Aug

18

Imagine a world where:

You can observe 'n' prices :X1, X2, X3…..Xn occurring at times Y1, Y2, Y3…..Yn - all in real time and the next day, incredulously, the 'officially provided' information does not agree with this. One should think about what this means for testing and what adjustments might be efficacious.

Almost all information transmitted to subscribers of the major industry standard news / data platforms is of no use whatsoever. One should think about how information gets to the flashing screens in front of you and how many layers of 'flexionic ether' it passes through en route.

The things that work make no sense and are non intuitive. For many years , say between 1990 and 2005, one rejected much because it 'didn't make sense'. A great personage on this list cured me of that most debilitating of trading ailments.

Imagine that world… I'm just saying, is all!

An anonymous old time trader adds:

In the real world, at the exchange, right after the close there is the last price after which the settlement price is determined. The settlement price usually, but does not always agree with the last price, and that is due to the power of the pit committee or whatever they call it nowadays. Things have gotten much better since the closure of the pits, but there are still very rare occasions when the committee will override the last print and adjust the settlement price. There's a lot of money changing hands with a cent and the orders difference for a contract that has an open interest of a million contracts. The rule of thumb is that the committee will move that last price to inflict as little damage as possible to the members and insiders. For what it's worth, this happens more frequently in the grains and meats than the financials but it must be noted that it's a very rare occurrence in these electronic days. Nowadays, there might be the rare occasion where it will differ by a quarter cent, but a couple of years ago, it was the wild West. In 2012, I complained privately to the Chair that my legal limit position at the second largest wheat market, was subject to an average of a 2 cent adjustment everyday at the close, always against me. I knew what they were doing and as a former member of a couple of pit committees, I understood what was going on but still didn't like my pocket getting picked every day. Once after a week straight of their shenanigans, my complaint to the exchange, and threats were so vociferous, they changed the settlement price in my favor…..an hour after the close….on a Friday. As an aside, a meal for a past lifetime, my mentor taught me to watch the pit committee's adjustment and listen to the conversation right after the close and hear the number they gave the reporter. This gave an excellent indicator as to whether the pit was long or short. But that was then and this is now.


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