Treason in the Futures Markets
paulkrugman.substack.comExcuse my ignorance, but why can't this be traced? It's not crypto wallets, why is there no transparency here?
It's not that it can't be traced, the author is stating it won't be traced because high-ranking government officials are selling those secrets.
This is actually not new in this administration. Last year the president posted on social media telling people to buy stocks a few hours before he announced tariffs (https://apnews.com/article/trump-truth-social-djt-tesla-musk...).
The bigger problem isn't whether or not it can be traced, or if it should be traced. It can and it should. The central issue at stake here is the sale of government secrets to private and (presently) anonymous groups for profit. The author is stating that since we don't know who the trader of that commodity is, and because that commodity's price is tightly coupled to actions related to the war, that trader could be helping enemies of the U.S. Without the knowledge of who the person is, or how they knew to make such a huge market movement, a claim of treason can be argued.
The biggest problem is the intelligence community is heavily rooted in trust. Movements like these signal there's an intelligence leak to the general public, or more appropriately, someone with $580 million lying around. An intelligence leak reduces trust; allies are less likely to share information if it's leaked. Conversely, trust is returned when the leaks are found and plugged, and measures put in place to prevent those leaks in the future. The author is stating that these leaks are unlikely to be plugged, which will reduce trust in American intelligence. After all, as the president said, "Let's say I was gonna do it or let's say I wasn't gonna do it, why would I tell you?" (https://www.bbc.com/news/live/c4gqjyk0vx3t)
Except he is telling someone, and that someone is making a lot of money.
> It's not that it can't be traced, the author is stating it won't be traced because high-ranking government officials are selling those secrets.
"US SEC's ex-enforcement chief clashed with bosses over Trump cases before leaving, sources say":
* https://www.reuters.com/business/finance/us-secs-ex-enforcem...
"SEC enforcement director quits":
* https://www.cfodive.com/news/sec-enforcement-director-abrupt...
The head of the SEC didn't want the SEC's investigation division to investigate (certain things).
I should have been clearer, why can't this be publicly traced?
1. Brokerages, banking, and the financial sector in the U.S. is tightly regulated. Personal financial information is very private, and financial data breaches are treated seriously (See: Equifax). You shouldn't be able to publicly trace it. It won't be disclosed unless the owner of the account consents (like a credit check), or a subpoena is issued. If the trader isn't suspected of a crime, there's no reason for others to know who placed those contracts.
2. Crypto is a unique and new player in banking and securities. Specifically, the ledger is open to all and very transparent. In order to know which wallet owns what and how much, you need to be able to look at the ledger to confirm. This design is intended to prevent fraudulent transactions. Banks and brokerages don't keep an open ledger, they keep an extremely private and heavily secured database.
3. People are heavily disincentivized to disclose this information. See: Epstein, and the people and companies that did financial business with him. Openly telling the public you sold stock to someone who trafficked underage girls isn't good for your reputation.
4. Futures in this case are similar to stocks. It's literally a market: You put in a bid to buy or sell something, someone else accepts, and both parties agree to a contract. Digital trading systems match buyers to sellers, and does so on behalf of both parties. If you trade using Fidelity and place a bid for 1,000 units of Corn at $500/unit, you might end up buying from Chase. Even if the transaction is in-person, the trader may be acting on behalf of someone else. In the case of the $580 million deal, it was spread over 6,200 contracts.
5. The STOCK Act of 2012 was supposed to prevent this, at least for members of Congress. The PELOSI Act that's currently introduced for voting is supposed to further prevent this.
6. To my original point: the problem isn't that these trades occurred. The problem isn't even that it's almost certainly insider trading. The problem is that government secrets are being leaked. The authors argument is that it almost certainly won't be investigated and any attempt at investigation will be blocked, because the level of corruption in the current administration is such that the sale of state secrets for others to profit off of is permissible. In fact, they can brazenly do it in the open while still ensuring that their privacy will be kept because of #1.
Thank you for the detailed answer!
Very interesting. I wonder how much good a publicly transparent trading system would do. And what downsides there are, of course.
Unfortunately it’s mostly wrong. And the reason it’s not public is much simpler. These markets are both standard contracts on CME matching engines.
The CME uses a system where orders (and fills) are entered via a direct TCP/IP connection between the trading system and the exchange. There is no opportunity for any system besides the trading systems (computers, switches, etc) on each side to see the order.
The CME then distributes the market data to a variety of paths in the form of price updates to an order book. That is the price and quantity of buy and sell orders at each price point. While these data feeds aren’t public, the cme gets paid for the data, it is widely disseminated, but it’s had the trading system identification removed. This whole story comes from people with market data contracts observing these feeds.
There are other exchanges that provide more information about who is entering orders but infrequent but large participants don’t like this because it allows the market makers an information advantage against them. And large block participants tend to correlate with real economic activity (oil producers and consumers for instance).
If a market maker knows an order is for one of these participants they can presume the size is going to be bigger and thus charge more for liquidity (in the form of of widening the price on their bid/ask spread offerings). Half the job of a modern HFT is predicting this sort of thing.
So the cme keeps it this way so one set of their market will keep using them. It’s part of the balancing act a two sided exchange has to navigate.
It can be traced, but the people who could and should be tracing this have been told not to.
Even if they found the culprits, what's a judge's verdict against a presidential pardon?
> Even if they found the culprits, what's a judge's verdict against a presidential pardon?
This is bad logic. A presidential pardon at least exposes the corruption, and exposing the corruption is more important than a prison sentence.
Is there anyone who isnt Trump4Life who still needs to be convinced theres corruption happening very high up in the government?
We've very little doubt its happening, and it does us no good if there arent actions taken against it.
It still needs to be methodically exposed. The process is important.
What if people don't care because it's their guy?
... that's the same question I responded to there.
If the culprits have been pardoned, they'd still be able to be sued by people who lost out during those trades.
It absolutely can be traced. The administration has people blocking investigations.
It can. Orders on the cme are tied to a specific trader id.
The question is not if it can be investigated it’s if it will be and what will happen with the findings.
The first thing the Trump admin did in its second term was gut the anticorruption offices and the cftc.
Literally everyone who investigated Trump got fored or left.
Flynn just got large payout as reward for breaking the law for Trump.
That is why.
Maybe because the rot runs so deep in Washington that nobody really wants this to be a big deal. A little like the Epstein files: so many people would be caught up in the web if insider trading in DC were properly investigated that nobody wants to go there.
"Treason" seems a bit much. We put a very high bar on that term because it comes with the most serious consequences.
The fact that nobody seems particularly surprised by it suggests that the damage is long since done.
We (the US) put a high bar on it because the Crown was using it as a way to attack political enemies and we didn’t want to follow suit. It is such a high bar in this country that it is effectively dead law, as nobody has been tried for it since soon after WWII, and very very few people have been convicted, and of those several had their convictions overturned.
The current administration does, however, throw the term around against its political enemies quite a bit, as have people in general pretty much throughout history.
The Constitution put a pretty high bar on a lot of things. They put an enormous thumb on the scale of the status quo, which benefits some and harms a lot of others. Especially since the proponents of the status quo get to now put their hands on their hearts and say "gosh, I'd like to fix that injustice, but the holy Constitution means I just can't."
Agreed. War Profiteering [0] is probably a better term.
Smedley Butler - War is a Racket. Good quick read.
It is. But usually there's at least a fig leaf of an excuse. Nobody can even say what it is we're doing, much less why.
If having a fig leaf of an excuse really better? Its not like the acts or methods being now clearly observed now are anything new. Its just they aren't disguised
It's falling that people support this without even pretending that it's about something other than their hatred for you.
In the past we had to pretend to be civil, and that illusion let us get back to work between elections. The utter disregard for the law forces us to grapple with the fact that they have so little respect for us that they will not care if there isn't another election.
You don't think starting a war apparently to distract the media, then lying about peace talks solely to drain money from the markets is treasonous?
How about when combined with all the tariffs, which seem designed to be market levers and/or just vindictive acts?
Pushing businesses to the edge, plunging people into poverty, so your cronies and you can drain money from the stock market?
Or taking bribes using crypto? Or ...
They all seem treasonous - actively harming your own country to enrich yourself.
Even if you don't find them treasonous, you have to admit they're in contravention to the emoluments clause; so Congress should still impeach the evil bastard.
And we haven't even started on his crimes beyond the simple financial ones from the last year!
Treason means something very specific in the US, intentionally. It’s one of only a couple of criminal acts defined in the constitution.
“Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort.”
So no. None of those things is treason. This administration throws the word around loosely, like many authoritarian regimes, but the founders had direct experience with a dictator who used treason charges as a political weapon and tried to ensure that wouldn’t happen here.
I do feel as if threats to apply the crime of treason while are, if not treasonous, crimes themselves. Threats are a criminal act, and there is a long precedent to disallow "I wasn't really gonna do it" as a defense.
Only "true threats" are criminal acts; threats broadly understood to be rhetorical or implausible are protected speech.
I was referring just to this bit of profiteering.
For the administration as a whole... Honestly, as disgusted as I am, I can't think of a case where a significant fraction of the country looked at a treasonous action and said "yeah, I'd vote for that again".
When his supporters turn against him he will be impeached. Until then, it's just the suicide pact called the Constitution.
So, who is paying the bill here? I am assuming the insider trading itself is zero-sum (its obviously different if what's happing happens only to allow insider trading) and while some (like passive investors like me that buy every month) win a bit, others lose a bit, someone loses big on the futures market. Is that the high frequency and quant traders? Because I assume, someone must be really mad? Especially since, and I again 'assume', that there must be easier and less public ways to bribe the admin
It's you. Every trader who does not have the insider information loses. That's how markets work after all. They collect information by rewarding the use of information. Anyone who has information and uses it is rewarded and anyone who does not is punished.
Even when you are a passive investor you lose. You essentially buy shares at random points in time. When that point happens to fall between the trading of an insider and the public disclosure of the insider information you will get a worse price for that trade.
It isn't even relevant whether the insider buys stocks or other securities directly or trades in futures instead. All information you enter into the market through trades permeates the whole market through arbitrage regardless of where you enter that information.
The losses would be diffuse. In the commodities markets you have a blend of speculative action and real economic activity. The blend is different based on the contract as well. The emini futures are pure financial engineering so it’s harder to track directly to the underlying economic activity.
Wti is much easier. Lots of real economic actors that produce or consume oil are active in those markets.
And very soon, as economics and behavioral sciences suggest, we will have world events directly influenced by people having the incentives to make them happen for financial gains only.
There's a reason we have banned and prosecuted any hint of insider trading or match fixing for centuries. Yet we play dumb on way more serious risks, allowing betting on whether a country will attack another and labeling it "information hedging and price discovery".
I can't but look at the modern world with worry. We live in increasingly Orwellian and dystopic times. The world has never been so rich and evolved, yet, as a society, we're increasingly unhappy, alone and void of purposes that aren't greed and selfishness related.
We're looking at the decadence of a civilization and all we can do, at best, is post about it over the internet, and that's when we're in the aware crowd not falling for bitter insulting and fighting because somebody else holds different ideas.
I would really want to know what can we do, as average Joes, when the most powerful people in the world fall in line and are terrorized to speak their mind. And that's when they're not actively contributing to the very same decadence.
"A man's rights rest in three boxes. The ballot box, jury box and the cartridge box." - Frederick Douglass
And others before him https://en.wikipedia.org/wiki/Four_boxes_of_liberty
Vote, protest, speak up, go into politics.
And vote with your wallet. In general, contribute your 2 cents to the good cause. Let your voice be heard, join initiatives that work on solutions. Whatever you do. It does matter.
Politics require more than good intentions.
See how many vile, empathy-void sociopaths are elected across the world because they have the political skills required to make things happen.
What I try in practice is to lead by example, and be a good neighbor/citizen. In my village, 90% of the people would rather bitch about the mayor or public services not cleaning up the park for months or years, when you can simply grab few plastic bags and clean most of it in few hours. I'm glad my initiative has pushed more citizens to actively care and take matters in their hands.
Yet the scope of degeneracy and risks are now at the global stage and I don't think I can do much when people with the wrong incentives are elected in office, if there's elections at all.
None of this is any surprise to people who had two brain cells to rub together. He showed massive corruption in his first term, and despite being impeached twice, got away with it scot free. Then got a huge mandate from the people to be a shitty person, so yeah, he’s corrupt. The majority of voting Americans don’t really seem to care.
"Treason" is a bit hyperbolic. Futures are governed a bit differently around MNPI versus equities - based on CFTC rules. If the MNPI was obtained through a duty breach then it still "might" be illegal. Most futures MNPI enforcements have been around energy data or FOMC announcements. But its usually noticed due to consistent, repeated patterns. A one-off event like this, while egregious, is probably not going to be chased. Not saying thats right... I am just saying the grift will continue...
While I agree it is very suspicious, needs investigating and far, far greater oversight in general, I'm not sure there is enough to conclude this definitely is insider trading. Markets are weird. People trade for weird reasons, sometimes gently and in small size, sometimes aggressively and all at once. We're zooming in at a short window just before the tweet. If you look at random windows you'll find these too. 6.49 am is around lunchtime in Europe, and people exist there too. Crude oil liquidity isnt at its peak at that time but certainly not "thin". It's really not that uncommon for traders to accidentally send a "fat finger" trade, much bigger in size than intended or appropriate for the market conditions.
I'm not trying to split hairs here. There's been plenty of weird coincidences and each should be investigated, and on the balance of probability at least one may well be insider trading at the highest echelons. And in any case, in any financial job you need pre clearance for trades, often justifying why you're doing them if they are odd enough. There are minimum holding periods, day trading is not allowed, and the full record auditable by regulators. It is insane to me that politicians are not subject to such rules and it must change.
But to conclude that a weird trading pattern is definitely insider trading is IMO cheap. It's like TV drama where the unemployed, wife-beater-wearing husband definitely killed the wife, end of story.
The real tragedy IMO is that this is really avoidable. It would take very basic, very standard regulation to stamp this out, and we wouldn't be debating this in a technology forum.
The quantity makes it more than weird. This is not just price change or manipulation. Prices can move big amounts for weird reasons without significant changes in trade volumes. The volume of sales makes it significant.
$580 million sales of oil futures and probably similar amount of buys in stock futures means $1T quick billion move.
Nobody makes half trillion __trades__ for weird reasons and this was too short to be movement of sellers in general.
It is very weird and suspicious but not out of the realms of possibility. And I don't say it because I'm vouching here for the honesty of this administration. Crude oil contracts (WTI and Brent - both same size) traded roughly 3m contracts that day. 6,200 quoted by FT is about 2% of that. It's a lot - crazy much. But not crazy-crazy-someone-is-defo-a-crook crazy.
It's not even a given at this point that all these trades come from one person. In fact I doubt they do - because most brokerages would simply not allow you to put this trade. It could well be a huge trade, but a fraction of the 6200 that changed hands, then HFT algos jumping in in the action.
Which is all investigable, and should be investigated.
*580 million
There was equity futures and oil contracts both at the same time. Total risked with zero public news was approx $1.5B
Notional. Those contracts have between 8-15x leverage. Looking at the CNBC graph linked you can see the volume better (though not the actual lot sizes). The likely at risk dollars was probably closer to 10M across both.
Sure, I believe that. But not 580 Billion. (I sometimes wonder how much damage has been done to the United States political system by naming them million, billion and trillion. Would we all budget carefully and precisely consider the relative impacts of different scales of expenditure if a thousand thousand was a woozle, a thousand woozle added up to a brillig, and a thousand brillig was a fearsome vogon?)
I agree the article could include more data around the frequency and size of these kind of trades around other events and for a longer period.
However as the article notes the time and size of this particular series of trades makes it look suspicious and that’s all one can say with certainty at this point.
I'm happy with "very suspicious". But IMO you need more to title an article "Treason in the Futures Markets: People close to Trump are trading based on national secrets" based on "very suspicious".
> I'm not sure there is enough to conclude this definitely is insider trading. Markets are weird.
This was 6-8x the size all the existing trades on market combined, with zero other publicly available information early on a Monday morning 15 mins before an announcement that significantly moved the market.
Not even the biggest hedge funds in the world with coked up yolo traders go make 1.5 billion dollar bets like that, it simply doesn't happen.
It's egregious and blatant insider trading. The position got closed not long after the news came out.
To be clear when people quote the billion dollar number they are quoting the notional value (of the entire market move of at the announcement).
Those contracts have between 8-15x leverage depending on margin rules.
This doesn’t remove the corruption problem but it brings the number down into realistic values. And while the volumes were odd for the overnight they aren’t that strange for normal hours trading.
Maybe a naive question: those transactions are traceable. But we assume this admin will not turn itself in. However, such transactions in other nations would be investigated. Are there cases of similar transactions before the US presidents tweets in i.e. Europe?
There's plenty of very suspicious trades in US politics, and presumably European ones too. Actually on both sides of the aisle. Senators putting trades in sectors that overlap with their committee memberships, or these trades appearing in their "blind trusts", with "no input" from the senators. There is so much of it that I am sure there is plenty of insider trading. On average, if you blindly follow their trades, will you make money? The evidence is mixed, and made worse by the fact that the disclosures can be made on paper (pen and paper is allowed!) and the records not all electronified. You can imagine the juiciest trades are probably "disclosed" on a napkin if at all.
There's no doubt it's very dirty business. I just find it lazy thinking to say, hey this one is very suspicious therefore definitely criminal.
I'm sorry but I'm finding it hard to believe this is a real comment.
How's this a coincidence?
Trump has boasted about this, that's the point we're in.[0]
They're announcing in a newsletter a fund raising where they will share national secrets with donors.[1]
This is literally people paying to get access to privileged information, in a fund raising for what?
Like it's openly being said that if you pay enough money, you will make a lot of money, this is unprecedented.
Trying to normalize it by saying "it's not corruption because it's done out in the open", or to bend reality to make an excuse for this, like it's a coincidence... it's insanity.
This could very well be the end, if the game is rigged at this level - and people trying to get as much out as possible while it lasts, while acting like no one understands what's going on, it's one of the scariest things I've witnessed. It's like we're falling off a cliff and people are shoving money in their pockets while saying "we're not falling, it's just the wind".
It’s a serious comment, posted solely with the intent to sow doubt.