HFT Stock Manipulation In Action

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Trading has a few simple rules - do the opposite of Goldman's Thomas Stolper; don't fight the Fed; and buy low, sell high. However, as this series of charts from Nanex shows, it is the latter rule that is the easiest to comprehend and yet - thanks to massive and obvious HFT manipulation - is an extremely difficult thing to do. As Nanex's Eric Hunsader notes, high frequency trading algos do not get much clearer than this as the machines buy low (from you) and sell high (to you) each and every millisecond of the trading day.

Via Nanex:

Nanex ~ 11-Jun-2013 ~ Clever HFT Manipulation

Manipulation by high frequency trading algorithms doesn't get much clearer than this.

1. ASBC trades color coded by exchange and NBBO shaded gray.

As soon as the market closed (16:00), the NBBO (National Best Bid/Offer) rapidly expanded. What happened next will astound you..

read more ...

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HFT Algos Force Institutional Investors Off-Exchange

Having discussed market microstructure and the parasitic impacts of high-frequency-trading for the last 5 years, it comes as no surprise that the block-trade-sniffing algos have had very significant impacts on the way institutional investors trade now. As WSJ reports, in fact the big boys are conducting more "upstairs trades," in which deals are executed among big institutions, bypassing the broader market, because the proliferation of algorithmic trading and other structural issues, including the fragmentation of the market, are hurting their ability to get the best prices and execute large trades quickly. While the concerns aren't all new, big investors say the cat-and-mouse games are growing more elaborate - and counterproductive - by the day.

Via WSJ,

Some of the world's biggest investors are changing the way they trade in U.S. markets in response to what they say are rising risks for institutions of their size.

The strategies include conducting more "upstairs trades," in which deals are executed among big institutions, bypassing the broader market, as well as other sophisticated order-routing techniques designed to avoid pitfalls that have become increasingly apparent to investment managers.

Investors say such measures are increasingly necessary because the proliferation of algorithmic trading and other structural issues, including the fragmentation of the market, are hurting their ability to get the best prices and execute large trades quickly.

A trade has the possibility of wending its way through 13 exchanges and more than 40 "dark pools," off-exchange trading venues that don't publicly display stock trades. A trade could also be executed inside a large broker-dealer that matches buyers and sellers from its own holdings.

...

The intricacy of the equity markets creates unnecessary steps for large investors and distracts portfolio managers from increasing returns, said Mr. Brooks of T. Rowe Price.

"It's like trying to fill up your gas tank, but you have to go to 15 gas stations," Mr. Brooks said. "By the time you get to the 15th one, they've increased the price because they've heard you were coming. Wouldn't someone rather go to two or three stations and fill up the tank in blocks?"

Still believe HFT provides liquidity and makes the market 'more' efficient?

source

thenews
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High-Speed Trading Inquiry Is Going Nowhere Fast

New York Attorney General Eric Schneiderman has set himself the noble goal of making financial markets safer for the small investor. Unfortunately, his latest foray into the world of high-frequency trading will achieve little or nothing toward that end.

Schneiderman announced this week that he is scrutinizing what has become a common practice: Some traders get privileged access to market data by paying to place their computer systems inside exchanges' premises or by subscribing to faster and more detailed data feeds. Because this allows them to act on information that others don’t have, Schneiderman sees it as akin to insider trading.

To put Schneiderman's view in the proper context, it helps to understand a bit about how high-speed trading works. Consider two securities, both of which are supposed to track the S&P 500 stock index. From one second to the next, their prices move in lockstep. At shorter time intervals, measured in the thousandths of a second, incoming orders might push up the price of one before the other has time to catch up. This creates an opportunity: By selling at the higher price and buying at the lower price, a trader can make a quick profit.

Such opportunities -- and other, less-perfect arbitrages -- are estimated to be worth billions of dollars a year, but only to those fast enough to seize them. Hence, high-speed traders are willing to spend a lot on being the first to know when an opportunity appears, and to get their orders to the front of the line. Much of that money goes into computer systems, software and ultrafast data links, such as a microwave link that can carry data from New York to Chicago in a matter of several milliseconds. Some also goes to pay for the proprietary data feeds and privileged server parking that trouble Schneiderman. (Bloomberg LP, the parent of Bloomberg News, provides its clients with access to some proprietary exchange feeds.)

The high-speed traders' advantage might seem unfair, but it’s not unfair in the same way as insider trading. In the latter case, privileged information is available only to a limited group -- company executives, for example -- who break the law if they use it to make money at the expense of less-informed investors. In the former, the information is available to anyone willing to pay. It's akin to paying an airline for the privilege to board a flight early, or -- just to emphasize a previously disclosed interest -- to buying a subscription to a Bloomberg terminal.

On a more practical level, most of the advantage will remain even if Schneiderman manages to make access to information more equal -- as he has already done by pressuring news-release distributors Business Wire and Marketwired to get rid of their direct feeds. High-frequency traders will still be a lot faster than investors who don’t make the same investments in technology. Eliminating the advantage would require draconian measures.

The more important issue is whether, in their incessant efforts to identify opportunities and get to the front of the line, high-frequency traders are harming others or presenting a threat to the financial system. Research suggests that they can actually help individual investors by lowering transaction costs and making sure market prices accurately reflect available information. But they might also make trading more expensive for institutions, such as mutual funds and pension plans, by anticipating and piling in ahead of big trades. Most troubling is the possibility that many algorithms interacting at such speed might bring about a market meltdown, of the kind that nearly occurred in the Flash Crash of 2010.

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Algo Activity (And Manipulation) Breaks Record On Friday's Quad Witching Debacle

Friday was an extremely volatile day with new record highs being achieved miraculously at the open only to be followed by free-fall in the market's most-loved momentum names into the close. It seems that the quad-witching was of particular interest to the algos as Nanex notes, a new record was set for most trades in a 1-second interval. What was even more unusual was the record number of 'unusual' price changes that occurred in the 3 seconds before the market opened and index futures expired. "Efficient" markets indeed...

Via Nanex,

On March 21, 2014, at 15:45:00, a new record was set for most trades in 1 second in NMS stocks (NYSE, NY-ARCA, NY-MKT and Nasdaq listed stocks and ETFs - approximately 8,000 symbols). The 3rd and 4th most active seconds were also set, at 15:50:00 and 15:55:00 respectively. The 2nd most active second was set at 10:00:00 on September 1, 2011.

1. NMS 1-second peak Trades per Second for each minute of the regular trading session (9:30 - 16:00).

Each day is drawn as a line, color-coded by age: from violet (oldest) to red (most recent).

But that was nothing compared to the total manipulation that occurred in the few seconds before the US open and futures expiration... (via Nanex)

On March 21, 2014, a record number of stocks with unusual price changes occurred just 3 seconds before market open and the expiration of the March index futures contracts.

1. March and June Nasdaq 100 (NQ) and eMini (ES) futures contracts.

The March contracts expired at 9:30. Note the sudden jump at 9:28.

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"The Market Is Rigged" - Michael Lewis Explains How HFTs "Screw" Investors Every Day

It was almost excatly five years ago to the day, on April 10, 2009, that Zero Hedge - widely mocked at the time by "experts" - began its crusade against HFT and the perils of algorithmic trading (which of course were validated a year later with the Flash Crash). In the interim period we wrote hundreds if not thousands of articles discussing and explaining the pernicious, parasitic and destabilizing role HFT plays in modern market topology, and how with every passing day, markets are becoming increasingly more brittle, illiquid and, in one word, broken. Or, as Michael Lewis put it most succinctly, "rigged." With Lewis' appearance last night on 60 Minutes to promote his book Flash Boys, and to finally expose the HFT scourge for all to see, we consider our crusade against HFT finished. At this point it is up to the general population to decide if this season's participants on Dancing with the Stars or the fate of Honet Boo Boo is more important than having fair and unrigged markets (obviously, we know the answer).

For those who missed it, here is the full video again.

source

techmac
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techmac  

And they are not going to stop : we are witnesses that the majors forex trading is dying

The sentence that is doing that is the following :

They are examining not only whether traders from different banks worked together to influence currency prices, but also whether they traded ahead of their own customers or failed to accurately represent to customers how they were determining the prices.
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Read Michael Lewis' Flash Boys: A Wall Street Revolt: An Adaptation

The Wolf Hunters of Wall Street

Before the collapse of the U.S. financial system in 2008, Brad Katsuyama could tell himself that he bore no responsibility for that system. He worked for the Royal Bank of Canada, for a start. RBC might have been the fifth-biggest bank in North America, by some measures, but it was on nobody’s mental map of Wall Street. It was stable and relatively virtuous and soon to be known for having resisted the temptation to make bad subprime loans to Americans or peddle them to ignorant investors. But its management didn’t understand just what an afterthought the bank was — on the rare occasions American financiers thought about it at all. Katsuyama’s bosses sent him to New York from Toronto in 2002, when he was 23, as part of a “big push” for the bank to become a player on Wall Street. The sad truth was that hardly anyone noticed it. “The people in Canada are always saying, ‘We’re paying too much for people in the United States,’ ” Katsuyama says. “What they don’t realize is that the reason you have to pay them too much is that no one wants to work for RBC. RBC is a nobody.”

Before arriving there as part of the big push, Katsuyama had never laid eyes on Wall Street or New York City. It was his first immersive course in the American way of life, and he was instantly struck by how different it was from the Canadian version. “Everything was to excess,” he says. “I met more offensive people in a year than I had in my entire life. People lived beyond their means, and the way they did it was by going into debt. That’s what shocked me the most. Debt was a foreign concept in Canada. Debt was evil.”

For his first few years on Wall Street, Katsuyama traded U.S. energy stocks and then tech stocks. Eventually he was promoted to run one of RBC’s equity-trading groups, consisting of 20 or so traders. The RBC trading floor had a no-jerk rule (though the staff had a more colorful term for it): If someone came in the door looking for a job and sounding like a typical Wall Street jerk, he wouldn’t be hired, no matter how much money he said he could make the firm. There was even an expression used to describe the culture: “RBC nice.” Although Katsuyama found the expression embarrassingly Canadian, he, too, was RBC nice. The best way to manage people, he thought, was to persuade them that you were good for their careers. He further believed that the only way to get people to believe that you were good for their careers was actually to be good for their careers.

His troubles began at the end of 2006, after RBC paid $100 million for a U.S. electronic-trading firm called Carlin Financial. In what appeared to Katsuyama to be undue haste, his bosses back in Canada bought Carlin without knowing much about the company or even electronic trading. Now they would receive a crash course. Katsuyama found himself working side by side with a group of American traders who could not have been less suited to RBC’s culture. The first day after the merger, Katsuyama got a call from a worried female employee, who whispered, “There is a guy in here with suspenders walking around with a baseball bat in his hands.” That turned out to be Carlin’s chief executive, Jeremy Frommer, who was, whatever else he was, not RBC nice. Returning to his alma mater, the University at Albany, years later to speak about the secret of his success, Frommer told a group of business students: “It’s not just enough to fly in first class; I have to know my friends are flying in coach.”

Installed in Carlin’s offices, RBC’s people in New York were soon gathered to hear a state-of-the-financial-markets address given by Frommer. He stood in front of a flat-panel computer monitor that hung on his wall. “He gets up and says the markets are now all about speed,” Katsuyama says. “And then he says, ‘I’m going to show you how fast our system is.’ He had this guy next to him with a computer keyboard. He said to him, ‘Enter an order!’ And the guy hit Enter. And the order appeared on the screen so everyone could see it. And Frommer goes: ‘See! See how fast that was!!!’ ” All the guy did was type the name of a stock on a keyboard, and the name was displayed on the screen, the way a letter, once typed, appears on a computer screen. “Then he goes, ‘Do it again!’ And the guy hits the Enter button on the keyboard again. And everyone nods. It was 5 in the afternoon. The market wasn’t open; nothing was happening. But he was like, ‘Oh, my God, it’s happening in real time!’ ”

Katsuyama couldn’t believe it. He thought: The guy who just sold us our new electronic-trading platform either does not know that his display of technical virtuosity is absurd or, worse, he thinks we don’t know.

As it happened, at almost exactly the moment Carlin Financial entered Brad Katsuyama’s life, the U.S. stock market began to behave oddly. Before RBC acquired this supposed state-of-the-art electronic-trading firm, Katsuyama’s computers worked as he expected them to. Suddenly they didn’t. It used to be that when his trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. By the spring of 2007, however, when he pushed the button to complete a trade, the offers would vanish. In his seven years as a trader, he had always been able to look at the screens on his desk and see the stock market. Now the market as it appeared on his screens was an illusion.

This made it impossible for Katsuyama to do his job properly. His main role as a trader was to play the middleman between investors who wanted to buy and sell big amounts of stock and the public markets, where the volumes were smaller. Say some investor wanted to sell a block of three million Intel shares, but the markets showed demand for only one million shares: Katsuyama would buy the entire block from the investor, sell off a million shares instantly and then work artfully over the next few hours to unload the other two million. If he didn’t know the actual demand in the markets, he couldn’t price the larger block. He had been supplying liquidity to the market; now whatever was happening on his screens was reducing his willingness to do that.

By June 2007 the problem had grown too big to ignore. At that point, he did what most people do when they don’t understand why their computers aren’t working the way they’re supposed to: He called tech support. Like tech-support personnel everywhere, their first assumption was that Katsuyama didn’t know what he was doing. " ‘User error’ was the thing they’d throw at you,” he says. “They just thought of us traders as a bunch of dumb jocks.”

Finally he complained so loudly that they sent the developers, the guys who came to RBC in the Carlin acquisition. “They told me it was because I was in New York and the markets were in New Jersey and my market data was slow,” Katsuyama says. “Then they said that it was all caused by the fact that there are thousands of people trading in the market. They’d say: ‘You aren’t the only one trying to do what you’re trying to do. There’s other events. There’s news.’ ”

If that was the case, he asked them, why did the market in any given stock dry up only when he was trying to trade in it? To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five. . . .

“ ‘One. . . .

“ ‘Two. . . . See, nothing’s happened.

“ ‘Three. . . . Offers are still there at 15. . . .

“ ‘Four. . . . Still no movement. . . .

“ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”

At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”

To that, they had no response. Katsuyama suspected the culprit was Carlin’s setup. “As the market problem got worse,” he says, “I started to just assume my real problem was with how bad their technology was.”

But as he talked to Wall Street investors, he came to realize that they were dealing with the same problem. He had a good friend who traded stocks at a big-time hedge fund in Stamford, Conn., called SAC Capital, which was famous (and soon to be infamous) for being one step ahead of the U.S. stock market. If anyone was going to know something about the market that Katsuyama didn’t know, he figured, it would be someone there. One spring morning, he took the train up to Stamford and spent the day watching his friend trade. Right away he saw that, even though his friend was using software supplied to him by Goldman Sachs and Morgan Stanley and the other big firms, he was experiencing exactly the same problem as RBC: He would hit a button to buy or sell a stock, and the market would move away from him. “When I see this guy trading, and he was getting screwed — I now see that it isn’t just me. My frustration is the market’s frustration. And I was like, ‘Whoa, this is serious.’ ”

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Watch As HFT Debate Devolves Into Epic Screamfest In Milliseconds

The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis "Shame On You," for apparently telling the truth of what occurs in the stock 'market and letting everyone in on it'. The tension grows when he presses Katsuyama on whether he really believes it is rigged... who then erupts "I believe the markets are rigged.. and that you are a part of the rigging." Then the gloves come off "you wanna do this, let's do this!" and then it got worse (or better)...

Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)... but to watch the status quo crushed under the awesome honesty of reality as this is all exposed, watch on...

read more

thenews
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If HFT Algos Were People They'd Be Perp Walked

Suddenly the world is a buzz with the revelations that High Frequency Trading (HFT) may be doing more than actually harming the markets, it might be destroying the illusion they still are markets.

This past Sunday the world at large was introduced that maybe, just maybe, something was amiss in the financial markets. However, anyone with more than a passing interest in business, finance, and a little common sense could feel in their gut that something just wasn’t copacetic.

Between the Federal Reserves massive QE experiment amplified by the arms race of algorithmic technologies (aka HFT) to shave off a piece of that pie for themselves has been nothing more than breathtaking.

Currently I am staggered as I watch or read many in the so-called “smart crowd” taking to the financial media outlets professing their ire at (wait for it….) Michael Lewis’ assertion that: “the markets are rigged.” This is where they have an issue? Really? I mean…Really?

Let’s put a few things into its proper perspective. HFT is currently a catch-all phrase or moniker. At one time when it was first introduced it could be (and was) argued it had a legitimate use in making markets more efficient. However that was some 10 years ago. Today’s HFT seems to have been on an evolution of exploitation and adulterated well past the point of resembling the good idea it once was hailed to be.

Efficient markets are when: real buyers, and real sellers meet, agree, and exchange with the least amount of friction to transact. Note the emphasis on real, it’s not there for style, real means an actual buyer or seller. Period. (Just so we’re clear and not falling down the black hole of what “is” is.)

This point is one of the underlying problems in the markets today. It’s not the only one HFT has adulterated, but it just might be the most important to this discussion. For what everyone seems to be missing as they defend HFT as the great market liquidity engine, that so-called “liquidity” more often than not is fake. So I ask: Is fake now acceptable in the financial markets? For if that’s true: Bernie Madoff might be looking for his get out of jail card.

We have laws on the books to protect the markets from people trading on inside information, fraud, and more. People get arrested and perp walked in front of the media as to make examples to show, “This can happen too you!” Yet, if machines are doing the same in an equivalent manner, that’s OK. For this is technology we’re talking here, and we all know without technology, the markets are nothing more than the pits. (pun intended)

Sometimes complicated issues have to be reduced to their smallest form to get an indication on whether or not something is good, bad, or indifferent. And once one reduces this all down to just basic common sense, you don’t need a supercomputer spinning algorithms near the speed of light to come up with the obvious answer of – Duh!

When someone within the financial markets comes across information that is deemed “confidential” then uses that information as to front run said information and profit by it, we throw them in jail for insider trading.

If a machine can detect you placing an order then within nanoseconds execute buy and sell orders throughout the exchanges as to skim a piece or to push markets in a beneficial direction to enrich itself. That’s fine. Are you kidding me?

Since when is it “legal” to insert oneself into a transaction they had no business being involved in? That is not “facilitating” that’s fraudulent skimming, for that “inserted freeloader” was not needed to transact. That’s front running pure and simple. And like I said earlier we perp walk people for that. But an HFT? Nope, that’s now looked upon as “improving liquidity” by the so-called “smart crowd.” Simply jaw dropping in my view.

Add to this the insane notion that these HFT outlets are providing, “deep markets.” Again, I’ll ask, what are we talking about here? Real buyers? Or, the illusion of real buyers? For if anyone remembers, the “Flash Crash” showed everyone just how real and deep the markets were.

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techmac
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techmac  
theNews:
The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis "Shame On You," for apparently telling the truth of what occurs in the stock 'market and letting everyone in on it'. The tension grows when he presses Katsuyama on whether he really believes it is rigged... who then erupts "I believe the markets are rigged.. and that you are a part of the rigging." Then the gloves come off "you wanna do this, let's do this!" and then it got worse (or better)...

Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)... but to watch the status quo crushed under the awesome honesty of reality as this is all exposed, watch on...

read more

96% of customers are using ordinary feed. Sounds familiar (the %)?

No wonder that there are talks about 95% of users losing

thenews
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High-Frequency Traders Chase Currencies as Stock Volume Recedes

Forget the equity market. For high-frequency traders, the place to be is foreign exchange.

Firms using the ultra-fast strategies getting scrutiny thanks to Michael Lewis’s book “Flash Boys” account for more than 35 percent of spot currency volume in October 2013, up from 9 percent in October 2008, according to consultant Aite Group LLC. It’s the opposite of equities, where their proportion shrank to 50 percent in 2012 from 66 percent four years ago, according to Rosenblatt Securities Inc.

As brokers get better at cloaking orders and volume shrinks in stocks, speed trading remains a growth business in the $5.3 trillion foreign-exchange market, where authorities on three continents are examining the manipulation of benchmarks. While some see them as a sign of transparency, the tactics are catching on just as their role in equities is probed by the New York state attorney general and Federal Bureau of Investigation.

“The use of HFT will make trading and regulation in the FX market more complex, and there would also be some questions over the fairness,” Anshuman Jaswal, senior analyst at research firm Celent in Boston, said by e-mail. “Use of HFT also increases liquidity and depth in markets. Both sides of the argument carry some weight, and there is no one right answer.”

Photographer: Chris Ratcliffe/Bloomberg

Pedestrians are reflected in a 'Currencies' sign on the window of a private brokerage... Read More

The debate surrounding high-frequency trading, a term describing strategies that use lightning-fast computers to eke out profits in securities markets, blew up this week after Lewis published “Flash Boys” and said U.S. equities are rigged. The book makes few references to currency, saying instability HFT creates is bound to spread from equities sooner or later.

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