Caught In The Act: HFT Option Algos Observed Frontrunning Today's PMI Release

Tyler Durden's picture

In another case of purely coincidental serendipity, three days ago Zero Hedge informed readers that the "NYSE Boerse [sic] has just announced its purchase of Kingsbury International Ltd., which surveys managers for the Chicago Business Barometer, also known as the company that hosts the Chicago PMI data, in order to bring PMI data direct to feed subscribers. Net result: expect even more market volatility at each PMI release, now that the market is not two but three-tiered, and consisting of regular HFTs, HFTs with access to the Deutsche Boerse feed, and everyone else." We concluded: "It is unclear if the ultra-speed, HFT friendly feed would be activated before its next release on June 30. That said, we will certainly coordinate with our friends at Nanex for any trading abnormalities, primarily in the critical ES futures, this Thursday at 9:42am, keeping a close eye on the tape, and indicating precisely when the tiered data release hits." Well, as promised here is the Nanex data. As expected, it's a stunner.

The shocker, however, resides not in the stock arena, but in what is now becoming the go to place for bulk frontrunning high frequency trading algorithms to chase what little volatility is left in the equity market: options, which, as previously noted, we now are confident will be the cause for the next big market wipe out.

Per Nanex:

Approximately 1/2 second before the 9:42 release of the Chicago PMI report, the option market exploded setting new records in quote rates, saturation, and delays. We have not yet determined why the equity market did not see a record explosion of quote traffic; rather it experienced the normal saturation/delay that happens all too frequently every trading day.

The electronic S&P 500 futures experienced a withdrawal of liquidity beginning about a minute before the release of the PMI number. At approximately 9:41:59.550, 1275 contracts cleared through 4 levels of the offer side of the order book. This coincided with the explosion in OPRA quote traffic.

The first image shows quote message rates for each of the 12 CQS data lines that carry data for NYSE, AMEX, and ARCA equities and ETFs in 2ms intervals. Notice how quickly activity drops after the peak compared to the OPRA images below it. Normally, options activity follows equity activity very closely.

The images that follow, show each of the 48 lines individually along with the total, so that you can clearly see the saturation events and estimate the duration and extent of the delay for each line. The flat-top areas you see on the charts are caused by something gating, or queuing the data. Since OPRA, like CQS, timestamps after data exits the queue -- right before it's transmitted to subscribers -- it is impossible to know the exact duration of these hidden delays, but 500ms to well over 1 full second is a conservative estimate. We believe OPRA capacity would have to increase at least 3 times, to 12 million/second, in order to avoid these significant delays. However, at those message rates, a significant number of quotes would have already expired before they even left the exchange networks. (for all source images, please go to the Nanex site)

Several individual OPRA data lines show gaps which we believe are exhaustion events. These quiet periods of no quotes are common, can last 20 milliseconds, and almost always follow a spike in activity. We have verified that there were no drops in the data and that the charts accurately show the quote traffic rates. Several lines, noteably #37, show a period of fluttering between a high rate and zero which seem to appear during times of severe saturation.

While it is impossible to determine if this is indeed a case of broad embargo breach, it is imperative that Kingsbury International and the Deutsche Boerse immediately announce are precisely what moment they releasaed the PMI data to i) subscribers of Alpha Stream, and ii) to subscribers of the PMI service, who up until now thought they were getting a bargin by frontrunning the general population by three minutes courtesy of a public embargo, and now seems are themselves being frontrun by almost 500 milliseconds.

Furthermore, if no advance data release is confirmed, can OPRA please explain what the reason for this bizarro frontrunning activity is as traditionally a massive burst of trading action in advance of news dissemination indicates something is terminally broken with the checks and balances in the system. While we know that is the case, with the aid of Nanex, we will continue exposing each and every act of public data frontrunning going forward until every last retail investor is permanently out of the market and central banks and primary dealers can throw the hot ponzi grenade amongst themselves.

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idea_hamster's picture

"I don't have to front-run the bear -- I only have to front-run you!"

SwingForce's picture

Beautiful, the understatement of the year. Wow, I love it.

Orly's picture

That was pretty clever.


max2205's picture

Yep saw it on CNbS. As they announced it on the 10 sec chart. Somebody's gonna get fired over this

max2205's picture

I got an idea, these reports should come out like the repairman schedule: between 10 AM and 5 PM.....

boiltherich's picture

A star is born, how many times have I heard or thought that old saw but never occurred to me to apply it in such an elegant way as you just did, my hat is way off to you!

jeff montanye's picture

but if the bear moves the market, don't you have to front run the bear too?

Oh regional Indian's picture

For those wondering about HFT in the rest of the world, particularly India, it looks like we are not yet "ready" to be graped by them. In other words, those that control the system are not fully in control of that system yes:

Given the already broken, perverse and shady operations of Indian Exchanges, the looting is going to be EPIC.


CompassionateFascist's picture

I'm shocked, SHOCKED to discover that NY JewBanks are doing computerized insider trading!  

pesamystik's picture

But the money these Jews "win" at the casino is given to charity! I mean, AIPAC is sort of a charity, right?

foofoojin's picture

I totally agree. but next time back up your statement providing warrant to your counter claim instead of just playing the "race card"

can somebody post the YouTube video showing that banks do not have a disproportionate number of Jewish people running them?

or that the supreme court doesn't have a disproportional amount of Jewish people running them?

I know it is there somewhere....

boiltherich's picture

Race schmace... labels are great for telling the difference between a $1.49 can of solid white albacore packed in water and a can of Alpo but not much else, when will you all learn this lesson, after another world war, maybe never?

Greed (another name for fear/small penis) transcends all genetics, survival is built into us and if any culture has been more threatened than the jews please educate me.  It is bigger than all cultural backgrounds, it overrides sexual orientations.

And gender? 

Give me a break, women control all the men everywhere no matter any of the rest.  You might as well condemn women as the unproductive welfare gender using their ovaries as a form of extortion but they are the one bunch you know you can't do without.  In fact, is there not a conspiracy by them to get more in the form of the grab for = pay 4 = work when we all know they do not in fact do equal work?  Cannot do equal work.  Isn't the real enemy, the real conspirators women?  The Medici women for example?  If you agree with them and do what they want you get your basic needs of life met, disagree and and the rest of us feel sorry for you as you lose everything.  Jesus fucking christ I am glad to be gay.

It is sort of an accident of birth that the people who are at the very top of everything related to money and economy happen to be jewish, just as it is an accident of birth that you are male, or white, or have a slightly smaller than average penis.  Guess what dodo, people love you for what do and not for how much power you hold, or the size your penis, or your butt cheeks.  If the few at the very top running things happen to be jews then I am greatly relieved for that, because while the jews are scapegoated over and over and some of the stereotypical behaviors are common, they also are smart, humane, generous, kind, educated, they have great values that are basically peaceful, as annoying as they can be in the scheme of things I will take jews over nazis or republicans any day.  I assure you that if those who garner the majority of our worlds wealth are jewish that wealth will be used to make all of our lives better as opposed to establishing dynasties that do nothing but appease the ego of a few well funded men that think they are better than the rest of us.

Look at the progress of man, tell me it suffers from a mammoth jewish conspiracy. 


Mad Max's picture








And that's coming from someone who disagrees with the person you were attempting to rebut.

jeff montanye's picture

truly epic fail.  first he says he's going to ignore race then brings up the small penis!  seriously, he likes jews better than republicans; does he need a quick brush up on euler diagrams?

foofoojin's picture

I'm so confused? at no point did he try and rebut the fact that claims should be warranted. in fact he tangeted the argument and provided his personal view as a poor attempt to warrant his view.   then you make a statement and warrant it poorly yourself.

but are you also feeling that statements in a discussion need not stand on some evidence? are we to the point discussion is de-evolved into "I'm right, your wrong"?

I really did not make any position other then that calling someone a racist when you disagree with that someone is pointless unless you willing to back it up with facts.

InconvenientCounterParty's picture

What purpose would it serve to rebut a child's cry for help?

I would like to intern people that look and think like you in a camp, work off those ugly beer bellies put a little color in your over stuffed cheeks and when you can't work bury you alive. The video would be a source of enjoyment when I'm feeling down.

I'm sure you will respect me more for not playing the race card. I just hate that you and people like you are allowed to breathe valuable oxygen.


foofoojin's picture

I'm sorry I totally agreed that there is "no racism here", Just inconvenient facts, and you wish to intern me in a sweat camp and suffer until my ideology shift to think that this place is a racist nest of economic debauchery and finger pointing sociopaths that worship in a fictional Fight Club world? Is it your quest on this forums to bring to light this darker side zerohedge? and only then to be buried alive for your enjoyment?  GO FUCK YOURSELF!

Now let me assure you that no matter how inconvenient a fact may be, no matter how much you hate the reality of that fact, you cannot progress as a human being until you understand that truth is the only reality that allows us to make rational decisions and grow up. you need to grow up.  

And for your information I'm spending my free time in a river moving rocks and shoveling dirt althou I do it as a free man.


Mad Max's picture

I'm shocked, SHOCKED to discover that east-coast white people are the masterminds of the financial crisis.

Quick!  Round up the usual scapegoats!

hambone's picture

Think you might be a little farther ahead to leave an obviously rigged game than ask nicely for them to please play fair. 

This is a pack of thieves who would likely sell their mother into prostitution to get that next bonus check.  Don't think they're likely to play nice.

Wonder if this type of thing could be related to the falling volumes of the markets?  Hmmm.  Wonder if there's any linkage to the move to PM's, the continuing all cash buyers of RE.  Tangible, real assets vs. paper trading on nano seconds w/ significant price deviations for no fucking reason but how fast somebodies computers can overwhelm somebodies servers.  F'd up.

Cdad's picture

Wonder if this type of thing could be related to the falling volumes of the markets?

Yes.  Tyler has well documented the utter lack of equity market participation by retail.  And that is a market force that, you would think, would take the market lower.  Enter Ben Bernanke.

The irony is that the very people who have perverted the market and broken it to the point that the citizenry no longer participates [capital formation] are the people who have chosen to print the currency into oblivion to fix the problem, of course compounding the insult on the non participants.

For having the sense to exit the nonmarket market, they perpetually eat exploding commodity costs while earning zero on their savings.  This is, in a nutshell, the greatest financial crime every perpetrated upon the developed world.

And yes, I know that I am preaching to the choir...but tonight, I am requiring extra martinis...which has a way of making me more verbose than I might otherwise be.  And I can feel the condition of my spleen improving as I type.

Rynak's picture


It may "someway" be common knowledge around here, but i haven't seen it expressed so crystal clear to the point yet.

XRAYD's picture

The SEC must be on the case!

Misean's picture

Well, that depends on how the traffic spikes affect the tranny sex pr0n streams...

Bananamerican's picture

" we will continue exposing each and every act of public data frontrunning going forward until every last retail investor is permanently out of the market and central banks and primary dealers can throw the hot ponzi grenade amongst themselves"

classic ZH...

knukles's picture

In the good old days this woulda been termed "misuse of confidential material non public information."

nmewn's picture

They're doing Electrons work.

Cdad's picture

something is terminally broken with the checks and balances in the system.

Uh...yeah.  But I can think of another check and balance that was even more bizarre today.

Listen, I tend to get lost in the weeds sometimes with your Nanex stuff, Tyler.  However, today's bizarre trading [the fourth in a row] can be confirmed as bizarre or frontrun or whatever you like to call it.  I challenge all ZH brothers to pull up ANY stock or ETF chart from today with the volume indicator on.  Once the chart is up, flip from one equity position to another, ETF, what have you.

Note that on every single chart, the ending volume is massive, and yet somehow, stunningly, the massive dumps in the last ten minutes cause almost no price movement.  In almost every case I checked today, the volume at close represented the preponderance of the entire day's trading volume.

Maybe it is better to say that the system is not functioning because supply and demand have absolutely ZERO effect on the market.  

Coming out of the weeds, I am almost certain that the implied screwball option issue is at the heart of it, as we all know by now that no one actually buys and holds physical shares, but rather they are used as a tool to advance the wildest options dreams of every criminal syndicate Wall Street banker from here to Hong Kong via the magical conduit of the HFT.

That data is released to some ahead of publication is the least of today's bizzaro events.  It is far more disconcerting that supply demand forces no longer cause even a ripple in price [and in fact, the absolute opposite of this normal market force is observed].  

This isn't a market.  This is a Ponzi scheme with guaranteed profits for all...including the last idiot that goes long into an 80 RSI at the close and is rewarded in the morning by gap up futures trading.  And of course, it works...until it doesn't. 

The market is long, long gone.  You taught me that, Tyler.  Today was just another confirmation, Nanex or no Nanex.

hambone's picture

Just out of curiousity - if everybody knows market is going up, up, up...who is selling (other than stupid insiders...check Lulu sellers if a move from $5 to $112 isn't sustainable)?  Seriously, I can guess pretty well who's buying but is the source of the selling the same source as the buying???  HFT'ing just churning resulting in a higher and higher % of "trading", not exactly a market...more a fixing scheme.

Cdad's picture

Exactly!  It is called matched lot trading.  It is the art of executing both buys and sales of the same security, except done through different venues.  In the last three days, I have taken note of at least ten instances of this on a particular stock I follow.  It is absolutely blatant...and a violation of the '34 Securities and Exchange Act.  Any junior SEC intern can see it happening countless times per day.  This IS the HFT.  It's obvious.

It gives the indication of active trading, and yet it represents ZERO capital flow...or normal market force.  It is used to pump the relative value of options.  

It is an utter joke.



ViewfromUndertheBridge's picture

who is selling?...the only arms-length sales are shorts.

narapoiddyslexia's picture

This post and the comments have at last driven me out of the market. By Friday at the close, I'll be gone. Some here may ask what took so long. Well might you ask. Cognitive dissonance, normalcy bias, fear. . . whatever. Arable farmland, PM, and desirable debt-free rentals are all I can see that's left. And kinetic defense mechanisms. And stores. Any other ideas out there?

StychoKiller's picture

Posted before on ZeroHedge:


100 Items to Disappear First

1. Generators (Good ones cost dearly. Gas storage, risky. Noisy...
target of thieves; maintenance etc.)
2. Water Filters/Purifiers
3. Portable Toilets
4. Seasoned Firewood. Wood takes about 6 - 12 months to become dried, for home uses.
5. Lamp Oil, Wicks, Lamps (First Choice: Buy CLEAR oil. If scarce, stockpile ANY!)
6. Coleman Fuel. Impossible to stockpile too much.
7. Guns, Ammunition, Pepper Spray, Knives, Clubs, Bats & Slingshots.
8. Hand-can openers, & hand egg beaters, whisks.
9. Honey/Syrups/white, brown sugar
10. Rice - Beans - Wheat
11. Vegetable Oil (for cooking) Without it food burns/must be boiled etc.,)
12. Charcoal, Lighter Fluid (Will become scarce suddenly)
13. Water Containers (Urgent Item to obtain.) Any size. Small: HARD
CLEAR PLASTIC ONLY - note - food grade if for drinking.
14. Mini Heater head (Propane) (Without this item, propane won't heat a room.)
15. Grain Grinder (Non-electric)
16. Propane Cylinders (Urgent: Definite shortages will occur.
17. Survival Guide Book.
18. Mantles: Aladdin, Coleman, etc. (Without this item, longer-term
lighting is difficult.)
19. Baby Supplies: Diapers/formula. ointments/aspirin, etc.
20. Washboards, Mop Bucket w/wringer (for Laundry)
21. Cookstoves (Propane, Coleman & Kerosene)
22. Vitamins
23. Propane Cylinder Handle-Holder (Urgent: Small canister use is
dangerous without this item)
24. Feminine Hygiene/Haircare/Skin products.
25. Thermal underwear (Tops & Bottoms)
26. Bow saws, axes and hatchets, Wedges (also, honing oil)
27. Aluminum Foil Reg. & Heavy Duty (Great Cooking and Barter Item)
28. Gasoline Containers (Plastic & Metal)
29. Garbage Bags (Impossible To Have Too Many).
30. Toilet Paper, Kleenex, Paper Towels
31. Milk - Powdered & Condensed (Shake Liquid every 3 to 4 months)
32. Garden Seeds (Non-Hybrid) (A MUST)
33. Clothes pins/line/hangers (A MUST)
34. Coleman's Pump Repair Kit
35. Tuna Fish (in oil)
36. Fire Extinguishers (or..large box of Baking Soda in every room)
37. First aid kits
38. Batteries (all furthest-out for Expiration Dates)
39. Garlic, spices & vinegar, baking supplies
40. Big Dogs (and plenty of dog food)
41. Flour, yeast & salt
42. Matches. {"Strike Anywhere" preferred.) Boxed, wooden matches will go first
43. Writing paper/pads/pencils, solar calculators
44. Insulated ice chests (good for keeping items from freezing in Wintertime.)
45. Workboots, belts, Levis & durable shirts
46. Flashlights/LIGHTSTICKS & torches, "No. 76 Dietz" Lanterns
47. Journals, Diaries & Scrapbooks (jot down ideas, feelings, experience; Historic Times)
48. Garbage cans Plastic (great for storage, water, transporting - if with wheels)
49. Men's Hygiene: Shampoo, Toothbrush/paste, Mouthwash/floss, nail clippers, etc
50. Cast iron cookware (sturdy, efficient)
51. Fishing supplies/tools
52. Mosquito coils/repellent, sprays/creams
53. Duct Tape
54. Tarps/stakes/twine/nails/rope/spikes
55. Candles
56. Laundry Detergent (liquid)
57. Backpacks, Duffel Bags
58. Garden tools & supplies
59. Scissors, fabrics & sewing supplies
60. Canned Fruits, Veggies, Soups, stews, etc.
61. Bleach (plain, NOT scented: 4 to 6% sodium hypochlorite)
62. Canning supplies, (Jars/lids/wax)
63. Knives & Sharpening tools: files, stones, steel
64. Bicycles...Tires/tubes/pumps/chains, etc
65. Sleeping Bags & blankets/pillows/mats
66. Carbon Monoxide Alarm (battery powered)
67. Board Games, Cards, Dice
68. d-con Rat poison, MOUSE PRUFE II, Roach Killer
69. Mousetraps, Ant traps & cockroach magnets
70. Paper plates/cups/utensils (stock up, folks)
71. Baby wipes, oils, waterless & Antibacterial soap (saves a lot of water)
72. Rain gear, rubberized boots, etc.
73. Shaving supplies (razors & creams, talc, after shave)
74. Hand pumps & siphons (for water and for fuels)
75. Soysauce, vinegar, bullions/gravy/soupbase
76. Reading glasses
77. Chocolate/Cocoa/Tang/Punch (water enhancers)
78. "Survival-in-a-Can"
79. Woolen clothing, scarves/ear-muffs/mittens
80. Boy Scout Handbook, / also Leaders Catalog
81. Roll-on Window Insulation Kit (MANCO)
82. Graham crackers, saltines, pretzels, Trail mix/Jerky
83. Popcorn, Peanut Butter, Nuts
84. Socks, Underwear, T-shirts, etc. (extras)
85. Lumber (all types)
86. Wagons & carts (for transport to and from)
87. Cots & Inflatable mattress's
88. Gloves: Work/warming/gardening, etc.
89. Lantern Hangers
90. Screen Patches, glue, nails, screws,, nuts & bolts
91. Teas
92. Coffee
93. Cigarettes
94. Wine/Liquors (for bribes, medicinal, etc,)
95. Paraffin wax
96. Glue, nails, nuts, bolts, screws, etc.
97. Chewing gum/candies
98. Atomizers (for cooling/bathing)
99. Hats & cotton neckerchiefs
100. Goats/chickens

Zero Govt's picture

fantastic list.. chewing gum, never thought of that!

..when you say "disappear" do you mean the loony bunker crowd wisks them away El Pronto while the rest of us can pick them up anyday from the local shop? 

..because half the shops will remain open for biz as they did during the 1929-34 Great Depression and will again during the upcoming Great Depression ...relax  

imaginalis's picture

101. in case you need to run for the hills

banksterhater's picture

No better time to do it, ur back to 2007 levels, did everyone here forget that? This was almost a vertical move today, look at video, he shows confluence of overhead fib and trend line resistance and rsi and full stochastics are in the clouds, be gratefull for this move. Get out. 1325, then 1345 isn't worth waiting for, or next Fri job turd, get out. I sold into it only have $12K in preferreds, I'll wait for a REAL pullback 10-20%, better things to do like watching my corporates ka-ching every 6 months.

Sudden Debt's picture

I bet that in the 70's, these kind of things would have made the headlines of newspapers when discoverd.

You know, the time there where journalists who deared to stick out their necks.

Without ZH, I never would have known it exists.

But if you look for it, there are even forums where they discuss how they do it and how you can do it to.

You can even buy fully preinstalled servers for 25K to set it all up.

They don't even bother to hide it anymore.


Cognitive Dissonance's picture

I don't believe in coincidences, but I can be bribed persuaded to change my mind.


Cdad's picture

Brother Cog,

I had no idea you worked for the SEC.  Good to know.  I have some things I need to discuss with you. We should meet...drinks on me.


Cognitive Dissonance's picture

Screw the drinks. Show me the money!

Cdad's picture

Brother Cog,

All of my capital is currently tied up, short "all other peaks in Austria", long the Parthenon.  Also, long Athens Parliament building on fire...while short all other Greek REITs...and the parliament on fire thing requires more time to return then I thought...BLAST!

So drinks it is.  I've got some matched lot data I need you to check out for know, whenever it is that you can break away from the porn thing.



Sunshine n Lollipops's picture

That's why I only swim in the well-regulated and ultra-safe waters of Lake Forex. ;o)


treemagnet's picture

Anybody ever wonder who challenges and wows Tyler?  I struggle to keep up - shit like this I have to read several times, sometimes I've gotta use the decoder lens in the bottom of my gin/tonic glass.

Cognitive Dissonance's picture

No wonder you struggle to keep up. The latest decoder lens can be found in the bottom of Cracker Jacks boxes with a September 11, 2011 "10th-anniversary-controlled-demolition" date.

Keep up or drop out of the race dude. :) 

Fish Gone Bad's picture

That was a limited edition decoder.  For those who did not get their decoder, it can be found at the bottom of about 1 in 10 large bottles of Mezcal.  One must ask the worm for the answer.

Everybody knows this, right?

chump666's picture

ah front running whether machines an/or humans, whatever the case I love these posts, Nanex are doing a stella job here.  Now St Korea PMI was release minutes ago, crosses were selling all morning, I can't see the quotes...

for the FX traders trying to make some cash to buy beans and rice.  STH Korea PMI tanked, Asia is going into a slowdown

GottaBKiddn's picture


I'm sure that we can expect the SEC to rule that it is a criminal act to look up the skirt of a respectable algo. The information gained could end up on the internet.