabolic jump in the last minute of trading, if anyone still thinks this market trades based on anything resembling normal behavior (unless someone had a very Jerome Kerviel-esque fat delta hedging finger or one/two moderate/large quants who had a huge index hedge imploded), I have some BBB+ rated CMBS to sell to you at par. One culprit could be hiding in the huge drop of agency trading, which this week dropped to a several month low of 1.875 billion shares.

So as essentially no institutional or retail clients are trading any more, it is just a few desperate computers trying to front run each other. And, of course, for the biggest beneficiary of this PT principal bonanza, look no further than the chart below.

Going back to today’s ridiculous close, the chart below shows it all: the complete tape painting volume spike at the very end of the day speaks for itself. And as computers now simply issue forced stock recall orders to each other, painting the tape wet with manipulative intent and volume spikes into the last 20 minutes of trading every day, their human creators are left on the sidelines, trying to outshout each other as to the reason for why the market keeps rising while the economy keeps tumbling.

Is there ever going to be any transparency in this market again?

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  1. seacoast_strat

    Can someone please explain this to me in plain English, as best as possible? How are program trades not ultimately just executing a strategy for some institution? I really don’t understand what Tyler’s arguing, but it doesn’t sound good.

  2. skippy

    Excuse me, can some one give me directions to the nearest house of GS Worship, so I may proffer my worthless hide.

    skippy…the turncoat..remember religion is just a fad so…get with groove…see my vest…see my vest!

  3. Hydroponics Book

    The vast majority of this is (at least for GS) most likely is part of the NYSE SLP program. Do a google search if you want to learn more.

    As far as it being a “just executing a strategy”…. The issue in my mind is not one of strategy, but of capital liquidity and transparency. Someone has been providing vast amounts of “new” capital (In the hundreds of billions) to the markets since Feb 09, and many of us just want to know who and how. During this time, PT has been abnormally high while trading desks have been very quiet, which leaves professional traders scratching their heads as to why and how. Also, even though the economy continues to rapidly deteriorate, the equity markets continue to rally which is rather odd considering the size of this credit led disruption. Finally, the Federal Reserve will not comment either way on the subject eventhough Ben B. has destified before congress saying he wants transparency. Yet, because of the FED’s quasi-private status they are not subjected to congressional or FOIA request.

    In short… The western capitalistic world has always bragged that its strength was its transparency, yet right now no one has any idea who is going on behind the scenes. It might be legal, it might not be, but either way we need to know more of what is going on or no one will trust our system moving forward.

  4. Woody (Tokin Librul/Rogue Scholar/ Helluvafella!)

    On Thom Hartmann’s show the other day, I heard Ravi Bhatra announce that Goldman and some others were using bail-out money to speculate in and raise the price of oil.

    Sweet deal.

  5. Jared

    Don’t forget today was the last trading day of the month. Since many mutual funds have to report their holding at the end of the month, perhaps many have too much cash therefore they bought at the end of the day to manipulate the month end report.

  6. Hugh

    And Bhatra is correct. Oil should be at half its current price given the state of the world economy and the supply situation. Yet despite this, it keeps magically rising.

    The reason is the same both for oil and stocks. In so far as they are able the old investment banks are back to their old speculating ways. And to make the irony that much richer, they are ripping us off using our own money to do it.

  7. PB

    Geez, don’t you people read the news? It spiked because investors expect a recovery. Yahoo, Bloomberg, Google Finance and inumerable other sites told me so. Time to get my powder wet!

    Or maybe the Wizard just leaned on the “buy” button while nodding off after a few solid months of market manipulation.

    Either way, isn’t state-sponsored financial capitalism glorious? At this point, the “smart money” is learning how to grow its own food.

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