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Guest Post: In Defense Of A Robot
Submitted by Frode Haukens of EconoTwist
In Defense Of A Robot
This must be one of the weirdest lawsuits
we have seen in long time: Starting this week, the two Norwegian day
traders who are charged with fraud and violation against an automatic
trading robot will appear in Oslo District Court
to defend their actions. However, the poor robot, being called a
stupid, cheating liar, have the best representatives any offended robot
can have; a hard hitting police attorney, backed by an army of experts
from the Oslo Stock Exchange. The robot's owner, Timber Hill, has not
been seen, nor heard from since the news story broke in August this
year.
“Either the robot is very, very stupid, or is the person who programmed the robot is very, very stupid.”
Sven-Egil Larsen
The case against the two traders in the so-called “robot-case,” where alleged manipulation of a the stock market
trading machine is essential, started Monday. The Norwegian police
believe that the day traders, Sven-Egil Larsen and Peder Veiby, has
conducted a number of unlawful acts against the brokerage firm Timber Hill and its stock trading robot, and have charged them on grounds of market manipulation.
trading machine is essential, started Monday. The Norwegian police
believe that the day traders, Sven-Egil Larsen and Peder Veiby, has
conducted a number of unlawful acts against the brokerage firm Timber Hill and its stock trading robot, and have charged them on grounds of market manipulation.
*
“This case should never have come up before the
court. It is the Oslo Stock Exchange who has initiated proceedings
against the accused and the court will lead the crusade. None of the
authorities that have looked at the
case,
neither the Financial Authority or the police, seems to be able to
look at the case with competent and critical eyes. For this reason, we
now have a case that hardly anyone in the market can understand,” says Mr. Larsen’s lawyer, Halldor Christen Tjoflaat, according to the website Stocklink.no.
court. It is the Oslo Stock Exchange who has initiated proceedings
against the accused and the court will lead the crusade. None of the
authorities that have looked at the
case,neither the Financial Authority or the police, seems to be able to
look at the case with competent and critical eyes. For this reason, we
now have a case that hardly anyone in the market can understand,” says Mr. Larsen’s lawyer, Halldor Christen Tjoflaat, according to the website Stocklink.no.
*
“Timber Hill appeared in 2008 as a poor investor in
selected papers and on selected days. Rather than do something about
the obviously poor investor who moved prices randomly when only there
was a small trade
in a paper they were active in, the Oslo Stock Exchange have turned
against them who has a different trading strategy than Timber Hill and
made money off it,” he adds.
selected papers and on selected days. Rather than do something about
the obviously poor investor who moved prices randomly when only there
was a small trade
in a paper they were active in, the Oslo Stock Exchange have turned
against them who has a different trading strategy than Timber Hill and
made money off it,” he adds.
The two Norwegians are accused of price manipulation of shares
listed at the Oslo Stock Exchange, during the period November 2007 to
March 2008.
Oslo Stock Exchange is in a strategic alliance with London Stock Exchange where Timber Hill is a member.
*
Price Manipulation
According to the charges, the day traders placed over 2,200 orders, and managed to give the market a false picture of supply and demand.
Christian Stenberg
*
“We believe the two are guilty of a numerous cases of price
manipulation. They have added buy and sell orders that was not real,
they have had another motive; namely to move the price,” prosecutor
Chris Stenberg of the Norwegian National Authority for Investigation
and Prosecution of Economic and Environmental Crime (Økokrim) told the newspaper Dagens Næringsliv, when the lawsuit was filed.
“It’s not about fooling anyone, but to be smarter than someone,” one of the traders says.
Sven-Egil Larsen and Peder Veiby was among the most active equity traders on the Oslo Stock Exchange in 2007 and 2008.
According to the allegations, they have manged to make a
pre-programmed trading robot at the brokerage firm Timber Hill to offer
better prices than it should do.
*
Stupid Robot
Both Mr. Larsen and Mr. Veiby deny any accusations of any wrongdoings, and believe that they only found a weakness in a system.
They emphasize that non other than the electronic player has been harmed.
*
They admit, however, that they have exploited this weakness, but denies the accusation of manipulating the market.
Larsen believes that either the robot is very, very stupid, “or is the person who programmed the robot is very, very stupid,” he
says. Larsen was the one that first found the weakness in the Timber
Hill system when he was doing arbitrage trading in low liquidity stocks at OSE.Peder
Veiby was long in Hafslund and had followed the stock over a longer
period. This made Mr. Veiby able to form a picture of automated systems
trade patterns over time and found that Timber Hill had its special way
of behavior. He observed how the Timber Hill system changed the level of
price and orders, and decided to try to make money on this behavior.
It all began in November 2007 and lasted until March 2008.
Mr. Veiby considers it likely that he would have made money on the deals.
Both traders purchased a large chunk of stocks at a specific price,
followed by series of smaller purchases at a higher price. All within a
short periode of time.
The Timber Hill robot reacted by raising the price on the shares, and
Larsen and Veiby did what every skilled trader would do; they dumped
their holdings and secured the profit.
They also did the same exercise by shorting shares, but then making the profit by selling to the ever lower price.
According to the two traders statement in court, it was not every time the strategy succeed.
Occasionally, the robot did not react as they had anticipated,
usually caused by other players preventing the trade pattern to repeat
itself, they explained in court.
200 Trades A Day
In their statement they also says that they was surprised every time
it was possible to get the robot to repeat the same pattern.
Sven-Egil Larsen
Veiby is charged with 42 cases of violations of the Securities Act’s,
while Larsen is charged with 30, involving a total of 2.200
transactions.Larsen estimates that during 2008, he made about 20.000
trades, which indicates between 100 and 150 trades per day, on average.
Veiby estimates that he performed about 60 to 70 trades per day during the period.
Asked by the judge, Larsen and Veiby said that they did not knew each
other before this case, and that they had not been cooperating.
On the contrary, they had by several occasions destroyed each other’s plans.
Quote Stuffing
Police attorney Christian Stenberg will only make general comments, and not go into details.
He believes the two defendants placed orders with the purpose of
moving the price, and since the market relates to the quotes provided by
the exchange (the robot) it would be a form of manipulation.
The District Court in Oslo has to the decide on the rather interesting question whether this is illegal, or not.
“The question is whether the orders that was entered is legitimate. That’s for the court to decide,” the police attorney says.
No Sign Of The Robot Owner
During questioning, the police was interested to know
what would be a “natural behavior,” and what perception the two traders
had of the Timber Hill trading platform.
what would be a “natural behavior,” and what perception the two traders
had of the Timber Hill trading platform.
However, the public prosecutor did not offer any explanation as to why representatives of the Timber Hill was not summoned as a witness.
Peder Veiby’s lawyer, Anders Brosveet, said in his procedure that it
was not the two defendants who moved prices, and claimed it was Timber
Hill since they deleted their own orders and then raised the price.
The problem is that the brokerage firm’s robot was so poorly
programmed that it failed to pick up signals that any rational market
participant would do, he argued.
We might expect a ruling by the court at the end of the week.
»
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Resistance is futile...
It seems hard to believe that these two sharp knives were the only 2 people in the entire world to figure this out. I would have thought Goldman would have its best tools all over this. Surely there must be other similar opportunities out there.
its all become completely absurd.
So does this mean my Quotron is outdated.?
You sure this isn't made up?
In the US, they coulda been contenders. Hell, they should translate their strategy into algorithms and sell it here. Once it's in code, no laws apply, right?
We have the first turncoats in the War Against the Machines! We win a victory and the traitors come out of the woodwork :)
So it is OK for droids to rip people off, but not OK for people to rip off the droids... Bizzaro world is alive and well.
If you beat them at their own game you will pay a price. Moral of the story.
So it is OK for droids to rip people off, but not OK for people to rip off the droids... Bizzaro world is alive and well.
I don't get this case. So you have a robot that's programmed to make trades based on patterns it sees. But humans trading on winning patterns they see, well that's somehow illegal?
So it is OK for droids to rip people off, but not OK for people to rip off the droids... Bizzaro world is alive and well.
This one time, in band camp, I sued my testicles for fraud
demsco are you a droid? you are in a feedback loop. Don't sue me for pointing it out.
Lolz, bring your little daytrades into a robust marketplace Mr. Veiby/Larsen and see how long you last. Big pond, little fish....
Hopefully the Vikings will make an example out of you two and make you dance with Marla's favorite, The Technoviking.
Here is a video of Marla and the Viking at the Love Parade:
http://www.youtube.com/watch?v=Y2fLg52wJgM
No shit Watson, like any other trade, it influences the market. When you go to the supermarket and buy a bottle of milk you are influencing the price of milk. If no one buys any milk the price would go to 0... OMG people is manipulating the price of milk!! Detain them!!
And how are they going to do it? They are going to choose the ones that have the nicest tie? This people voluntarily made some trades. Nobody held a gun to their head. So how are any of this trades illegitimate?
Its quite clear that the robot guy is using his influence to attack the guys who got him.
Well clearly if you build a better robot the world will not beat a path to your door, if your door is in Norway.
Let's admit it, these two guys are amateurs. Big boys don't do that, they engage in RoboWars(TM). Fat Cisco and Mean Assembler are the way to go!
Agree these these two guys are amateurs as pros have deep connections with th central bank (City Of London/Wall Streeet/Federal Reserve) so never 'get caught' and/or are with a TBTF entity. Actually doing this robot trading on your own and making money is totally forbidden. Banksters and fraudsters on Wall Street need protection from other, smarter robots.
Judge: "I'm not sure what's illegal, but I'll know it when I see it!"
Jepp, this is really a case of borderline insanity.
However, the case raise some interesting principal questions - not to mention the fact that the Oslo Stock Exchange (who notified Timber Hill about what was going on) is partner with London Stock Exchange where Timber Hill is a member....
Here's an interesting commentary:
Espen G. Haug: Algorithms Should Be Monitored On A Daily Basis
Cheers !
Just get on message,they were trying to manipulate the market,the bots don't manipulate the market,they add liquidity - gedditt?
this happens everyday in the US markets as well - day traders find these patterns often.
its easy to understand why these human traders are being prosecuted in these cases. (the Trillium fines were in this ballpark as well) when timber hill's program is at work, it probably doesn't appear to move the quotes or distort prices to the casual observer. but when two humans (who stare at the order book all day for a living) finally figure out a way to manipulate the program - they get called out because it is straight-forward and easily explained manipulation, compared to that of the timber hill program or other HFT strategies. any juror / lawyer / judge can understand how the human manipulates the machine in these types of situations - but it is far more difficult to explain / prove how the machine makes its money on a given day. so the day traders get punished for making enough to pay rent while the more sophisticated strategies that are at work EVERY day continue to go unpunished - probably for the best, because after all they are narrowing spreads and providing liquidity to real investors!!!
also i completely agree with the comment that the 'big boys' dont bother with these types of opportunities... 1) because they are pretty difficult to scale up in size / frequency to make institutional sized profits, 2) they are arbed out of the market pretty quickly because they are transparent in nature and 3) because of the manipulation cases against this type of behavior are easily made!
its far easier to see a human's orders walking the quotes up or down to manipulate a program than it is to see how HFT strategies make their money. if one could simply watch the order book to understand how they work, they wouldn't work for very long...
I don't know, but I have a feeling the two trouble makers stumbled into a hole that, in fact, was much bigger than both themselves - and Timber Hill - was fully aware of.... (as suggested in comments above)...
Find it hard to beleive that the Timber-algos was ONLY used only for trading low liquidity stocks at a pheripher exchange in Scandinavia....