HFT Stock Manipulation In Action - page 8

[thenews]

"What’s Going On" - Traders Stumped As HFTs Frontrun Last Night's Australia "Surprise" Rate Decision

Yesterday at 10:30pm eastern, or alternatively today at 2:30pm local time, Australia's central bank unexpectedly did notcut its key interest rate, keeping it at 2.25% even as the majority of economists had predicted a rate cut. However, not everyone was surprised. Just a minute before the official announcement at bottom of the hour sharp, the AUD surged by 0.6%, rising from 0.7774 to 0.7822, suggesting that at least one algo and likely more, had advance knowledge of the unchanged decision, as shown in the chart below.

As BBG further reports: “The Australian dollar was curiously bid going into the today’s announcement, having traded as high as 78.23 cents,”

Robert Rennie, head of currency and commodity strategy in Sydney at Westpac Banking Corp., wrote in a note to clients.

Was this a leak, or a strategically placed, and correct, HFT momentum ignition burst just ahead of the RBA announcement? If indeed this was a lucky guess, it would be the second time in a row HFTs have correctly predicted the "surprise" move by the RBA:

It was the second time in two months the RBA had surprised forecasters and also the second time the currency moved in the right direction in advance of the central bank. On Feb. 3, the Aussie dropped 0.6 percent to 77.49 cents in the 10 seconds before the RBA decision was released. It fell to a 5 1/2-year low of 76.26 after the rate-cut announcement.

Nothing new here, and merely a rehash of what has been said here since 2009: "The increase in the use of high-frequency trading has spurred concern that algorithm-driven orders can lead to distortions for stock, bond and equity markets around major data releases."

Still, some were surprised that the market is either rigged, or selected leaks continue to favor a specific group of traders:

“We were sitting here, the Aussie just jumped and we’re wondering what’s going on,” Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore, said by phone after Tuesday’s decision. “We were watching that very closely. There were market rumors that the website was updated a little early.”

For its part, the RBA denied speculation it had leaked the report early: "The RBA published its statement at the scheduled time, a spokesperson for the central bank said, asking not to be identified as per standard practice for the organization. The RBA declined to comment on whether the matter was being investigated."

Australia's SEC has promised it will investigate: “ASIC cannot comment specifically, however as you may expect we would review any unusual trading as part of our routine monitoring and surveillance activities,” Sydney-based ASIC spokeswoman Miriam Phillips said by phone on Tuesday.

source

[thenews]

Market watch published the NFIB news 2 minutes before the scheduled NFIB release (the time and the date are at the header - and are accurate) : NFIB small-business optimism index edges up in February - MarketWatch

[thenews]

How HFT Destroys Markets: 50 Pages Of Evidence

Back in 2009, when aside from a few insiders, nobody had heard of HFT, Zero Hedge launched its crusade to expose the algorithmic scourge that has since then caused an equity, treasury and now US Dollar flash crash, and has been the subject of a Michael Lewis bestseller and resulted in countless market halts and failures.

More importantly, there is now roughly 50 pages of just bibliography citing the evidence-based, academic research that has shown just how pervasively, maliciously and premeditatedly HFTs manipulate, destabilize, impair and otherwise destroy every single market in which they participate, and what's worse: result in incremental costs to investors, debunking the biggest lie HFTs spread about themselves - that they, being the gregarious humanist vacuum tubes they are, make trading cheaper and more accessible for the small investor.

And the biggest paradox: despite all this proof - which we urge every readers to sent to their favorite SEC regulator - America's corrupt enforcers of securities laws continue to turn a blind eye to all the crime that takes place every single day. Why? Because they collect a portion of the proceeds, of course, and because they need a scapegoat to blame once the market crashes.

We are grateful to "R. T. Leuchtkafer" who put it all together.

Some of key excerpts and findings:

This is a bibliography of resources on the capital markets, particularly on some of the negative effects of high frequency trading (HFT). Since the December 2013 edition of this document there has been an explosion of fact-based evidence on the damaging effects of HFT. This year's bibliography highlights a wide variety of academic, government, and industry data-driven research from institutions around the world, including MIT, Harvard, Princeton, the Federal Reserve Bank, the Bank of England, the University of Chicago, BlackRock, Cornell, the SEC, the European Central Bank, Yale, Cambridge, the London School of Economics, the United Nations, and many others.

Research listed here also explores how the most common business model employed by today’s high frequency traders - unregulated or under-regulated market making, often called “scalping” - can be abusive and disruptive. Several of these studies even predate automation.

Along with evidence-based research, separate sections of this bibliography include press editorials, op-eds, other commentary, and a variety of statements from government bodies and government officials from around the world about high frequency trading.

The bibliography begins with a brief overview of the evidence-based research. A detailed research bibliography containing over 100 studies begins on page six. Please also note various industry, academic, and government definitions of high frequency trading listed in the final section of this document, and note the special section on Michael Lewis's "Flash Boys."

Manipulation

Egginton et. al. (2012) found systematic evidence of "quote stuffing," a term coined by the market data and research firm Nanex to describe the many events it found where exchange technology infrastructure was slowed by floods of order and order cancel activity. They wrote that "We find that quote stuffing is pervasive with several hundred events occurring each trading day and that quote stuffing impacts over 74% of US listed equities during our sample period," and found that "stocks experience decreased liquidity, higher trading costs, and increased short term volatility.” Direct Edge (2013) launched a service to help its customers "mitigate the risks" of quote stuffing. Tse et. al. (2012) "present a detailed study of a variety of negative HFT strategies including examples of Quote Stuffing, Layering/Order Book Fade, and Momentum Ignition to demonstrate what bad HFT 'looks like', how often it happens, and how we detect it." Ye et. al. (2013) analyzed U.S. stock market data from 2010 and found "that stocks randomly grouped into the same [technology] channel have an abnormal correlation in message flow, which is consistent with the quote stuffing hypothesis." Industry regulator FINRA (2014) alleged a firm's high frequency trading customers employed "aggressive, potentially destabilizing trading strategies in illiquid securities." The United States Securities and Exchange Commission (2014) sanctioned a high frequency trading firm for manipulating the closing prices of thousands of stocks over a six month period.

Market Quality

Baron et. al. (2014) studied U.S. futures data and found a "winner-takes-all market structure" where "HFTs have strong incentives to take liquidity and compete over small increases in speed in an industry dominated by a small number of incumbents earning high and persistent returns." Biais and Foucault (2014) "recommend developing trading mechanisms that cate specifically to slow traders" and said "This could require regulatory intervention to overcome exchanges' conflict of interests." Kim and Murphy (2013) examined more than a decade of U.S. stock market data and found that after controlling for changes in market dynamics in that time period, market spreads were much worse than have been reported. Kirilenko and Lo (2013) surveyed the research literature and concluded that "In contrast to a number of public claims, high frequency traders do not as a rule engage in the provision of liquidity like traditional market makers." Lee (2013) analyzed Korean futures data and found that "high frequency trading is detrimental to the price discovery process." Machain and Dufour (2013) investigated U.K. stock market data and found empirical evidence for "a minimum period of time a limit order should be kept on the order book to avoid speculative practices." McInish and Upton (2012) explored U.S. equity data and wrote that "the ability of fast liquidity suppliers to use their speed advantage to the detriment of slow liquidity demanders...unambiguously lowers market quality." Yildiz et. al. (2014) "provide empirical evidence to support the theoretical predictions...that HFTs may play a dysfunctional role in financial markets." Van Kervel (2014) studied U.K. data and found that "trades are followed by excessive cancellations of limit orders, and the magnitude depends on the fraction of traders who can access several venues simultaneously" and "high-frequency traders can observe the first part of the trade and quickly cancel outstanding limit orders on other venues before the second part of the trade arrives." After analyzing U.S. stock market data, Ye et. al. (2013) concluded that speed improvements do not improve spreads but do increase cancellations and volatility. Johnson et. al. (2013) "uncovered an explosion of UEEs starting in 2006, just after new legislation came into force that made high frequency trading more attractive."

And much, much more in the entire document : hft-bibliography-2015.pdf

source

[myname]

What a weekend reading

[tampa]

nbtrading:
What a weekend reading

Indeed

If anybody had any doubt, they are all gone ...

[myname]

tampa:
Indeed If anybody had any doubt, they are all gone ...

There are still the "believers"

[whisperer]

nbtrading:
There are still the "believers"

There always will be believers. We should adapt

[thenews]

Both SEC And FINRA Admit That The Market Is Rigged (And They Are Powerless To Fix It)

Curious why investors are bailing out of the market, or rather "market" - which trades a few basis points away from its all time highs on nothing but central-bank liquidity and multiple expansion fumes - at a pace unseen since 2009? Well, the fact that not only an SEC commissioner, but the Chairman of Finre himself admit the market is rigged may have something to do with it...

First, here is SEC commissioner Luis A. Aguilar, who unlike his former CFTC peer Bart Chilton hasn't been purchased by the HFT lobby yet, with "Enhancing Oversight of Our Equities and Options Markets." An excerpt:

A Rule Better Aligned with the Current Marketplace

Being able to identify and respond to emerging trends is the hallmark of any effective regulator. Although long overdue, the proposed amendments are intended to bring Rule 15b9-1 in line with the realities of today’s securities markets. Specifically, the proposed amendments, if adopted, would achieve three things:

[*=1]First, they would do away with the de minimis allowance and its corollary, the proprietary trading exception.

[*=1]Second, they would create a new, limited exemption for hedging. This proposed exemption recognizes that dealers trading primarily on one exchange may have a legitimate need to hedge their exposure through trades on other exchanges. To qualify for this exemption, however, dealers must be able to prove that their hedging transactions are legitimate hedges. Dealers can do this only by demonstrating that the sole purpose of their hedging transactions is to offset the risk of their floor-based activities. Dealers must also establish and enforce written policies and procedures ensuring that each hedging transaction meets this requirement.

[*=1]Third, they would require HFT firms that currently rely on the de minimis and proprietary trading exceptions to register either with an association, or with all of the exchanges on which they transact.

These changes are generally appropriate and should achieve their stated goals. But, there are some causes for concern. First, the Commission currently has no data regarding the nature or extent of floor members’ current hedging activities. Unless firms provide such data, it will be difficult for the Commission to make an informed decision as to whether the proposed hedging exemption is warranted and appropriately tailored. Second, the release includes questions suggesting that the Commission may consider expanding the hedging exemption to include other, as yet unspecified, activities. This is a discordant note in an otherwise measured approach, and it would not be prudent to pursue this course unless commenters demonstrate a legitimate need for such an expansion, and justify that need with reliable data.

The Need for Enhanced Market Oversight

Turning to the proposal to end certain HFTs’ reliance on Rule 15b9-1, it is important to understand that this will bring the largest HFTs within the supervision of an association or the exchanges that execute their trades. Why is this so important? There are several reasons.

First, it will enhance oversight of cross-market trading. Currently, when an HFT that is not a member of an association executes an off-exchange trade, the HFT’s identity is usually not reported to the Financial Industry Regulatory Authority, or FINRA, which is the only association currently in existence. This frustrates FINRA’s surveillance efforts as it cannot quickly link trades to the HFTs responsible for them. This is a serious problem because, according to FINRA’s current Chairman, certain market participants disperse their trading activity across multiple markets in an attempt to hide various forms of market abuse, including layering, spoofing, algorithm gaming, and wash sales. The proposed amendments to Rule 15b9-1 will help provide FINRA and any other associations that may be formed in the future with a richer and more detailed audit trail, which will help them spot abusive trading practices more effectively.

Second, it will help ensure accountability. Even when an HFT engages in abusive trading, FINRA is powerless to address it if the HFT is not a member. The proposed amendment would require HFTs to join an association like FINRA or all the exchanges on which they trade. This will ensure that these HFTs can be held responsible for any potential misconduct.

Third, it will ensure that the intent underlying Regulation ATS is not frustrated. Regulation ATS precludes ATSs from acting as self-regulatory organizations, and instead requires them to register as broker-dealers and join an association. Associations like FINRA are thus charged with monitoring trading activity on ATSs, but this regulatory scheme is undermined if the HFTs that account for almost half of all trades on ATSs are not subject to any association’s jurisdiction.

Fourth, requiring all HFTs to join an association or additional exchanges will help provide the Commission with a more complete and detailed picture of HFTs and their cross-market trading activity. It is crucial for the Commission to have an accurate understanding of HFTs’ behavior so that it can make informed and objective decisions in deciding how best to regulate HFTs. This is especially important given the various competing claims that have been made about the legality and social utility of certain trading practices used by HFTs.

With Great Data Comes Great Responsibility

Requiring HFTs to become members of a registered national securities association or of all the exchanges on which they trade will provide a more complete and detailed picture of their cross-market trading activity. This will help regulators develop a richer understanding of HFTs’ behavior, and every effort should be made to leverage this understanding into a more effective market oversight program. In particular, regulators should use the additional information they would receive under the proposed amendments to fine-tune their surveillance techniques to the unique issues posed by HFTs. This will improve efforts to ferret out potential trading abuses, and help regulators spot new types of abuses that may develop in the future.

And here is Richard Ketchum, Finra Chairman with selected excerpts from his remarks from the2014 FINRA Annual Conference:

FINRA is determined to be a key engine in restoring trust in the securities markets. Can we solve all of this country's consumer and market issues? No. But we can tackle many of them—and how we do that is what I'm going to focus on this morning.

* * *

Even though the markets are widely fragmented, FINRA's ability to pull together data across exchanges and alternative trading systems allows us to see one big, virtual market instead of a disjointed patchwork of individual markets.

This is powerful stuff—because there are market participants out there who are actively dispersing their trading activity across markets in an attempt to avoid detection. With our cross-market surveillance program, we can run dozens of surveillance patterns and threat scenarios across our mountain of data to look for, among other things, layering, spoofing, algo gaming, wash sales and other manipulative and distortive conduct.

Because of the sophistication of these patterns, we are detecting things that we had not been able to see before:

over 80 percent of our cross market alerts involve conduct occurring on more than one market;

over 50 percent of our cross market alerts involve two or more market participants.

In addition:

we have more than 170 investigations open concerning abusive algorithms, inadequate supervision of algorithms and deficient order controls; and,

we have brought cases against firms for inadequate market access controls and manipulative conduct. In fact, just last week we brought a case jointly with CBOE (on behalf of our options exchange clients) involving a cross product manipulation scheme where waves of equity trades were used to artificially impact options pricing.

While we believe our cross-market surveillance program is a major step forward, there is so much more that we can do. Other market integrity initiatives we have underway include:

We recently received SEC approval for our "self-trade" rule that is designed to limit self-trades that could have an adverse impact on the markets and price discovery.

In November, a rule will go into effect that will require all ATSs to use a unique market identifier (an MPID) to report volume executed on an ATS. This will bring certainty and consistency to how ATSs are flagged in our audit trail and surveillance systems.

And we are thinking of other rules that might be useful to help detect and take action against abusive trading.

And while these changes and initiatives stand to be beneficial, the biggest game changer will be the implementation of the Consolidated Audit Trail or CAT.

And so on, you get the picture: not only do both the SEC and FINRA finally admit they have been largely clueless to HFT manipulation in the market over the past decade, ever since they so wisely allowed Reg NMS to pass and make a mockery of price discovery, but - more importantly - they also admit that there are "certain market participants disperse their trading activity across multiple markets in an attempt to hide various forms of market abuse, including layering, spoofing, algorithm gaming, and wash sales." Replace "certain" with most when it comes to HFTs who now are the vast majority of all "traders", and you have a pretty good picture of what is going on in the market.

[name]

Short and sweet : we know that you are cheated but we can not (we do not want) to do anything. Accept it that your place is where you are.

When the top authorities decide to tell you that they do not want to do anything against market manipulation, the time is to think seriously what to do ... unless you are on the HFT side. But : what will happen when only HFTs will take place in forex trading?

[techmac]

Why should they do anything?

After all they are living from those cheating companies (ee the fines that J.P.Morgan and the rest of the banks payed last year - it is a budget of a not so small country)