Posted on 06/23/2010 5:14:39 PM PDT by TigerLikesRooster
How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment
Submitted by Tyler Durden on 06/23/2010 16:16 -0500
Even as the idiots at the SEC mope about cluelessly, confirming they deserve not one cent of taxpayer money to fund their massively overbloated budget, and should all be summarily fired to collect tarballs in the Gulf of Mexico (and soon Maine), our friends at Nanex have conducted an exhaustive analysis (must read for everybody concerned about market structure), in which they identify the various parties responsible for the market crash, and, drumroll please, High Frequency Trading stands at the pinnacle of culprits for the 1,000 point Dow drop. From their findings: "While analyzing HFT (High Frequency Trading) quote counts, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second: as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn't seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was a manipulative device with destabilizing effect." In other words: enough with all the bullshit about HFT as a liquidity provider mechanism: in reality this is just a facade for the most insidious, computerized market manipulative device ever created. Nanex' conclusion: "What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one.
(Excerpt) Read more at zerohedge.com ...
P!
If this stuff can destroy the whole market instantly, then why worry?
Its pointless... no one with the power to change course in DC is or will do it.... Repub or RAT.
The more I read stuff like this, the less I seem to care if we all do go to hell.
Yup. This is why I believe HFT should be banned outright. It serves no positive purpose in making a market.
The sole purpose of HFT is to allow HFT firms to chisel a profit out of the market, a penny here, a haypenny there, thousands of times per second. It adds up... To billions per quarter.
So, it's unlikely to be an issue from the northern coast of NC up the mid-Atlantic and into New England, imho. From Hatteras down, though, it could be a problem.
Why didn’t Obama HALT ALL TRADING until they found the REASON for the 1000 point drop???? WHY NOT??? He stopped ALL OIL EXPLORATION in the GULF!!
Simple, whatever is bad for the USA is good with him,,, make no doubt about it, he wants to destroy the USA, He HATES White America!!!
It’s theft, pure and simple. It’s also a complete distortion. One day soon this is going to happen again, the market will be down 4,000 points and we will find out where the real market is.
Yep, so much for "thoughtful analysis." Sounds more like the Oriental bazaar. In order for the strategy pursued on May 6 to be called "manipulative," one has to demonstrate that it was profitable. There is no evidence of this that I am aware of. In fact, I heard people suggesting that HFTs lost money on that day.
The author has Freudian penis envy -- of fast computers he does not have.
You should reserve judgment for a while rather than jump to conclusions about "systemic" problems, especially on the basis of such a "scientific" analysis.
I don't know what "positive purpose" means, but if you personally don't see a purpose, that does not mean there is none. The purpose of HFTing is discovery of demand and supply. It is in essence a fast form of market research. Nabisco and P&G do the same: analyze every day the data from the supply chain, and try to adjust their price/promotion mix accordingly.
"In summary, quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes."
Hos 12:7-9
7 The merchant uses dishonest scales;he loves to defraud.
8 Ephraim boasts,"I am very rich; I have become wealthy.
With all my wealth they will not find in meany iniquity or sin."9 "I am the Lord your God,
[who brought you] out of Egypt;
I will make you live in tents again...
NIV
It is. That is why the companies are paying huge sums to be located next to the exchange.
You quote some slimy e-mails. What does that prove, that slime exists? Thank you, we already knew that.
But it exists with or without HFT.
"In summary, quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes."
And while the elder statesmen of Free Republic economic disinformation artists invoke ad hominem attacks almost immediately in any given discussion, that doesn't mean that the rest of us don't see through it.
And simply copying excerpts from the marketing literature of the HFT firms as a form of rebuttal in your #10 here doesn't cut it either.
Post some reasons why you think that the article's explanation of queue / timestamp windows, for example, is incorrect, and we can start to take you seriously.
I mean that HFT serves no positive purpose in creating, maintaing or furthering a fair market for all market participants.
The HFT’s claim that they’re:
- aiding in price discovery. Not true, they’re using a favored position in a network topology to discover prices and order flow in ways other participants cannot. The price hft’s “discover” is not the price I’m goimg to get - because their entire profit model it to make sure that I do not get their price print.
- supplying liquidity. Also not true, and the crash proved that volume is not necissarily liquidity. Two Hft’s cut and ran when the market needed liquidity. The old specialist system would have require the specialist to stand in the gap and provide a price for orderly execution. Instead, we saw some issues trade at $0.01, or the “stub bid.”
- just like normal trades, only they execute a lot of them. No. The HFT’s gain their advantage vs other HFT’s by spending more money on faster networking gear, faster interfaces, better co-location of the HFT’s boxes with the exchanges’. This isn’t creating a market - this is just a game of who is going to write the biggest check to cisco Systems.
NB that when a former employee stole source code, Goldman told the FBI that their hft code in the wrong hands could result in “market manipulation.” OK, so how do we know that GS isn’t manipulating prices with their code?
Full disclosure: I’m a former csco engineer and am long a boatload of csco. I’m talking opposite my book, in other words. Cisco now has application engineers to cater to HFT’s and peddle great gobs of high bandwidth, low latency boxes for this application market. Doesn’t matter to me. I can’t justify the existence of HFT’s.
I still think hft’s should be shut down, because I believe it is to our long term detriment to continue to allow hft’s to game our markets in such a blatant manner that erodes confidence in our markets.
There have been other posts here recently about other abusive practices by the HFTs, such as manipulations based on canceling most of their trades, and I have no doubt that
more and more abusive practices by the high frequency traders will be found.
And since HFTs represent 70% of the shares traded daily, it is evident that the entire stock market has been completely hijacked by algorithmic traders, who essentially are pitting their computers against each other on a microsecond by microsecond basis for purposes totally unrelated to investment.
Thus, the stock market is no longer a place for actual investors. The obvious truthfulness of this statement should be virtually self evident given that 70% of all stock market trades result in stock “ownership” positions that last for only a few seconds!
Therefore, anyone owning stocks for investment purposes is a fool, whether ownership be individual stocks, mutual funds, ETFs, or retirement funds, since the stock market is no longer a market for investors, but merely the game board used by the HFTs to play their twisted mind games.
Probably the best that can be done is some short term trades based on hunches about how other might react to current events, or perhaps owning a few giant companies that own or extract stuff (like oil and mineral companies), or giant companies that make lots of important stuff (like Intel, Cisco, Caterpillar), or giant companies that provide important services (like FedEx, railroads, etc.)
But even here, with any of these companies, remember that their stocks too have been hijacked by the HFTs, and that the fundamental factors of value that the market should
consider when pricing these stocks is mere noise in the presence of the titanic trading battle constantly waged between the computers of the high frequency traders.
Like most unfettered, abusive financial schemes, high frequency trading is bound to unravel, and when it does, it will probably take the stock market down with it, at which point those naive fools who have invested their real wealth in the market will have been undone, and for certain, the loss of that much wealth will devastate the national economy.
On the other hand, a few simple regulations could be established that would eliminate high frequency trading and return the stock market to its intended function, namely a market for capital.
But that is not going to happen. For one thing, the regulators are completely focused on “fixing” the last abusive scheme, namely lending trillions of dollars to folks that had no chance of ever paying it back. You know, like how the French built the Maginot Line to stop the next World War I. Of course, everyone knows how well that worked out.
But more importantly, the Obamunists are too focused on implementing their radical “progressive” agenda to waste any energy on actual governing. From top to bottom, the federal government has been stocked with do-nothing ideologists, and therefore of course, nothing will get done except for ideology. Just look at the federal government’s “response” to the Gulf oil spill. It’s exactly what one would expect from those who know nothing but ideology.
In the mean time, while there is no cat about, the rats come out and wreck havoc, which is exactly what the HFT rats are doing with the stock market. And guess what? When the market does finally implode, it’s all going to be be so”unexpected”, and “no one could have foreseen that this was going to happen”, etc. Completely untrue of course. Lots of us right now are foreseeing what’s going to happen. But of course the ideologists in charge won’t because they aren’t trying to foresee anything and they are not governing; they are simply being idologists.
Banned? Perish the thought. Let the market rule!
He hates White America, he hates the English-speaking world, he hates Western Civilization.
He may have been "born" an American, but he certainly wasn't "raised" an American.
I see the need for another exchange. One where HFTs are banned and small investors can fund entrepreneurs and honest businesses.
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