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After Finally Covering The Massive Retail Outflows, The NYT Also "Discloses" The Nanex Crop Circle Mystery
Reading the NYT these days sure is enlightening: first, one gets news about some odd phenomenon, previously unheard of, that for 15 straight weeks retail investors have been pulling money out of retail funds (hmm, where has one seen this before), and now, with much fanfare, the NYT brings the Nanex Crop Circles to the center stage. At least unlike the former story's 15 week delay, it took the NYT a mere 3 weeks to rehash what Zero Hedge readers had known since July (how is that whole "value added content" paywall idea going?). Nonetheless, it is satisfying that the criminal stock churning activity reported on first by us, has finally gone mainstream. Of course, the NYT conclusion is typical: "The idea that shadowy computer masterminds were trying to disrupt the
nation’s stock trading struck many people as ridiculous. Wall Street
experts generally characterize it as a conspiracy theory with little
basis in fact." Interesting: yet a mere 4 minutes ago we pointed out that Finra is starting to ferret out illicit HFT trading practices... Maybe the NYT can put two and two together (in real-time this time).
More from the article:
The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.
To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.
The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.
To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.
He and others are tempted to go further, hypothesizing that the bizarre patterns might have been the result of a Wall Street version of cyberwarfare. They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.
Jeffrey Donovan, a Nanex developer, first noticed the apparent anomalies. “Something is not right,” he said as he reviewed the charts.
Here is what Donovan believes happened, and no black helicopters or anything.
Mr. Donovan, a man with a runaway chuckle who works alone out of the
company’s office in Santa Barbara, Calif., poses a theory that a small
group of high-frequency traders was trying to introduce delays into the
nation’s fractured stock-market trading system to profit at the expense
of others. Clogging exchanges or otherwise disrupting markets to gain an
advantage may be illegal.
We fail to see how this non-conspiratorial version of what transpired should be sufficient to provide comfort that the market is anything but manipulated beyond repair. Of course, this is precisely what we first suggested almost a month ago.
And here is some more speculation on the flash crash cause that will lead to a 16th consecutive weekly fund outflow this coming week:
“It’s just madness to say we don’t know what caused it. We do,” said Steve Wunsch, a market structure consultant. “The crash was an inevitable consequence of creating multiple market centers.”
That is one explanation. Others have pointed to the high-frequency traders, who use powerful computers to transmit millions of orders at lightning speed. Some of these traders, who now dominate the stock market, appear to have fled the market as prices went haywire.
Then their computer programs might have dragged down exchange-traded funds, popular investment vehicles that fell sharply during the crash, said Thomas Peterffy, chief executive of Interactive Brokers.
“Computerized arbitrage kicked in,” he said.
But if Nanex’s theory is to be believed, computer algorithms might have been at work as well, knowingly or unknowingly wreaking havoc and creating data crop circles.
“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”
It gets worse:
At a Washington hearing on the flash crash last week, Kevin Cronin,
director of global equity trading at Invesco, a big fund manager,
warned about “improper or manipulative activity” in the stock market.
The NYT confirms what we have been saying for well over a year: that the market structure is now inherently unstable, and there are potentially malicious forces that may seek to destabilize the market at any moment, leading to the possibility of another flash crash without any notice, and at time of the day (or night, now that futures are the dominant price determining paradigm). The only thing that is missing is a catalyst, which however is known only to a select few, who may or may not use it at their whim.
The idea that shadowy computer masterminds were trying to disrupt the nation’s stock trading struck many people as ridiculous. Wall Street experts generally characterize it as a conspiracy theory with little basis in fact.
But some of the patterns suggested that traders might have been testing their high-speed computers, perhaps to see how rivals would react.
Or it may just be that the computers produced so much data so quickly that exchanges simply could not cope with the onslaught.
So what was thing thing about conspiracy theories again? Or is it in the NYT's view, that everything is a "theory" until confirmed at least 3 or more times?
But we would like to end on a positive note - perhaps after the recent deposition by Nanex to the CFTC, our regulators will finally catch up... to being just 10 years behind the curve.
PS: NYT, you can cite your sources, however fringe they may be, even A.E.P. does it now.
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Finally, bitchez
trav4x7
I will jump in here to say that THIS investor ain't getting back in until we see heads rolled and the swamp drained. The Flash Crash and the Crop Circles seem to me to be so abundantly unusual that the SEC (or other chicken necked regulators) are LONG OVERDUE in investigating these likely criminal acts undermining our markets.
I guess now that the NYT has weighed in, maybe something will get moving, but probably not.
Since trading stocks (and probably bonds) is out, well it's
Gold Bitchez!
Roller- got the LONG part right.
NYT? part of the maniuplation, in this little pig's view
What does this meme do, where does it go? Panic the upper west side crowd to call their brokers? Churn?
Force intervention on QE++? (kinda my view).
Then initially redemption-city, GLD sells off, well...
I might nibble, although those beer slops were quite tasty.
- Ned
'Financial crop circles'
'Drain the swamp!'
Right on the money. Make sure Max Keiser reads this one.
... but, er,"" surely these are victimless crimes ""...????? How could someone be jailed for this, wouldn't a stern lecture be all that is required?
<<sarcasm off>>
NYT still pumping the WH agenda... like in "Jaws"...
I feel sorry for Krugman.
waste of sympathy, imho. besides, he can't feel it. - Ned
avatar thief
Hey, watch it man....You should know.... the Dude abides and runs a co-location at the ZH compound.
http://www.zerohedge.com/users/jeff-lebowski
8 year olds, dude.
Yeah, well, you know, that's just, like, your opinion, man.
Excellent Dude, just tell 'em like it is.
You are serious and mean business, they'll catch up eventually.
LMAO
But...but the best journalists in the world work for the times and there's no debating that.
NO DEBATING!!!!
Always hated the arrogance of the NYT ads. Good riddance if they go away...
modo and d. brooks? Yep, no debate.
(and Boomberg says "There is absolutely no substitute"--except that Keene and Pruitt are awfully close to no substitute when they are on their game. Rose, not so much).
- Ned
Don't worry, Jayson Blair wouldn't dream of disagreeing.
To think that the future of the nation is in their hands it just defies belief,as long as the bankrupt Zombie Banks carry on they care not what the unemployment figures are or how many citizens loose their homes.The Banks are so far out of control that the politicians don,t know how to control the markets anymore,honesty and integrity have ceased to exist,and if they try the whole facade will just crack and collapse so they just print money and pump the market because its all they have left.What happens when all the computers sell at once,and as the market collapses they don,t stop .................
I don't read the WSJ, the NYT or other publications I used to read. Why ? I am stunned by the constant parade of high quality recon that you put out Tyler.
I tip my cap, man. Another tip for your staff.
Second this. the WSJ is becoming worthless. The only reason why i haven't cancelled yet is because my work foots the bill, but i am thinking of moving to the economist anyway.
The Economist is better, but they're sometimes prone to putting out Keynesian horseshit like everyone else. This site, Mish, and ContraryInvestor give me more to read than I have time for anyway. (I have no relationship with any of these people.)
I will give the Economist credit for their cover story in summer 2005 about the housing bubble, while the rest of the world was still screeching its denial. It's a wonder their offices weren't burned down.
Anyone who looks down on a conspiracy theory with disdain is ignoring all of written human history showing that when wealth and power are involved, conspiracies appear. To label the theory that such a conspiracy exists using derogatory innuendo is just plain stupid. Of course there are conspiracies and anyone who theorizes about one is a conspiracy theorist. I wear that mantle with pride. Those who ridicule with the term "conspiracy theories" is a total idiot.
+1
Ever since JFK, I've felt the phrase 'conspiracy theory' has been used to segregate society. In one camp, there are those who study history/current events, while the other camp watches NFL and soap operas. Meanwhile, Rome burns.
They really want to be in charge. And they'll hurt you if you tell them they aren't. So it's simpler to just let them promise night and day and then fail. If people gave up power then we'd flood in, see the problems and fix them. But it's easier to hang on to the last minute and then try to divert blame to something that has nothing to do with it. Though I really think that's not going to work this time.
The governing class is so inbred group minded, connected they can't do anything but conspire. It's how they get power, how they keep power. Sustainable long term control of everyone is not a realistic goal. But if they huddle together enough and cheerlead each other enough and blow enough smoke up each others asses they start to believe they can do it.
Thought you might like to learn the origins of a phrase you used;
http://2.bp.blogspot.com/_m5i6pLhlNWU/S6eXHHu8wnI/AAAAAAAABn0/Fb5AbAhmvO...
You thought right. I always like to try to backtrack every idea to it's root origin.
Correct, so why do you think they do that? Because all the "mainstream" newspapers know that we are living in fascist times. For instance, they know that the CIA is the biggest drug cartel since at least the fifties.
They do. In fact, they help cover it up.
Scumbags.
I think a similiar saying is, 'the more people distrust their government, the more conspiracy theories appear/are believed in.'
Perhaps the more distrust shown to the government the more they conspire against the people. It would be an interesting fusion of both correlation and causation popping up from the same source. Or it's just people willing to come out and verify reverse engineering of a particular conspiracy in place.
HFT is an excuse . It's the proliferation of the NBBO system, lack of human beings who have a feel where to step in and make a market and the lack of programming to prevent the Accentures of the world ie $40 = .01 in a minute. Plain and simple explanation and no one wants responsibility for the cost toimplement this necessary initiative.
Hmmm, wonder if Treasury is more worried than usual about the note sales on deck this coming week and next. Interesting that next week's 30 year sale is a TIPS.
The Treasury issues bills, notes, and bonds on a set schedule. The only thing that varies is the size.
Crop circle mystery = Crime scene
F@ck the NYT. Useless propaganda rag.
This has happened to me over and over again; some stuff I read here gets repeated by the MSM days or weeks later.
Daddy? When can we havz revolution? Please Daddy, please!!
You always know the mainstream media is producing a hit piece when the term "conspiracy theory" is used. That's the signal for those in the know (and those who think they're in the know) to ignore the story.
After all, a hit piece has one purpose and one purpose only. It's there to convince the masses that the control system is doing it's utmost best to maintain the public myth that they really are on "our" side and they're not going to let those big bad evil doers get us. I feel better already.
The New York Times. Our premier national keeper of the public myth.
Bring out Art Bell-He'll get to the bottom of this. - Ned
release the chupacabres!!!!
I must admit, I thought "there is no way I am taking investment advice from Art Bell" when he was pumping gold at $250 in 2001. Boy, did I miss that one!
The platform, according to the indictment, gave Goldman Sachs a "competitive advantage" by executing high volumes of trades at breakneck speeds.
http://www.huffingtonpost.com/2010/02/11/sergey-aleynikov-goldman_n_4589...
At a bail hearing three days later, a federal prosecutor asked that Mr. Aleynikov be held without bond because the code could be used to “unfairly manipulate” stock prices.
http://www.nytimes.com/2009/08/24/business/24trading.html
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” stated U.S. Attorney Joseph Facciponti.
http://pulse2.com/2009/07/08/goldman-sachs-algorithms-stolen-by-sergey-a...
been lovin' the "unfairly manipulate" language. Like GS can "fairly manipulate" the market"? lol - Ned
We could call it a Mishkin-prefix. Two letters can make for a game-changer.
The solution is three words....
ONE second minimum....
..............................................
Then...DEFRAG the exchanges
No dark pools or outside matching...
.........................................
Short sale limitations...
Cannot exceed oustanding shares....
Size limits....
........................................
Non-SEC electronic surveillance
.........................................
RE-RETAIL the exchange
Just for starters....
And locate the exchange in a Swiss domicile....
Wouldn't that make them even faster? ;O)
Keep in mind...this is just one of the pieces....
Here is what needs to happen...
Two billion RETAIL accounts worldwide pressing their own buttons on their own computers....gathering their own information from a public wiki based format....in the language and currency of their choice....
THIS would be a "REAL" marketplace....
At times that snow dam would not behave.
We didn't get to breach it in a controlled demolition.
It would just cut loose. The middle, the sides, didn't matter.
Once the the chunk was out, there was no way to stop the deluge.
If a HFT trading program was a loud mouthed fast talking bidder at a car auction he'd be shown the door the first time he didn't have the willingness to pay for what he bid on...........yet on WallStreet because it's part of the keep the scam "economy's fine" Obama agenda going it's allowed.
PUBLIC ENEMIES
http://williambanzai7.blogspot.com/2010/08/public-enemies.html
short sale limitations ? The market would gap to 50,000 if they had to cover their naked shorts.
With the administration under pressure from the right for being "anti-business", any HFT rules are off the table until after Nov 2. HFT profit levels have dropped as the public has been buggered too much and arb'd out. Yet, it drives tech and programmer hiring still so no one wants to hear it until Nov. 3rd when they'll put up some lame roadblock and the HFTs will just drive around it with something else.
Fuck it, can't beat em, join em..
OK --- so now that FINRA and NYT are getting into the act. HFT's are drawing for the short straw to see who gets sacrificed in the next couple of weeks. This will supposed appease the masses and add an extra boost to our thoroughly soggy melt-up.
Thanks for giving Hell to FINRA Tyler. You get a lot of "street credit" with the common man and small investors out here when you cover stuff like this. Keep the pressure on these bastards at FINRA and their sham circus to give investors the false sense FINRA cares about anything more than securities dealers/brokers profits. What a damned sham FINRA is.
So a country with over 300 million hand guns and nobody has any balls to make an example of the looters and politco accomplishes.
America the land of pussies and taking heads.
so sez the guy hiding behind his keyboard..
hey, didn't a guy just fly his plane into an irs building???
While I'm seem some very valid points made by Tyler and a number of other posters, I'm most concerned about the erosion of market structure here.
If the SEC and Obama administration are OK with thinning out the market structure for the sake of gaining another 100 S&P points, I think they aren't thinking things through very well. You would have thought that the first Flash Crash would have suggested as much. Apparently, that's not so.
But that is what we have today. I can see why retail and even successful hedge fund investors are folding shop.
They are pathetic
Typo? A.E.P. (Ambrose Evans-Pritchard)?
I assume these were silicon-based 'experts'? Would explain why they don't have names...
HFT JUDGEMENT DAY
http://williambanzai7.blogspot.com/2010/08/hft-judgement-day.html
ZH is always ahead of the main stream idiots. It's become a daily spectacle. It seems like every day I see a story copied by the main stream, which I have read on ZH either weeks or months earlier. I stopped reading main stream articles over a year ago. You don't need that stuff when you have ZH on favorites....
Jayson Blair write the piece?
>The governing class is so inbred group minded, connected they can't do anything but conspire. It's how they get power, how they keep power. Sustainable long term control of everyone is not a realistic goal. But if they huddle together enough and cheerlead each other enough and blow enough smoke up each others asses they start to believe they can do it.<
So when does Tyler put out the word to
start peeing in their restaurant food?
Incubator bitchez. Like you need more pageviews...
Could someone please post a clear, cogent example of how a high frequency trader steals money and because they have this HFT technology they can gain at others expense?
Thx for the education.
http://atlanticfreepress.com/news/1/13124-computerized-front-running-ano...
Paying for flash orders is now banned.
Anything else?
No it isn't:
Ban on Flash Orders Is Considered by SEC
http://online.wsj.com/article/NA_WSJ_PUB:SB124940289965505053.html
& then there's:
Quote Stuffing/Flash Crash?
http://www.tradersnarrative.com/was-the-flash-crash-caused-by-quote-stuf...
But anyway, you're already in the right place (ZH) for further details if that's actually what you're after - I'm no expert; I was merely trying to be helpful.
CROP CIRCLE SPOTTED BY TEAM BANZAI7
http://williambanzai7.blogspot.com/2010/08/crop-circles.html
I love how the actual FACT that they crop circles are there isn't contested but rather it's just nothing to worry about and a rather strange coincidence...
This shit never ceases to amaze me. The fact that people can be so easily swayed to overlook obvious facts is incredicle. Nobody wants to be caught on the 'conspiracy theory' side *if* it's proven to be just a coincidence (which has no fucking chance).
Hey, look, futures are UP!
Makes perfect sense. Hedge funds are trying to defeat the front runners who have developed sophisticated real time trend analysis and pattern recognition.
By crap flooding the system, the trend analysis is destroyed.
Or if they are really smart, they figured out flaws in the pattern recognition of the competitors, which led them to exploit a sell off pattern.
Skynet is upon us.
I wonder if the flash crash wasn't just an algo suffering latency to start with? You know they just post huge bids and asks that are not meant to be filled. What if there was one out there that was running a few seconds behind and repeatedly posted huge sell orders at the wrong price that got filled? They probably wouldn't have even known they were getting fills for a while if they were running behind. But maybe that is what this article is taking about anyway--Someone's algo being forced into latency.
I will assume stupidity and mistake before conspiracy myself.
Try to imagine if the pharmaceutical industry were operating like the financial markets right now. Drug companies could create and launch a drug into the market without any prior testing or FDA approval. The only criteria for acceptability of the drug would be that some desperately sick person is willing to buy it. A tiny engraving on the inside of each capsule stating, “this one could kill you”, would be considered fair disclosure, and nothing important enough for anyone to worry about.
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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