How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment

Tyler Durden's picture

Even as the idiots at the SEC mope about cluelessly, confirming they deserve not one cent of taxpayer money to fund their massively overbloated budget, and should all be summarily fired to collect tarballs in the Gulf of Mexico (and soon Maine), our friends at Nanex have conducted an exhaustive analysis (must read for everybody concerned about market structure), in which they identify the various parties responsible for the market crash, and, drumroll please, High Frequency Trading stands at the pinnacle of culprits for the 1,000 point Dow drop. From their findings: "While analyzing HFT (High Frequency Trading) quote counts, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second: as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn't seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was a manipulative device with destabilizing effect." In other words: enough with all the bullshit about HFT as a liquidity provider mechanism: in reality this is just a facade for the most insidious, computerized market manipulative device ever created. Nanex' conclusion: "What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter. Any edge one has to process information faster than a competitor makes all the difference in this game. If you could generate a large number of quotes that your competitors have to process, but you can ignore since you generated them, you gain valuable processing time. This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion. We think it played an active role in the final drop on 5/6/2010, and urge everyone involved to take a look at what is going on. Our recommendation for a simple 50ms quote expiration rule would eliminate quote-stuffing and level the playing field without impacting legitimate trading."

We present the Nanex' full report (please focus particularly on Part 4 and the provided evidence) and urge all readers, as we have many times before, to end all stock trading activities immediately (which at the macro level are nothing but a reflection of the EURJPY trade anyway) until such time as the SEC, CFTC, Finra, and every other corrupt and captured agency finally does something about the HFT menace. Doing nothing is merely inviting certain disaster yet again, and a guaranteed market crash, which next time wipe out the entire market permanently and destroy all confidence in US capital markets in perpetuity.

Analysis of the "Flash Crash"
Date of Event: 20100506
Complete Text

There are 9 exchanges that make markets in NYSE listed stocks: NYSE, Nasdaq, ISE, BATS, Boston, Cincinatti, CBOE, ARCA and Chicago. Each exchange submits a bid and/or offer price for each stock they wish to make a market in. The highest bid price becomes the National Best Bid and the lowest offer price becomes the National Best Ask. Exchanges compete, fiercely at times, to become the best bid or offer because that is where orders will be sent for execution. Exchanges also go to great lengths to ensure they avoid crossing other exchanges (bidding higher than others are offering, or offering lower than others are bidding), because if they do, many High Frequency Trading (HFT) systems will immediately execute a buy/offer and capture an immediate profit equal to the difference. Today, it is very rare to see markets crossed in stocks for longer than a few milliseconds.

Beginning at 14:42:46, bids from the NYSE started crossing above the National Best Ask prices in about 100 NYSE listed stocks, expanding to over 250 stocks within 2 minutes (See Part 1, Chart 1-b). Detailed inspection indicates NYSE quote prices started lagging quotes from other markets; their bid prices were not dropping fast enough to keep below the other exchange's falling offer prices. The time stamp on NYSE quotes matched that of other exchange quotes, indicating they were valid and fresh.

With NYSE's bid above the offer price at other exchanges, HFT systems would attempt to profit from this difference by sending buy orders to other exchanges and sell orders to the NYSE. Hence the NYSE would bear the brunt of the selling pressure for those stocks that were crossed.

Seconds later, trade executions from the NYSE started coming through in many stocks at prices slightly below the National Best Bid, setting new lows for the day. (See Part 1, Chart 2). This is unexpected, the execution prices from the NYSE should have been higher -- matching NYSE's higher bid price, unless the time stamps are not reflecting when quotes and trades actually occurred.

If the quotes sent from the NYSE were stuck in a queue for transmission and time stamped ONLY when exiting the queue, then all data inconsistencies disappear and things make sense. In fact, this very situation occurred on 2 separate occasions at October 30, 2009, and again on January 28, 2010. (See Part 2, Previous Occurrences).

Charting the bid/ask cross counts for those two days reveals the same pattern as 5/6! Looking at the details of the trade and quote data on those days shows the same time stamp/price inconsistencies. The NYSE stated that during the same intervals, they were experiencing delays in disseminating their quotes!

In summary, quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes. On 05/06/2010 the delay was enough to cause the NYSE bid to be just slightly higher than the lowest offer price from competing exchanges, but small enough that is was difficult to detect (See Part 3, The Evidence). This caused sell order flow to route to NYSE -- thus removing any buying power that existed on other exchanges. When these sell orders arrived at NYSE, the actual bid price was lower because new lower quotes were still waiting to exit a queue for dissemination.

This situation led to orders executing against whatever buy orders existed in the NYSE designated market maker (DMM) order book. When an order is executed, the trade is reported to a different system (CTS) than quotes (CQS). Since trade report traffic is much smaller than quote traffic, there is rarely any queueing or delay.

Because many of the stocks involved were high capitalization bellwether stocks and represented a wide range of industries, and because quotes and trades from the NYSE are given higher credibility in many HFT systems, when the results of these trades were published a few milliseconds later, the HFT systems detected the sudden price drop and automatically went short, betting on capturing the developing downward momentum. This caused a short term feed-back loop to develop and panic ensued.

Some trading firms have stated that they detected a problem with the accuracy of the data feed and decided to shut down which further reduced liquidity. We think the delay in NYSE quotes was at the root of this detection.

On the subject of HFT systems, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second -- as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn't seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was even more bizarre and can only be evidence of either faulty programming, a virus or a manipulative device aimed at overloading the quotation system. You can see our results in Part 4, Quote Stuffing.


  1. Quote and trade data must be time stamped by the exchanges at the time it is generated. This will ensure delays can be detected by everyone.

    Reasoning: Changing the procedure to time stamp at the time a quote or trade is generated is a near trivial exercise. It probably comes as a surprise to many that time stamping isn't done that way now.

  2. Quote-stuffing should be banned.

    Reasoning: It is a manipulative device designed to overload the quotation system. Quote and trade dissemination (data feed) is a finite resource, and should be treated as such.

  3. Add a simple 50 millisecond quote expiration rule: a quote must remain active until it is executed or 50ms elapses. If the quote is part of the NBBO, it may be improved (higher bid or lower offer price) at any time without waiting for the expiration period.

    Reasoning: The exchanges must protect the integrity of the National Best Bid/Offer system. What is the point of having a National Best Bid/Offer, if not everyone in your nation (apologies to Alaska/Hawaii) can reasonably execute a trade against it? 50ms is approximately the time it takes light and electronic communication to travel from New York to California and back. It is impossible to transmit information any faster. This rule would not limit quote/trade rates. So long as trades are executing, quotes can update thousands of times a second. Only a small percentage of quotes today would be affected and the potential for catastrophically high rates would be eliminated.

h/t Dmitry and Digablep

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Vampyroteuthis infernalis's picture

Skynet is becoming more sentient everyday.

toto's picture

In the old times, when the war was man to man,the enemy would spare your life if you were an honourable man in the field.

Today we have nukes.there is no respect for the enemy and no ethics left.

The day after.....the  necessity for some ethics will apear again.

Until then look for shelters.


InconvenientCounterParty's picture

dithering the time stamps would be a tactic to "F" the competitors

themosmitsos's picture

quote stuffing doesn't explain why mother f^*&%ing!!! "market" can't absorb 10k shares P&G at 30% discount! common ya'll

jkruffin's picture

We will soon be testing the flash crash again real quick,  10yr and 30yr yields are getting pathetic and soon no one will be buying US Treasuries when they can get better rates in another country.  Then we will see our auctions fail like dominos.  The what do Benny and Timmy do?


30yr - 4.06%   10yr - 3.12%   is downright ugly for an investor

PhattyBuoy's picture

Come on ... no one is buying them now ...

except Fed!

DosZap's picture


Exactly...................but, WE will NOT Monetize the Debt!.

RobotTrader's picture

The reason for the crash is simple.

10,000 hedge funds looking at the exact same 1-min. charts in real time.

Every hedge fund manager constantly looking over his shoulder to see what the other 9999 hedge funds are doing.

As soon as a key technical support level is breached, 10,000 hedge funds hit the F12 key at the same time and sell.

Mark McGoldrick's picture

The market is a herd of algorithmic lemmings who will eventually fall on their double-edged swords in unison.  

Game over. 

Mark McGoldrick's picture

Who the fuck is the rat-tailed lesbian that keeps junking every post of mine? 


DosZap's picture

Mark M,

Of course it's an,

algorithmic lemming

vachon's picture

What do you mean "destroy it at any moment"?  That moment is now.  God knows why anyone would even think about bying a share of anything anymore.

spekulatn's picture

God knows why anyone would even think about bying a share of anything anymore.


It beats getting a real job.

RobotTrader's picture

Why own gold when you can own corporate bonds???


steveo's picture

Oh yeah, and the 10 year is looking really peachy too.

geopol's picture


“The Market” is a Reactionary Mystification: Reply to the Attack on Economic Populism from Franco Debenedetti and other Italian Economists

A group of Italian economists led by Franco Debenedetti of the famous financier clan and the banker Paolo Savona, obviously fearful that the Berlusconi-Tremonti government of Italy will join last Tuesday’s successful German ban on the type of toxic derivative known as the naked credit default swap, have sent an alarmed warning to the Corriere della Sera of Milan1. Debenedetti has contributed an article expressing similar sentiments to the Italian business newspaper Il Sole 24 Ore in which he rails at the “Mrs. Merkel market” now in force in Germany2. These economists, obviously inspired by the doctrines of Friedrich von Hayek and the Austrian school, want Italy to remain faithful no matter what to the widely discredited ideas of laissez-faire economics, even as those doctrines are everywhere under attack for having caused the current world economic depression. For these neoliberal and monetarist thinkers, any attempt to ban derivatives or tax speculation must be condemned as “economic populism,” which for these writers is a term of opprobrium.

These anti-populist economists need to be reminded of some basic facts about derivatives. The collapse of the Central European banking system in the summer of 1931 was decisively enabled by derivatives – specifically by speculation in wool futures by a north German textile company which brought down the Danat Bank, leading to panic runs on all German banks. Thanks to the American New Deal of Franklin D. Roosevelt, most over-the-counter and exchange-traded derivatives were illegal from 1936 to 1982 under the Commodities Exchange Act, which was repealed by the free-market enthusiast Ronald Reagan. During those years, US rates of economic growth and real wages were far superior to what they have been any time since, and financial panics were much more limited than they had been before or have become since. Presumably, FDR would be dismissed as a mere populist.

In today’s crisis, we are confronted at every turn with the fatal combination of deregulated hedge funds plus these now-rehabilitated derivatives, which in the meantime amount to a world speculative bubble of some $1.5 quadrillion of notional value. Lehman Brothers, Citibank, and Merrill Lynch were destroyed by derivatives in the form of a combination of their issuance of synthetic collateralized debt obligations based on mortgages and consumer debt, together with the credit default swaps used by hedge funds to attack these banks. The insurance company AIG had a hedge fund in London which issued $3 trillion worth of derivatives (more than the GDP of France), featuring a very toxic portfolio of credit default swaps. The failure of AIG caused by these toxic bets has now cost the US taxpayer $180 billion and counting. The attack on Greece, as these economists seem to recognize, was organized during a dinner party in Manhattan on February 8, 2010, leader reported in the headline story of the Wall Street Journal on February 26, 20103. European taxpayers are now on the hook for almost $1 trillion in bailouts as a result of this speculation. That Manhattan hedge fund dinner seems to fulfill the prima facie specifications of an illegal conspiracy in restraint of trade under the terms of the US Sherman Antitrust Act of 1890, a law proposed all those years ago by a very Republican senator and signed by Benjamin Harrison, a very Republican president. Were they populists too?

The May 6, 2010 1,000-point fall of the Dow Jones Industrial Average was the result of a speculative bet using options (i.e., derivatives) against the Standard & Poor’s 500 stock index placed by the Universa Investments hedge fund, advised by “Black Swan” theorist Nassim Taleb – according to the Wall Street Journal of May 11, 2010. That thousand point plunge, it is estimated, wiped out about $1 trillion worth of paper wealth in about 20 minutes. What with a trillion here and a trillion there, derivatives and the regulated hedge funds are becoming a prohibitively expensive luxury.

Debenedetti and his friends wish to save credit default swaps at all costs. In this they face serious problems. On one level, credit default swaps are bets, wagers, and therefore illegal under the gambling laws in many countries. If it is argued that credit default swaps are insurance, then they are also illegal, since most of the issuers are not insurance companies, and have no intention of meeting the legal requirements to underwrite insurance policies, such as legal registration, capital requirements, etc. Are credit default swaps such a glorious benefit to society that they should enjoy exemption from laws and regulations? Recent history indicates that derivatives do not merit such special treatment.

Debenedetti and his friends are also opposed to a Tobin tax, otherwise known as a Wall Street sales tax, financial transaction tax, securities transfer tax, trading tax, or Robin Hood tax, which would be levied on the financial transactions of market players. Debenedetti & Co. therefore want derivatives and other financial instruments to enjoy yet another exemption. In Italy, the vast majority of goods and services must pay a hefty Value Added Tax (VAT or IVA). Parents who want to buy shoes, clothing, and school supplies for their children must pay this tax. But for some strange reason, banks and hedge funds do not pay on their flash trading, program trading, and high-frequency trading. We can guess that the total deficit of governments at all levels in Europe, the United States, and Japan is closely correlated to the total exemption of financial institutions from IVA or sales tax on their turnover. To argue that this de facto public subsidy for speculation should be continued in an era when so many other activities are being heavily taxed or subjected to austerity cuts is reminiscent of the mentality of the French aristocracy under the pre-1789 ancien régime, which claimed that it had the divine right not be taxed under any circumstances. This claim, as we know, did not hold up.

At the heart of the arguments put forward by Debenedetti and his friends is the notion that human reason is very weak indeed, and cannot attain a practical understanding or overview of how political economy works. Only the market, they claim, can do with this by totalizing so many separate facts. But they are not arguing from any empirical observation of how markets really work, but expressing the fetishism of an efficient market which was typical of von Hayek and other Austrians. They tried to portray markets as genuine epistemological tools, which provided knowledge which could not be obtained any other way. Even the Ayn Rand devotee Alan Greenspan has backed away from this extravagant claim in the wake of the catastrophic collapse of the New York banks in October 2008. When asked whether he had been led astray by his market ideology, Greenspan told a Congressional hearing: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.” (New York Times, October 23, 2008) Debenedetti does not share this distress. At the same time, the successful history of the Bank of the United States under Alexander Hamilton, the French Commissariat du Plan under DeGaulle, and the Japanese Ministry of International Trade and Industry (MITI)) makes clear to human reason is indeed capable of determining the main priorities of national economies.

Market fetishism is radically anti-historical. Everyone is aware of speculative manias, bubbles, panics, and the other recurring psychoses which make the judgment of any market totally unreliable in many critical moments. And what if there are monopolies, duopolies, oligopolies, trusts, combinations, or cartels of the February 8 type? Then the market is permanently distorted, which is what we have been seeing for decades.

Debenedetti wants “the market” to be seen as objective and impersonal, but it is not. “The market” has names and faces. If we find that half a dozen of the largest US banks control about 60% of all assets in the entire United States economy, then we can make that exorbitant control very personal and concrete. The owners of a majority share of the United States are bankers like Jamie Dimon of J.P. Morgan Chase, Vikram Pandit of Citibank, Lloyd Blankfein of Goldman Sachs, John Mack of Morgan Stanley, and Brian Moynihan of Bank of America/Merrill Lynch, and their respective boards. We can even know how many billions each one has been given in the form of bailouts at public expense.

The Austrian school makes the market into a metaphysical abstraction, a force above the rest of history, because it needs this mystification in order to defend the very concrete privileges of some very sleazy individuals who are the speculators. Some early Protestants tried to argue that the success of the speculator had been instituted by God. When this idea lost traction, apologists for speculation tried to argue that the speculators were morally or intellectually superior to the rest of humanity. When that did not work either, the Austrian school hit upon the trick of removing the speculators from consideration altogether by hiding them from view behind the anonymous and impersonal abstraction of “the market.” As the case of Greenspan suggests, this argument has also become untenable, and the entire edifice of Austrian thought is falling to the ground.

Debenedetti and his co-thinkers suggest that “the market” is able to detect the secret financial weaknesses of nations. But surely the shoe is on the other foot. The major US banks listed above were all, without exception, bankrupt and insolvent before US government intervention in the form of the bailout of October 2008. Today, any objective appraisal would conclude that Greece is far more economically viable and solvent then Citibank. Portugal is more viable than Goldman Sachs. Italy has a brighter economic future by far than J.P. Morgan.

The situation today would therefore seem to offer the following alternative. The speculative assault of the zombie banks and hedge fund speculators may succeed in bankrupting the modern nation state at all levels, in which case we will be dealing with the collapse of civilization as we have known it since the first prototype of the modern state emerged in Milan in the late 14th century under Giangaleazzo Visconti, who offered debt relief to strapped farmers. The better alternative is that the nation state will use its inherent sovereign powers to liquidate the bankrupt zombie banks and regulate many of the predatory activities of hedge funds out of existence, while banning the most toxic forms of derivatives and forcing speculators to share in the general tax burden of society.

Those who want the second of these alternatives must get to work here and now. The most obvious way to begin is for the present Italian government of Berlusconi and Tremonti to join the measures instituted by the German government last Tuesday. Italy should also go beyond these tentative initial German measures by banning all forms of credit default swaps, which are already inherently illegal under existing laws. Then there are those extremely dangerous synthetic collateralized debt obligations, which even Blankfein of Goldman Sachs has suggested might be done away with. They should indeed be totally banned at once. Antitrust investigations could be opened against the Feb. 8 hedge fund group by the Italian magistrates, whose independence has become world-famous. The Tobin tax should also be instituted on an emergency measure for financial stability and revenue enhancement on a purely national basis, with the revenue being retained for the benefit of the national budget.

Additional countries may soon join in the German ban. Likely candidates are the nations that were closely associated with the D-Mark in the old “snake in a tunnel” currency bloc starting in the 1970s. These would include Belgium and the Netherlands. The Czech Republic is another possibility, as is Sweden. Soon we may have a pro-derivatives bloc led by the US and the UK confronting an anti-derivatives bloc led by Germany. On the eve of the Washington Economic Conference of November 2008, I wrote: “The best we can hope for … is … dividing the world between a US-UK dominated derivatives bloc and a Brazil-India-Russia-China-South Africa anti-derivatives bloc interested in real physical commodity production, not fictitious capital.” The surprise is that the leadership of the anti-derivatives forces has actually been seized by Germany.


Fred Hayek's picture


Thanks to the American New Deal of Franklin D. Roosevelt, most over-the-counter and exchange-traded derivatives were illegal from 1936 to 1982 under the Commodities Exchange Act, which was repealed by the free-market enthusiast Ronald Reagan. During those years, US rates of economic growth and real wages were far superior to what they have been any time since, and financial panics were much more limited than they had been before or have become since. Presumably, FDR would be dismissed as a mere populist.

Is just silly.  Correlation is not causation.  You destroy some good points by overreaching. 

And FDR was not a mere populist.  He was an idiot whose administration led the U.S. economy into as deep a hole in 1937 as it had been in in 1932.  Like the present administration of the Pretentious Cipher, FDR's didn't realize that even somewhat adversarial rules, if one could be certain of them, were better than nearly constant threats of major changes in how the business landscape would be run. 


Tapeworm's picture

Lots of words with more goomint prescriptions and proscriptions.

 It is far simpler for the goomints to ban recourse to their courts in adjudicating the gambling debts.

moneymutt's picture

Okay, these guys are smart and all, but it looks like to me, they just stared at the data long enough to figure out what happen, a lot of drudge work and processing but very doable. Its not like came up with some brilliant counter intuitive epiphany...they just crunched thru the information at hand. And the solutions look simply and not at all burdensome.


The whole point of democracy is that the govt  serves the peoples' will, treating everyone equal under the law and using the power of the govt (as opposed to powerful, wealthy interests) to implement solutions that provide for the greatest good for all and avoiding one party being unfairly advantaged.

Remember when people felt safe investing in US housing and stock market because we were the grown-ups, we had transparency, we had well-regulated, clean markets, we had the rule of law? we have a mobbed-up market that is just a casino filled with competing card counters. It serves no basic economic purpose anymore, in fact it is dangerous to our economy.

Maybe permanent government employees can't be smart enough to stay on top of this, but even if that was true and I doubt it, surely they can hire out smart expertise when they need it.

Our government should protect its people from bullies, economic or violent ones. Governments must break up fraud, cartels, monopolies, trusts if we are to have a thriving market that is efficient, competitive and clean. Without clean government; bullying, corrupt, crony big businesses take over.

This is an obvious recipe for disaster, and once again, our government is derelict in its duty, simply because it is obviously been bought off by elites and no longer represents the peoples interests. Feds are like cops all working for one local drug dealer. Sure they arrest criminals some times, but only the ones that are competitors to criminals that owns the police.

Mr Lennon Hendrix's picture

"We gotta buy low right?"  Said BS as he took a swig of Malibu rum.  "When do I gea da pway in da Workeen Gwoup?"  Bawknee was pouting.  "I thet dis whowl feeen up!"  "Barny, you know you can't.  It isn't allowed."  "Wewrl, pwease can I hit a buy butteen?  Juss oawnce?  Pwease?!?!"  "Oh ok....Timmy, let Barney have the controller."  Geithner handed Bawknee the 8 bit Nintento controller.  "TIMMAH!!!!"

"Weeeee!!!  Dish ish fuuun!"  "Ok give it back!  It's my turn!"  BS scowld at Timmah, "Timmah, you get to play in the Working Group everyday.  Let Bawknee finish his turn."  Bawknee was standing up and jumping up and down; his man-tits jiggled as he did.  "Weeeeee.  Wook at it goo!  Weeeee!"  "You know Bennie boy...."  He was interrupted.  "Don't call me that Timmah."  "Then don't call me Timmah!"  "You call yourself Timmah!"  BS said, quite perplexed.  "No, I don' I?"  Bawknee was too distracted to listen.  BS just looked at him frankly.  Timmah continued.  "Well, I was going to say, when you aren't here, Bawknee sneaks into the clubhouse and plays the markets."  Bawknee stopped yelling and looked away from BS.  "He was here on May 6th."  BS snapped!  "Is that true Bawknee?  Did you cause the flash crash?"  "Weorl....I didn't mean twooo."  BS suddenly changed his demeanor.  "Actually, I can't be mad about this, as we really messed up the markets good...and it came right before the Senate voted on that bill that would limit our endeavors.  So actually it was a good move."  "Weorl, actuawee i did mean two."  "Yes ok, thats fine.  But from now on you must ask for permission to play the markets.  Now give Timmah the controller back, your turn is over."  "TIMMAH!!!!!!!!"

"Ok Timmah show Bawknee how it works."  "Look Bawknee, sell AAPL...there and it keeps the PM market down too."  "Ooooo."  Cooed Bawknee.  "Very good Timmah."  BS patted Timmah on the head.  "TIMMAH!!!"

Mr Lennon Hendrix's picture

Raaiiing Rrraaiingg!!  "Bawknee get the phone!"  Shouted BS.  He was busy reading this new found Zer hedge.  "Hewo?"  "Hello, who the hell is this?"  "Ith Bawknee."  Bawknee blinked idley.  "Bawknee?  What the hell are you doing answering my Working Group's telephone?!"  "Ith okaaay.  Ben thaid a coud be heeow.  I'm in da cwub now."  Barry put his hand over the phone, "Jesus H. Christ."...."Oh did he?  Well it's my Working Group and you need my permission.  Get BS on the line."  Bawknee started to cry.  "Bennie!  Mitha Pwesiden ith on da pho."  "Ah shit"....."Sir, hello..."  "How the hell did you think you could just let people into my working group?"  "Well frankly sir, Bawknee kinda snuck in,"  He looked over at Bawknee, Bawknee looked like a beaten dog.  "But may I add that it was his work that caused the May 6th flash crash."  The President was amused.  "Well how the hell did he do that?"  "We're not sure.  It must have been an accident.  He hasn't had any luck since then doing anything of any significance.  It appears he has no understanding of the controls."  "Aren't you still using the 8 bit system?  He doesn't understand the b and a buttons?  It doesn't get any simpler than that.  What a mope.....well, he can stick around as long as you don't have him online during any important trading moments."  BS mouthed to Bawknee, 'You can stay."  "Yippie!"  Cried Bawknee.  "I'm going to dwa my wogo.  Teemie, whea aw da cwayons?"  "TIMMAH!!!"  "Hey, why'd ewe ead da cwayons?  Iwan ned da cawal!" 

"What can I do for you mister President?"  "I was calling to find out if you had been reading up on Ze Hero Edge."  "Yes sir, and I think it is called Zer Hedge."  "Whatever."  Replied Barry.  "Ok so it is a group of people who are planning on informing the public of our our global agenda."  "Well we can't have that.  Should I shut off the internet."  His hand hovered over a large red button.  From the background came Robert Gibbs.  "Sir!  That is the Thermo-Nuclear button!"  "I know what that is Bobby!  Don't tell me what to do."  The fact was he had no idea what that button did before then, but he always woke up in the morning eyeing it.  "No sir, I don't think it would be a good idea if you turned the net off.  It would kill the little revenue that America is making."  "Well then how are we going to stop it?"  "Ok, our plan is to infiltrate using avatars."  "You have the blue men at the clubhouse?  I thought they weren't real!"  " sir, no.  Not the characters from the movie.  We are going to use fake names and rip on gold and such."  "Oh...and you think this will work?"  "That is only plan one.  The second plan is to start our own blog called 'The Market Ticker'.  We are going to copy them, for what it's worth, but trash gold and other areas we see fit.  We hired a crazy guy to do the job.  He is fucking fantastic at running his mouth."  "Ok, very well.  Well that is all good by."  Barry abruptly hung up the phone.  He looked at the red button for a second, and then up at Gibbs, who was starring at him.  "What?  I wasn't going to press it."

AccreditedEYE's picture

LMAO!! Solid Gold! I don't know how you do it, but keep on doin' it! lol  ... I can't help it, every time I think of the White House and government antics this is what comes to mind. lol

MsCreant's picture

I'd need a big assed swig of rum if I had to babysit Bawwwneee and Timmah. Hell, I need me some of that Afghani "kind" I've been hearing about... 

Mr Lennon Hendrix's picture

That kind would solve the world's problems if only more people hit it.

lucyvp's picture

friend of a friend so I can verify this, programmer doing HFT, said on May 6th, they could not get a reliable bid/ask price, so instead of trying to trade blind, they just shut the program off.


almost_have_a_name's picture

Isn't this all a scene from Tron ?

We win, in the end, from what I remember.

peterpeter's picture

Just because the folks at Nanex can't figure out why a system was entering orders and cancelling them frequently does not mean that they were being "stuffed" to thwart competitor's systems.

The logic on the machines placing those orders (HFT or otherwise) may have been severely screwed up by the craziness of 5/6 and the latency on data feeds - but there is no way to profit by spewing lots of quotes.

First, everyone in the HFT space has plenty of headroom to process the full raw feeds (rather than the SIAC consolidated feeds Nanex is looking at).  A few thousand extra quotes per second is not meaningful to systems that can process millions of quotes per second.

More to the point though, each exchange gives each participant a port on which to send their order flow.  Those ports are rate limited.  That means that if you send thousands of spurious quotes that are not going to hit, the only harm you cause is to your own trading strategies, since when you finally did want to execute a trade at a price where the execution was remotely likely, you are going to have that order queue behind all of your other orders on the same port.


peterpeter's picture

Nanex showed the number of crosses between NYSE and other markets, but doesn't say whether they filtered the NYSE bids that were crossed with other markets to remove those stocks which were in LRP mode.

If NYSE was in LRP and the away markets under Reg NMS were not routing to NYSE, then you would end up with crosses on the SIAC feed which are fools gold - since you couldn't execute electronically the leg of the transaction on NYSE.

I'm sure that there were plenty of real crosses on 5/6 given the mayhem and poor data feeds, but I suspect that many of the crosses they are showing in this analysis never existed in practice because of LRPs.

Duuude's picture





WTF ?!? Oh I see, this institutes price discovery and builds value in companies, my bad.



Bearster's picture

Let me offer a few thoughts.  By way of background, I am a software developer.

 1) The best place to timestamp data when it is generated, when it enters the qeuue, when it arrives at a particular processing block in the queue, or when it departs the queue (or several other places that may not be evident unless one studies the architecture) is not always obvious even to the developers who are writing the code.

 2) this is a classic "corner case" in programming, and often corner cases result in very non-obvious but non-trivial bugs.

 3) I have been in many meetings where such esoterica are hotly debated.  In these debates, everyone actually wants to fix the problem in the best way.  But often, a manager (a "suit") weights in with an opinion that is very earnest, and very wrong.  Much time is wasted trying to persuade said suit to let the coders deal with it.

I can only imagine the result if you politicize this process: a bunch of lawyers, grandstand politicians looking for theater, and everyone is beholden to an interest group who WANTS the system to be biased--in their favor.

I don't think any decent coder would want to work under such conditions.  I shudder to think what kind of coder would be happy like that.

I know it's hard to understand that Tony Hayward is feeling pain right now (he has only lost the value of his stock options, his bonus, and probably his job).  Similarly, NYSE and the market makers don't want there to be a condition where bids are coming in above the NBA.

They will fix it, unless it becomes politicized, in which cases hundreds of lawyers, thousands of lobbyists, tens of millions of dollars of campaign contributions bribes and years could be squandered.  And the result will make no economic sense, but be rigidly enfixed into regulation for all time.

The issue isn't the speed with which orders are entered into the system.  The issue is that fed "liquidity" and the other factors causing enormous global imbalances make it profitable to bid stocks up in this collapsing economy.  For example, recently ZH has been writing about how S&P is correlated with EURJPY.  The root cause of this isn't HFT, it's much deeper and it's structural.

virgule's picture

Finally someone who has some idea of what he is talking about...sigh.

Bearster, something puzzles me in all these HFT stories:

In every trading strategy I know, there is a trade off between the potential profits and the guaranteed costs of trading activity:

- normal humans always end up paying some kind of commission for any trade they do. Many ways it can happen and many different discounts can apply, but trading is never free.

- what about HFT? Even if they don't pay normal broker fees, I can't believe NYSE and other exchanges let them trade for free and **as much as they want**, as long as they've paid a hosting flat fee for their HFT system collocation.

Is this the case? If yes, seems the system is gamed with asymetric playing rules. If not, HFT should have "natural limits" beyond which their volume-based strategies stop being profitable.

I would very much appreciate your technical insight on this matter.


Hunch Trader's picture

Would a minimum validity period for an order solve this? Force all orders to be valid for 1000ms, heck even 10,000ms, and HFT churning goes away. This would be a more human speed.


The notion that a stock's value changes 1000 times per second is just preposterous. Real changes, outside of news items, take days, weeks, quarters. The market has become an algo battlefield. Funds and banks turned into script kiddies DoS'ing each other.


Bearster's picture


You weren't that suit with the clipboard back in one of those meetings, were you?

You can never solve a structural problem by forcing a computer to go slower, much less hardcoding a slowness constant into the code (or the law!)

Whether or not you (or anyone) can wrap your mind around a particular speed, forcing everyone else to live within the limits imposed by your lack of comprehension is, I believe, on the Road to Serfdom.

Acronyms aside, when it was just human beings trading, stock values changed much more often than genuine news items came across the wires.  Whether you understand why or not.

The free market which you claim to be advocating is, well, about freedom.  Even if you don't understand--or like--what other people in the market are doing!

qussl3's picture

The "markets" are always structured to benefit the insiders, the hue and cry from the "humans" against the "computers" are just the existing bunch of insiders pushing back at the new kids muscling in on their turf.

However, I do agree that slowing the computers down may be beneficial, this may sound trite, but for lack of a better analogy - if we are going to crash, its better to crash at 50mph than 200mph.

Take for example, because of the processing power avaliable to us today, it is feasible to develop speculative strategies driven purely by trivial correlations. In contrast to implement a similar strategy 20 years ago would require expensive manpower, costs any sane investment manager would rather spend on "real research" rather than "curve fitting".

Ultimately, if asset markets are to facilitate efficient capital allocation which participants would we prefer to have? Participants who allocate capital to where they believe real productivity gains can be extracted or micro time frame arbitraguers? To be certain we need all kinds to have a decently functioning market but when volume is increasing dominated by short time frame players, price would less likely reflect fair prices and more likely be distorted.

BDig's picture

The big question they're going to be mulling over:  "If we fix the problem, will it hinder our ability to melt the market up on shit volume?"

Meglodon's picture

???? dd a simple 50 millisecond quote expiration rule: a quote must remain active until it is executed or 50ms elapses. If the quote is part of the NBBO, it may be improved (higher bid or lower offer price) at any time without waiting for the expiration period.


Sorry man this is just dumb what u going to run out and buy a millisecond speed reader not even sure what that is, small tax on cancelled orders and the party is over, as well as reinstating the uptick rule.. not to hard to figure out.. 

MarketFox's picture

Simple problem....

Simple solution....

ONE second minimum

Defragmentation of all the markets

No "off exchange trading or matching"....

No uptick rule....shares outstanding quota...share limits...

No minimum account size

4 to 1 margin

Available worldwide

Information fact based wiki format

Just for starters....



Apostate's picture

I really think that these problems will have to have a technological solution. The government won't do shit.

We need an overhaul on the same scale that occurred in the 1990s. 

superman07's picture

Thats what us computer folk call modified denial of service attacks.

Pillgrimm's picture

So you gotta wonder who was extorting what from whom as this was going on. This was a message, not computers run amuck.

suldog's picture

The Financial Reform debate was being held the 7th. 

The last time the market dropped more than 500 pts was the day it lost 700 ... the day the puppets voted down Tarp 1.

Perpetual financial terrorism by our own banks and their desks.

Gordon_Gekko's picture

...and urge everyone involved to take a look at what is going on. Our recommendation for a simple 50ms quote expiration rule would eliminate quote-stuffing and level the playing field without impacting legitimate trading.

Really, the US Stock market is UNFIXABLE because it's real value is ZERO and without computer based nonsense it would already be there. It is DEAD - a goddamn zombie, if you will - being kept "alive" by the Fed and HFT algos.


Turd Ferguson's picture

And then, of course, there's this. Hot war, anyone?'s picture

Everything known about the market is reflected in the charts...stop crying about HFT and look at your charts to tell you what the market is doing. The market is still the same and still readable through the charts...yes, it has been sped up and things are different but it still acts like a stock market albeit one adjusted to the times.

digilante's picture

"If you could generate a large number of quotes that your competitors have to process, but you can ignore ..."

Two quite different thoughts on this:

1.) Sounds a bit like a good old-fashioned network SYN Flood attack - send thousands of requests, requiring the other side to acknowledge/process and then just not be there...


2.) What if one of your competitors' HFT setup (either by being really really fast, or really really lucky) actually caught your microsecond quote and hit it, and hit the next one, and the next one, till a few milliseconds later YOU are on the wrong end of a bunch of trades and can't process fast enough to keep up... after all your plan was to ignore them.

reave the sheeple's picture

1.) Sounds a bit like a good old-fashioned network SYN Flood attack - send thousands of requests, requiring the other side to acknowledge/process and then just not be there...

Glad I wasn't the only one to think of that analogy, like its right out of partying like its 1999.

Just remember kids, its not a DDoS, its doing god's work.


suldog's picture

"Crime Scene".  Good work Amish.