Robots Will Bankrupt Us All

July 31st, 2010 by Jason · 1 Comment · markets, regulatin

Tyler Durden (if that’s his real name) over at Zero Hedge brings us, as he so often does, a light-hearted and amusing look at the hilarity of the market. Or, specifically, how every major firm has their own Skynet and are each trying to out-Skynet everyone else, illegally. Awesome.

Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific “shapes” as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months).

In English, quote stuffing is a way for an HFT program to try to gain an edge of a few microseconds over the other programs by presenting a made-up quote that other HFT apps will have to process but that it knows it can ignore, because it put the fake quote out there. While the other programs are busy processing that quote, the originating algo can be trading something else before anyone else has a chance. This would be irritating enough if only one firm was doing this, and it’s downright mean because everyone is doing it. Is doing it? Yes, is doing it, in the present tense.

Today, courtesy of Nanex we demonstrate that this type of illegal stock manipulation continues rampant to this very day, and the SEC still fails acknowledge that it is precisely the HFT market participants that persist in destabilizing stock prices, which have given up responding to fundamentals and merely move up or down based on quote stuffing interventions by those who plead innocence and claim to only be providing liquidity. (emphasis theirs)

We’re not sure exactly why the SEC hasn’t done anything about this. There are literally colorful pictures that show what’s been going on. Even if no one at the SEC can read (which is certainly possible), these amazing technicolor dream charts show that quote stuffing is certainly going on, and that every effort is being made to influence the NBBO (national best bid and offer, basically, the lowest buy price available and the highest sell price available – if you’re a regular joe on the market, it’s the only prices you’ll see). ZH says it best:

So while the SEC continues to pander merely to the interests of the market manipulation lobby, and is now doing it in more style than ever by refusing to answer to FOIA requests going forward, here is Nanex with yet more evidence that we no longer have a market, but merely a daily recurring crime scene.

Head over to ZH and check out the charts. Even if you don’t know what you’re looking at, you can pretty easily figure out what you’re looking at.

One Comment so far ↓

  • Bill

    I look at these charts and I feel like a sucker for even bothering with the market. By the way, Tyler Durden’s real name is Narrator.

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