"It's Not A Market, It's An HFT 'Crop Circle' Crime Scene" - Further Evidence Of Quote Stuffing Manipulation By HFT

Tyler Durden's picture

Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months). It is as if the HFT lobby has been given the green light by the powers that be that it is safe to activate merely the bid-size quote stuffing algorithms, and not worry: the fact that the market is so one sided in its quote stuffing patterns is sufficient reason to worry of a concerted effort to push stocks higher, initiated from the very top, and effected by not only the Primary Dealer community but by the end-market "liquidity providers." Today, courtesy of Nanex we demonstrate that this type of illegal stock manipulation continues rampant to this very day, and the SEC still fails to acknowledge that it is precisely the HFT market participants that persist in destabilizing stock prices, which have given up responding to fundamentals and merely move up or down based on quote stuffing interventions by those who plead innocence and claim to only be providing liquidity. Well take a look at the millions in fake, and thus illegal, bids demonstrated below and tell us just how any of this manipulation is "providing liquidity" - the second the patterns break, the algos responsible for the churn pattern disappear, thus eliminating numerous levels of so called bid liquidity below the NBBO: break enough patterns and you have another flash crash as the market once again goes bidless.

So while the SEC continues to pander merely to the interests of the market manipulation lobby, and is now doing it in more style than ever by refusing to answer to FOIA requests going forward, here is Nanex with yet more evidence that we no longer have a market, but merely a daily recurring crime scene.

In our original Flash Crash
Analysis report
, we dedicated a section to an observed phenomena we termed
", in which bursts of quotes (at very high rates) with
extremely unusual characteristics were observed.

As we continue to monitor the markets for evidence of Quote Stuffing and
Strange Sequences (Crop Circles), we find that there are dozens if not
hundreds of examples to choose from on any given day. As such, this page will
be updated often with charts demonstrating this activity.

The common theme with the charts shown on this page is they are obviously all
generated in code and are algorithmic. Some demonstrate bizarre price or size
cycling, some demonstrate large burst of quotes in extremely short time frames
and some will demonstrate both. In most cases these sequences are from a single
exchange with no other exchange quoting in the same time frame.

And here, for your viewing pleasure, are the illegal market manipulative churn patterns conducted exclusively by various HFT algos:

BATS "Flag Repeater". 15,000 quotes in 11 seconds, dropping the ASK
price 1 penny each quote from $9.36 to $8.58 and back up again.

"The Crown". While not a large number of quotes, this NASDAQ/BATS
Bidsize sequence was just too unusual to bypass.

BATS "Batsicles". BATS price cycling through a large price range,
each intermittent with a stub quote, drop it down and start over.

NASDAQ "Blotter". One of the more unusual repeating Asksize

BATS "Stubby Triangles". Drop the quote from a valid price to 0.001
and then back up to a lower price level. When the new price level hits 0.001 as
well, do it all over again at approx. 380 times a second.

NASDAQ "Flutter". 4000 quotes in 2 seconds, alternating the bid
price/size in 3 increments and effecting the Best Bid along the way.

BATS "Periscopes". 8000 quotes in 3 seconds, alternating the bid
price each quote. Pop the size up 1 every second or so.

NASDAQ "Double Dip". Symbol SH. 10,000 Quotes in 4 seconds, each
affecting the Best Bid.

NASDAQ "Racing Stripe". Symbol WYNN. 2000 Quotes in one second, each
affecting the Best Ask.

PACIFIC "Puzzle Pieces". Symbol IIC.

NASDAQ "Blue Bandsaw". Symbol SHG. (760 quotes in 1 second, taken
from a total sampling of 10,000 quotes in 12 seconds)

BATS "60-Step". Symbol SAH. Take sixty steps up (a penny at a time)
and one step down (0.60), reset and do it all over again (at approx. 700 times
per second).

NASDAQ "Ask Mountain". Symbol IAU. Over 56,000 quotes in 10 seconds,
all with same Ask Price and the Ask Size increasing or decreasing by 1 (to
almost 40,000!

h/t Dan

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i.knoknot's picture

"Oooh look, you found a kernel of corn!"

i love this place.

to hell with subtle, and/or apologies... just do it mm. just do it.

Village Idiot's picture

"You can't begin to hold people accountable without a record of trying."


get it in writing!


megatoxic's picture


The bankers and politicians have a choice:

Jail now or revolution later. 


Ahmeexnal's picture


They will probably take Tony Gayward's path to impunity

You fools!  Do you actually think he's being punished by being sent to Russia?


He's walking away and announcing it in broad daylight...


He should be wearing a tracking device around his neck and not be allowed

to leave Louisiana!


megatoxic's picture

Could a state AG take this on?


papaswamp's picture

They won't. They will nab a few high profile ponzi schemes and say look what a great job we did. Their 401ks and pensions are handled by the algo's....they won't touch their cash cow.

breezer1's picture

bernie madoff , or a lookalike was seen leaving a mcdonalds in costa rica a couple of days ago.

Chartist's picture

I have seen this through level 2 quotes....A 48K share bid shows up then as soon as the stock moves up, it's gone.....If the stock starts to drop down, the 48K bid size shows up again...

megatoxic's picture

Here's something else I don't understand: why can't the computers on the sell side match the speed of the HFT computers?

All it would take is a few of those stuffed bids getting filled to put some of these fuckers out of business.

You want to buy 100,000 shares of AIG at $100?  Really.  Good--because your fucking sham bid was executed, and you own them now, motherfucker.  Choke on it!

Popo's picture



Very good question...

Number 156's picture

No, thats when the reset button is hit, the transaction gets cancelled, NYSE puts out a bulletin that trading is temporarily halted, and the feds and SEC go out and forcibly remove your computers, and nobody will find out about it because the FOI act will not be applied to the SEC. 


ZeroPower's picture

Bid would never get hit.

Im familiar with ARCA where the average raw response time is around 0.6-0.7ms. Add on the latency and whatever queuing is there, prob end up being around <2ms. Thus any decent ECN should be 2-3ms total.

Get a colo in with some racks, gigabit close to the center, youll be good at that quoted time.    

Retail will most likely be .3-.5seconds.

Seeing as how computers are thousands of times faster than humans, the only reasonable solution is to have HFTs battle it out themselves.

i.knoknot's picture


retail with a 'live' ajax or flash-based web-interface- what, 2 seconds?

better not be counting the pennies on those shares...

breezer1's picture

national security would not allow it.

freshman's picture

Knowing your 100,000 shares of AIG will be worth $200 a share with a couple weeks of pumping, why would you sell it at $100 today?

hooligan2009's picture

As with my post on the "flash crash" that said that circuit breakers ar eneed to suspend orders when the next quote is a gap of a number (like 10%), the answer to this HFT issue lies in the compulsory minimum duration of a bid. Five minutes seems to long, but to even the playing field for those who can't trade in nano seconds, bids and offers should be forced to be left for around one minute, allowing them to to be filled by the majority of interested market watchers and not just machines.

hooligan2009's picture

excellent invstigative bloggalism by the way :)

Hansel's picture

I agree there needs to be a minimum bid duration, and also a minimum stock holding duration of at least 1 minute.

megatoxic's picture

Yes--either that or the sell side computers need to be at least as fast as the "bid" side (HFT) computers.

ZeroPower's picture

@hooligan, hansel

5mins? 1min? 

Ill try and be as objective as possible here... just so its clear, your argument is to have bids set that can't be cancelled for x amount of time.

There is no way in hell you could make a valid case for 1 min, 5min bids. Not even 10second bids.

Lets take the retail example of you entering a limit order for a stock that trades around $5 and you want to buy it at 4.90. Stock hovers around 4.9x and tries desperately to break 5. You dont get filled at 4.9 but youre at the top of the book on the 4.9 offer. Tries again at 5, and fails hard. All technicians see this as a failed breakout, and sellers step in. This is all happens within 2 minutes. Your 5min bid however is still valid for a while, and you inevitably get filled while it keeps dropping.

Now youre bagholder of a POS stock thats on its way to 4.xx and you didnt really want to get filled.

Also, books would be so cluttered level2 would have no meaning, this would increase latency with hundreds of TB of unnecessary packets further making high speed trading meaningless. And i dont mean HFT, but even retail 1second execution promises from brokers.

If you can make a case for 1minute bids other than i have, please do.

Ardent Spirits's picture

How about 1/10 of a second or 1/100 of a second? I think slowing things down outside the range that HFT is designed for would work.

ZeroPower's picture

In theory, yes we could have something there. Since HFT is measured in 1/1000s and anything over 10ms is considered 'slow', i suppose making a base where nothing can be faster than 1/100 would put a 'speed limit' on flashes and cancels from the time of origination.

Now the discussion lies in, how does one enforce this speed limit? We could say exchanges are bound by the SEC and CFTC to ensure nothing nothing is faster than x limit. But we all know how well enforced anything coming from the gov is. So that rules it out.

But, for argument, say said limit is imposed anyway. Riskless arbitrage opportunity would arise for the fastest trader (still staying within the confines and as class as possible to this 10 or 100ms limit. Eg: every time the /ES ticks up, which is in real time, one could potentially short that through the algo while lifting the offer on the SPY in anticipation of the tick higher. All of this done in less than a second, but within the time constraint. Since the MMs will notice the inefficiency, spreads would potentially widen to make out for the discrepancy existing in the marketplace.

Ardent Spirits's picture

Even with these new opportunities for manipulation could there be any net benefit to the market from a 'speed limit' of whatever defined duration? Care to venture an opinion on where the 'sweet spot' might be?

ZeroPower's picture

Im sure a programmer could give a better answer but from my point of view, any benefit would be either 1) short-lived or 2) very limited as to who enjoys the benefit (exactly as it is now with HFTs each competing to be better than the next).

Not everyone would have access to trade at speed limit levels - i suppose the greatest benefits would be (as usual) to the insiders and the big money. I suppose the sweet spot would exist in a market inefficiency which would, again, be short-lived (like the LTCM arbs, subprime bets - when people started piling into this is when they both collapsed) and only beneficial to a select few.

Ardent Spirits's picture

The effort is worth it even as a theoretical discussion. Is the market going to slide into a feeding frenzy of well heeled insider banks? That is liable to have a bad outcome. Reform & taming the new technology needs to be done for the good of the country. This is an example of law needing to be steered by technological experts. There are many other examples outside of finance; oil drilling, frankenfood, the Internet just to name a few.

Ardent Spirits's picture

You know I had a thought about enforcing a 'speed limit'. What you would need is a faster computer than they have, right. No problemo, the military has computers like you wouldn't believe & like it or not this is a national security issue. Install one of their more obsolete supercomputers to run interference, program it to be the cop on the beat & presto the 'speed limit' is enforced. Have truly draconian laws about trying to get a faster computer than the 'cop on the beat' computer (easy to detect an attempt & where they live) & no more HFT trading.

New_Meat's picture

0Power: Can they track trade origin of trade and cancellations?  Then build stats on who is running the fraud.  You know, like they run stats on naked shorts. </snark>

- Ned

ZeroPower's picture

Yes take a look into NASDAQ TRF (not just nasdaq-listed). I just dont see anyone building a new database of every single order sent/cancelled/hit to the exchange, unless it would be a government-required exchange-wide process which encompasses every single item the agency asks them for.

Quick reminder on naked shorting from the SEC: "Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity."

Ardent Spirits's picture

That is truly sick. SHORT SELLING has a place. Naked short selling is obvious fraud. I would at least expect SEC to whimper a bit. Should have been outlawed long ago.

New_Meat's picture

sorry, I had to go to the loo...

but I'm back now, with dry eyes and ..

"Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity."

Indeed, fraud is OK in certain circumsatances.  Got it.

Dontch'a know.

- Ned




New_Meat's picture

sorry, dp in the loo.

- Ned




dhfry@yahoo.com's picture

There's manipulation and then there's this which falls into a new category of criminality. The SEC and the exchanges really don't have a clue.

My compliments to this investigative piece. I hope this gets disseminated far and wide.

Muscletonian's picture

I dont think the HF boys are running PPTs erands, its just the screwed up factor that playing the market predominatly upwards they will never be stopped out. I.e when there has been freefalls in SP and NQ CME has removed the bottom 6 points on a number of occations, thus leaving these guys long shares but no hedge in the futures. Have you ever heard that they have cancelled trades in a short squeeze, nah, thought so. I also think a lot of HF algos got utterly fucked 6th of May, the elasticity in DAX and Eurostoxx has drasticlly gone down in European evening trading, from earlier showing 1.+ something Beta correlation on the SP its now way down. Dont have any data but I would assume the volume has decreased a lot since beginning of may during European night shift.


They just prefer playing the upside as its much safer for them, how many hearings didnt these guys had to go to after the flash crash? A 400 point short squeeze they will be padded on the back instead. I'm sure they could orchester a flash crash scenario every week if they wanted, but that would be illegal in the authorities eyes as well as it questions Benrons system.


But they will be screwed over again, dont think they have been able to computerize black swan scenarios in the algos. Also the immense competion will squeeze down there margins abruptly and when all retail suckers are gone there is nothing left to share.

Downtoolong's picture

When I was an OTC wholesale energy broker way back in 1999 we called it cuffing a bid or offer. It was a fairly rare practice due to the risk of possibly getting done and then having to find someone quickly to take the other side (we were true brokers, not traders).


Now the whole practice seems to have gone mainstream at the speed of light. And the perps wonder why volatility went up instead of down? Go figure.


I wonder how many small investors and 401k participants realize that, thanks to these behind-the-curtain changes in market structure, their game has gone from something like hopscotch to something like the obstacle course on the hit show Wipeout. I wonder how many of their fund managers, brokers, and financial advisors have told them about it.

“Come on, take charge of your financial future, you can do it. Pay no attention to what’s going on in the backfield. Just keep your eyes on the cheerleaders and the scoreboard. Give me a T, R, A, D, E, what’s that spell….what’s that spell…..what’s that spell.”    


P.S. I'm glad ZH only requires an understanding of basic math to post instead of these algos.

Village Idiot's picture

" I wonder how many small investors and 401k participants realize that, thanks to these behind-the-curtain changes in market structure, their game has gone from something like hopscotch to something like the obstacle course on the hit show Wipeout. I wonder how many of their fund managers, brokers, and financial advisors have told them about it."


Oh, that is rich. (my first snark)

Implicit simplicit's picture

My God, even HFTs have become addicted to crack and crystal meth. They are all over the place with these patterns.

 We can only counteract this hyperactive frenzy with large doses of ritalin and percodans, which will allow everyone to do nothing and defeat the beast that thrives on players playing.

 Even 20-30 percent carbon players allow game on. Perhaps getting it down to 10% and they'll tear each other apart for HFT crash 2- the sequel.

MayIMommaDogFace2theBananaPatch's picture

 even HFTs have become addicted to crack and crystal meth

..and obsessive-compulsive disorder is a helluva drug...

Itsalie's picture

On the overnight /ES, especially around 1am New York time when the action slows down, you see really weird action, huge orders that jump about at different prices. On days when you get the upward creep as in 2009, you see more sell orders than buy in volume terms, sometimes 4 times more volume on sell side, yet the /ES keeps creeping up. After watching this for over a year, I am quite convinced these algos work quite well in pushing prices in their "intended" direction. Denninger's recent post is way behind time, it has been happening over 12 months at least.

ShankyS's picture

You can also note the position of the Minis 30m MACD coming into the opening. They tend to cycle it to a low bull cross at or near the open thus providing an oversold momo builder to get the day off to a good start. Call it morning market caffeine.

Mercury's picture
"It's Not A Market, It's An HFT 'Crop Circle' Crime Scene"

Man, that's so funny and so perfect. I almost choked to death on my coffee.  What a way to wake up (yeah I know, I need to get a life...it's practically August here...)

Seriously, I've been waiting for someone to do something graphically with this data although I was thinking more along the lines of the Mandelbrot set (lots of numbers, cycles, repetitions) than crop circles. This is pretty amazing though; ghost in the machine indeed.  Despite the mandate for stealth I'd be surprised if some HFT programer hasn't tried to paint recognizable or signature silhouettes with an algo's bid/offer patterns.  At some level all guys like to piss their name in the snow.

Village Idiot's picture

"At some level all guys like to piss their name in the snow."



Everyman's picture

It this is really occurring, and the charts do indicate that it is, the it is time for a real honest to God "Project Mayhem".

This is the same type of market manipulation that occurred at Enron with the California power problem.

They need their houses literally "burned down".


Hello SEC???  If the SEC is not going to take care of the problem does it now fall to our shoulders?

Mercury's picture

Yeah although Enron (I'm talking only in regards to the Cal. electricity market here) was mostly gaming the stupid and unrealistic rules the government set up  - which makes it harder for me to be outraged by it.

To the extent that this kind of HFT craziness is legal a similar situation exists here (although I am outraged by the SEC).  The current state of market structure makes this kind of thing inevitable and clearly it needs to be totally revamped. At least some of it is the unintended consequence of a decades long regulatory push for cheaper and faster everything all the time which means the solution probably lies in forcing slowness and simplicity.

breezer1's picture

didn't the building housing all the enron documents fall down on 9/11? oops, should watch what i say.

doomandbloom's picture

checked the Nanex company profile...the 3 people listed there do not seem to have a PhD...can i trust this analysis?

greased up deaf guy's picture

absolutely not. only trust those who have PhDs from harvard or princeton.

doublethink's picture

Fascinating! No wonder I can't begin to count Elliott Waves.

I am wondering, because there is obvious collusion between the government and the country's TBTF banks, whether there is actually an issue of national defense at work here. Suppose that hackers in Russia or China have developed their own versions of HFT and are applying them in US capital markets in order to wreak chaos in the US. Would it then be "self defense" to prevent precipitous drops like Fat Finger Day? Small investors and retail traders would be nothing but spectators in this capital markets battlefield.

New topic of study for me: chart patterns of HFT algos.

GoldmanSux's picture

At some point they will claim this is done in the interests of national security. It is simply naive to believe these systems are not programed with a bias to the direction you want the market to move in. Programers are the new investment geniuses. I can't believe the mutual fund and pension fund industry is not up in arms about this. Rest assured that steps immediate agressive steps would be taken against the Russians and Chinese, but only when they start doing it for profit and reducing the profits of the Goldmans, Citadels, et al.

Troy Ounce's picture

is this shit only going on the US or also on other exchanges like in Europe??