BATS in the Belfry: Charges Fly on CNBC Over Rigged Markets

By Pam Martens: April 2, 2014

Traders on Floor of NYSE Stop Trading to Listen to High Frequency Trading Debate on CNBC Following Michael Lewis' Charges on 60 Minutes That the Market Is Rigged

During this past Sunday evening’s 60 Minutes segment on how high frequency traders in combination with stock exchanges selling high-speed access have rigged the stock market, one stock exchange was called out by name: BATS. The program explored charges made in bestselling author, Michael Lewis’ new book, “Flash Boys.”

Yesterday, the President of BATS Global Markets, Inc., William (Bill) O’Brien appeared on CNBC to debate Michael Lewis and the young entrepreneur featured in his book, Brad Katsuyama, who has opened the IEX trading platform that promises to level the playing field by putting in speed bumps that slow down high frequency traders.

O’Brien came out of the gate hurling charges at Lewis and Katsuyama for making false accusations, spreading fear, and scaring investors. O’Brien repeatedly interrupted when Lewis and Katsuyama attempted to speak, jabbed his fingers in the air at Katsuyama and appeared generally ignorant of the gravity of having your stock exchange called out on a CBS news program that reaches upwards of 14.3 million viewers.

After O’Brien badgered Katsuyama to admit that he said the markets were rigged, Katsuyama said: “I believe the markets are rigged and I also think that you’re a part of the rigging. If you want to do this, let’s do this.” Lewis said he thought O’Brien’s conduct was “outrageous.” O’Brien proceeded to effectively call Lewis a liar in saying that he had visited the BATS exchange, saying “Give me a date.” Lewis gave him the date of February 5, 2013 and O’Brien continued to say it didn’t happen. Lewis, in exasperation, said “there’s actually no point in talking to someone who’s just throwing dust in the air.”

The debate was so heated that CNBC panned to a shot of traders who had stopped trading on the floor of the New York Stock Exchange in order to watch the debate. Unfortunately, those traders were wearing Barclays’ jackets – not exactly a testament to fair markets. On February 17 of this year, the U.K.’s Serious Fraud Office released the following statement: “Criminal proceedings by the Serious Fraud Office have commenced today against three former employees at Barclays Bank Plc, Peter Charles Johnson, Jonathan James Mathew and Stylianos Contogoulas, in connection with the manipulation of LIBOR.  It is alleged they conspired to defraud between 1 June 2005 and 31 August 2007.”

The Barclays’ jackets become a little more gag-worthy when one reflects on the fact that according to documents available on the British Bankers Association’s web site, just 90 days before Barclays was charged with rigging Libor and fined $453 million by U.S. and U.K. regulators, it had been appointed to a steering committee to oversee the integrity of Libor.

BATS has only been around since 2005. O’Brien was previously CEO of Direct Edge, which merged with BATS this past January. The General Counsel of BATS is Eric Swanson, who married Shana Madoff in 2007. Ms. Madoff is the niece of Bernie Madoff and daughter of his brother, Peter. Both brothers are serving prison sentences for their actions in the Madoff Ponzi scheme. Ms. Madoff joined the Bernard Madoff securities firm after receiving her law degree at Fordham. According to court filings by Irving Picard, Trustee for Madoff’s victims, Ms. Madoff made false statements to securities regulators, including providing a form that stated the Madoff business had 23 customer accounts when, in fact, it had over 4,000.

Swanson was previously the Assistant Director in the SEC’s Office of Compliance, Inspections and Examinations and played a role in an SEC examination of Madoff’s business that failed to find it was a Ponzi scheme two years before Madoff confessed. An SEC internal review determined that Swanson’s relationship with Ms. Madoff did not impair the Commission’s handling of the case. Ms. Madoff has not been charged by prosecutors.

The BATS web site says that Swanson currently “serves as a liaison with U.S. regulators and industry officials on market structure issues.”

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