"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
"Quote
Stuffing
", 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:

07-29-10
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.

07-29-10
"The Crown". While not a large number of quotes, this NASDAQ/BATS
Bidsize sequence was just too unusual to bypass.

07-28-10
BATS "Batsicles". BATS price cycling through a large price range,
each intermittent with a stub quote, drop it down and start over.

07-27-10
NASDAQ "Blotter". One of the more unusual repeating Asksize
cycles.

07-23-10
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.

07-23-10
NASDAQ "Flutter". 4000 quotes in 2 seconds, alternating the bid
price/size in 3 increments and effecting the Best Bid along the way.

07-23-10
BATS "Periscopes". 8000 quotes in 3 seconds, alternating the bid
price each quote. Pop the size up 1 every second or so.

07-22-10
NASDAQ "Double Dip". Symbol SH. 10,000 Quotes in 4 seconds, each
affecting the Best Bid.

07-19-10
NASDAQ "Racing Stripe". Symbol WYNN. 2000 Quotes in one second, each
affecting the Best Ask.

07-19-10
PACIFIC "Puzzle Pieces". Symbol IIC.

07-14-10
NASDAQ "Blue Bandsaw". Symbol SHG. (760 quotes in 1 second, taken
from a total sampling of 10,000 quotes in 12 seconds)

07-13-10
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).

07-12-10
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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Muscletonian's picture

Its the same where ever the spreads are tight enough, take Stockholm for exemple, Citadell is the 7th biggest member on the NasdaqOMX and the only do HFT.

 

Ericsson used to be one of the most liquid shares in the world with 5-15 million shares on the bid ask at this time the spread was .10 was trading around 30 sek then the HFT guys couldnt move or spoof the market with their orders. Now when the spread is minimalized, requested by the big London banks the liquidity has deteriorated, although the reason was to create more liquidity.

 

 

breezer1's picture

why not. they do it with the gold markets.

MayIMommaDogFace2theBananaPatch's picture

Spirograph-Jr. for MARKETS.  Get yours today!

panelvan76's picture

Pardon me if this is a dumb question... how far back does HFT go?  How has trading behavior been affected/changed since its introduction?

ZeroPower's picture

HFT started with HFs becoming quant shops. RenTec, Citadel, AQR. Most were spinoffs from a large IB where the MDs had enough of working for someone and wanted to take on even more risk and leverage without reporting to the risk manager/CFO.

The Ivy Leagues with their financial engineering programs were where the quants were education (MIT, Wharton).

As for dates, before computers became as powerful/mainstream it was hard to justify such a purchase of hardware for stocks, but around the 80s Wall Street relied more and more on computing power instead of human capital.

i.knoknot's picture

pan,

you mean how long has true/honest price discovery been null and void?

heh

MightyZum's picture

If someone accidentally snipped the fiber-optic line around Broad Street . . . instant market crash?

GoldmanSux's picture

You are a very creative thinker.

TraderTimm's picture

As a purely theoretical exercise, it wouldn't take much to say - shuffle around a few fiber optic connections on a shelf in the datacenter, pop a few supervisor modules from a couple of switches (and re-insert improperly and screw the entire backplane) and say maybe - bend a couple fiber connectors until they snap internally, which is a real fun job to diagnose in a timely fashion.

Gosh, it all sounds so fragile when you really think about it.

 

 

Everyman's picture

Well I sent in an SEC complaint with all the charts and asking the SEC why bloggers can find this type of activity when PAID PROFESSIONAL INVESTIGARTORS cannot.

Here is the SEC complaint address.  Send in complaints in early and often!

 

http://www.sec.gov/complaint/selectconduct.shtml

Boilermaker's picture

For the same reason we never found WMD in Iraq.  It was made up shit.  This is just the opposite.  It's real but refuted and ignored intentionally.  Do you honestly think they have intent on stopping a melt-up?  Please. *IF* it were pulling it down, yes, but as long as it's vertical in the upward direction, they ain't touchin' jack shit.

calltoaccount's picture

The SEC has totally ignored investor complaints for at least a dozen years.  Better to send to SEC's Inspector General H. David Kotz: oig@sec.gov, the only one there with any integrity, if he has any left after they all but ignored all of his lengthy report and many suggestions for reform. 

Ardent Spirits's picture

Have you sent this man the URL & asked him to consider the case? If there is one honest man left over there NOW is the time.

outamyeffinway's picture

America, America, God shed his grace on thee.......

Oh yes, America is blessed. We are the pillar of righteousness in the world.

At the end of the day I just wonder what it will take to bring this madness to an end. Nuclear war? Divine intervention? Alien intervention? Poplulace intervention? HA! I made a funny!

MarketFox's picture

Let's make this simple....

Trading technology has come a long way ...in a short period of time....

However...the technology needs to be properly utilized....

Like it or not....there has to be a HOUSE...or there is no market...

.........................................

In other words...in order for the market to exist...the HOUSE must exist...

Thus the question becomes...what is the most efficient HOUSE model...which provides lessor financial friction.....

.........................................

The exchange has become electronic time stamping software....that is constrained by account balances....The BATS model has proven itself to be far far superior in terms of closing the bid ask spread...in that although Island...then ARCA openned the door....BATS will close it...

.........................................

The market's house has replaced the bid ask spread with increasing volume and smaller spreads....

And the market has largely become a business that is heavily influenced by the returns on program trading versus that of the no risk rates....

Today's returns on the no risk rate are virtually zero....however there is never a zero range day on any broadly traded stock...

..........................

The task....

The exchange needs to become more oriented to the public....

The public needs to feel comfortable in that they should know that a 40 cents gain on a ten dollar stock....once a year....yields 8X+ what short term treasuries yield....and they should learn how to trade....

............................

There should be more than a billion RETAIL accounts from all over the world TRADING on their own computers....and be the dominant side...not just the larger 100 managers pools....The public should understand that small is good....and large is not as good....

...............................

Wiki based information

Defragmented exchanges

No dark pools or any type of off exchnage matching

No minimum account size

4 to 1 margin....up to 10 to 1 available

No short sale rule

Shorts limited by the outstanding share number

Electronic regulation by a non SEC entity

Home base...world neutral...ie Switzerland

Regulation....same worldwide rules...

One second minimum ...all order types

..........................................

Let the games begin...

MayIMommaDogFace2theBananaPatch's picture

Hehe.  He said, "4 to 1 margin." 

I think it is a fine idea -- but it also makes me laugh (which shows that the conditioning is working somewhat).

Boilermaker's picture

Why is everyone screaming for the SEC to do something?  You can't be fucking serious.  Not only are they aware, but, they are complicit in this shit.

Hell, I wouldn't be surprised if they were even behind this shit.

Everyman's picture

Well they DO work for us and there are a lot more of "us" than the "elites". 

That is the fundamental reason for the 2nd amendment.

"God made all men equal, Sam Colt ensured that it stayed that way."

grunion's picture

God made man...Sam Colt made man equal. Get it right!

megatoxic's picture

True.

And yet another reason why revolution is brewing...

Miles Kendig's picture

The only behind it the SEC can manage is the ass end.

MarketFox's picture

Let's make this simple....

Trading technology has come a long way ...in a short period of time....

However...the technology needs to be properly utilized....

Like it or not....there has to be a HOUSE...or there is no market...

.........................................

In other words...in order for the market to exist...the HOUSE must exist...

Thus the question becomes...what is the most efficient HOUSE model...which provides lessor financial friction.....

.........................................

The exchange has become electronic time stamping software....that is constrained by account balances....The BATS model has proven itself to be far far superior in terms of closing the bid ask spread...in that although Island...then ARCA openned the door....BATS will close it...

.........................................

The market's house has replaced the bid ask spread with increasing volume and smaller spreads....

And the market has largely become a business that is heavily influenced by the returns on program trading versus that of the no risk rates....

Today's returns on the no risk rate are virtually zero....however there is never a zero range day on any broadly traded stock...

..........................

The task....

The exchange needs to become more oriented to the public....

The cost of trading should not exceed 20 cents per 100 units....not the $4.95 to $9.95 advertising based retail models....

The public needs to feel comfortable in that they should know that a 40 cents gain on a ten dollar stock....once a year....yields 8X+ what short term treasuries yield....and they should learn how to trade....

............................

There should be more than a billion RETAIL accounts from all over the world TRADING on their own computers....and be the dominant side...not just the larger 100 managers' pools....The public should understand that small is good....and large is not as good....

...............................

Wiki based information

Defragmented exchanges

No dark pools or any type of off exchange matching

No minimum account size

4 to 1 margin....up to 10 to 1 available

No short sale rule

Size limitations 

Shorts limited by the outstanding share number

Electronic regulation by a non SEC entity

Home base...world neutral...ie Switzerland

Regulation....same worldwide rules...

One second minimum ...all order types (remedies HFT)

..........................................

Let the games begin...

rapunzel's picture
'Crop Circle' Crime Scene

crazy ass looking geometric charts tyler, are you sure?

B A T S I C L E S

favorite.

RobotTrader's picture

Were these stocks "quote stuffed" yesterday?

Nope.

 

grunion's picture

volume up...value down...

John McCloy's picture

All false stock prices in today's market. And the strategically placed rumors can always be relied upon on a down day. If we have been aware of these low volume HFT mark up games from the beginning than so is the SEC. They simply choose to allow it to continue which to me is criminal on their part because it is akin to encouraging and endorsing retail investors and fund managers into the false stock market when they exist solely to protect them. Worst case is an investigation and a settlement equivalent to a measly 1% of all the HFT profits. Basically as long as the SEC gets their cut this is no different than organized crime.

 

breezer1's picture

when john gotti was being taped just before his verdict he was heard saying, " we only need 2 years and its done, no worries after that".

always wondered what he was talking about. anybody know where he did his banking?

calltoaccount's picture

 

Where Are The Prosecutions? SEC Lets Citi Execs Go Free After $40 Billion Subprime Lie Posted by Zach Carter on @ 12:55 pm Article printed from speakeasy: http://blogs.alternet.org/speakeasy URL to article: http://blogs.alternet.org/speakeasy/2010/07/30/where-are-the-prosecution...

What is the penalty for bankers who tell $40 billion lies? Somewhere between nothing and a rounding-error on your bonus.

The SEC just hit two Citigroup executives with fines for concealing $40 billion in subprime mortgage debt from investors back in 2007. The biggest fine is going to Citi CFO Gary Crittenden, who will pay $100,000 to settle allegations that he screwed over his own investors. The year of the alleged wrongdoing, Crittenden took home $19.4 million. That’s right. Crittenden will lose one-half of one percent of his income from the year he hid a quagmire of bailout-inducing insanity from his own investors. That’s it. No indictment. No prison time. Crittenden doesn’t even have to formally acknowledge any wrongdoing.

In 2007, as financial markets were freaking out about the subprime situation, Citi repeatedly told its investors that it owned just $13 billion in subprime mortgage debt. It was true—if you didn’t count an additional $40 billion in subprime debt that the company was also holding onto.

Citi’s CEO at the time, Chuck Prince, has not been charged with anything. As Yves Smith emphasizes, all of the top financial officers of every major corporation are responsible for the accuracy of their quarterly financial statements. Lying on those statements is a federal crime. This is the sort of thing that securities fraud cases are built around.

The SEC’s own statements about what went on at Citi are damning. If the agency can make this kind of information public, they ought to be pursuing criminal prosecutions. The SEC says that senior Citi management had been collecting information about the company’s subprime situation as early as April 2007, but repeatedly cited the $13 billion figure to investors over the next six months, waiting to acknowledge the additional $40 billion in subprime debt until November 2007. The SEC also says that Crittenden knew the “full extent” of Citi’s subprime situation by September at the latest, but the company continued to cite $13 billion in earnings reports through October.

Citi’s subprime shenanigans had consequences for taxpayers, pushing the company to the brink of total collapse and prompting one of the biggest bailouts of 2008.

Phil Angelides and the Financial Crisis Inquiry Commission deserve a lot of credit for highlighting the absurdity of Citi’s actions in a hearing on April 7 of this year (the key passage starts on page 368 of this pdf transcript). Angelides’ line of questioning revealed that even Citi’s board knew that the subprime exposure was much greater than what the company was claiming in public. Citi’s board at the time included Robert Rubin, former Treasury Secretary and architect of much of the deregulation that lead to the current crisis who took home $120 million for his work at Citi.

Either the SEC or the Justice Department could be pursuing criminal cases against Citi executives. What does it take to get the Justice Department’s attention on a financial fraud case? You have to launder $380 billion in drug money, and even then, DOJ lets you off with a slap on the wrist. The DOJ caught Wachovia doing just that, and the bank is getting off with a minor fine that won’t even make a dent in it’s second-quarter profits.

The Citi settlement is worse than a get-out-of-jail free card for Crittenden, Prince and their cohorts. The SEC actually fined Citi’s shareholders $75 million for the alleged wrongdoing of their executives. For some varieties of corporate misconduct, like Wachovia’s drug money laundering, hitting shareholders with the fine is appropriate. Wachovia’s money laundering operations directly enriched the company and its shareholders. This was not the case with Citi’s subprime scandal. Citi’s executives were hurting their own shareholders. Instead of meting out serious punishment to those executives, the SEC is fining Citi’s shareholders, the very people wronged in the incident.

This deference to the elites who wrecked the economy just keeps playing out. When Bank of America lied to its shareholders about billions of dollars in bonus payments it was about to make, the SEC decided to fine BofA shareholders and let the firm’s executives off the hook. The decision-makers at Wachovia who allowed the firm to funnel drug money despite repeated warnings by whistleblowers have not been indicted. Nobody at Washington Mutual has been indicted despite clear evidence of rampant mortgage fraud at the firm. Lehman Brothers’ repo 105 accounting scam is going unpunished, as are similar schemes at other banks including Bank of America. After much public relations flogging, the SEC let Goldman Sachs off easy.

More than 1,100 bankers went to jail in the aftermath of the savings and loan crisis. Massive financial crises simply do not occur without widespread fraud. The failure to prosecute that fraud poses systemic risks for the global economy. With too-big-to-fail behemoths dominating the financial landscape, the prospect of prison is the only serious check on executives interested in cannibalizing the economy for personal gain. If the SEC and the Department of Justice continue to let executives get away with outrageous acts without even taking the case to court, our financial system is doomed to repeat the same excesses and abuses we’ve seen over the past decade. If Crittenden did what the SEC claims he did, he screwed over his own investors and scored a huge bonus in the process. Everybody on Wall Street understands the implications: breaking the law is a great way to make a lot of money. When a class of elites can thumb its nose at the law with impunity, the result is not only a threat to the efficiency of our economy, but a threat to the basic functioning of our democracy.

 

breezer1's picture

in case anyone else wants to apply over at citi this might help...

http://www.pinetree.net/humor/donthireme.html

Clycntct's picture

Wow just Fkn Wow. I thought I was depressed before I read that.

Thanks for posting.

chinaguy's picture

There is an old  saying in Chinese that translates:

"A law which is not enforced is not a law"

hedgeless_horseman's picture

So do the steroid era home run records still stand?

bankonzhongguo's picture

Its all in complete freefall.  The only diverance between those homicidal plutocrats and the serfs are that the serfs want evidence before passing judgement.  Now however, despite the evidence, there is no court or JUSTICE in this economic or other world.  The managed economy is inflationary, while the scrappy serfs at the bottom exist in a de-coupled deflationary free market.  Just remember its all being done on purpose.

 

AND WHAT IS THE PENALTY?  -- NONE. Or luxury and deceit.

 

Laws are not being enforced.  No enforcement on illegal immigration.  Non-stop for-profit wars.  GM bondholders nullified, trading up on no volume, HFT, BIS/IMF/Fed, gold manipulation, unbelievable government data, fake unemployment numbers, Corporations are now Super-citizens writing every piece of unread 2000 page "panic legislation."

I used to laugh about investing in canned foods and shotguns.

Now not so much.

I would fly the American flag upside down on the front of my house as a sign of national distress, if I thought the America Stasi would not put me on a terror watch list. 

Time to re-read 1984.

Miles Kendig's picture

Window dressing isn't

aheady's picture

To all the banksters on this lovely Saturday morning. All aboard.

http://www.youtube.com/watch?v=XdeIZkZo2PM

Oracle of Kypseli's picture

It appears that there are lots of junking lately in ZH. I think the banksters are starting to worry.

Yes! they will come for you, be afraid. Be very afraid.

Oligarchs Gone Wild's picture

I think someday, ZH should publish the statistics that demonstrate the source domains of all their hits...   How many millions of views derive from scopes owned by the Oligarchs.   How many bankers and politicians read this stuff from their work stations and laptops over VPN and have no idea they are creating a digital mosaic of their nervous system in action. 

ZH knows exactly who those people are and how often they come to read and what they read.

almost_have_a_name's picture

It looks like a set of function generators running into a mixer, captured by an HP o-scope.

What a load of bs.

MayIMommaDogFace2theBananaPatch's picture

Is this not exactly what you would expect if you connected a scope up to any ostensibly chaotic process -- like, say, Niagara Falls for example?

</sarcasm>

SheHunter's picture

And along the lines of this article...anyone else notice how several times during a trade day the HFT programs jump into a "hit all stops" command?  And how about those last 40 minutes of Friday's trade day?  I've been playing this game since '95, know how to jump into the frying pan and get out alive, and used to do pretty darn good with the day trade scenario.  These days? I often watch more than trade.  Sucks.  Looks, smells, and feels electronic and random. 

MeTarzanUjane's picture

You have to be an algo to fight an algo. Evolve or get out.

deepsouthdoug's picture

That's IT!  I'm placing a limit order for 10,000,000 shares of AAPL @ 1 cent!  Sky Net will eventually give em to me. 

Gimp's picture

Watching the movie "JFK" last night, I know it is entertainment but the whole "invisible government" the real power behind our republic is pretty scary.  I think they have become more enbold-en and don't really give a sh*t if you see them manipulating the laws of the land anymore.

"What  are you going to do about it? Nothing."

 

Village Idiot's picture

Originally Posted July 30, 2010

Anyone interested in taking a step, albeit very small, to get something off the drawing board?

I've been thinking about a sticker, bumper size, that identifies American Patriots. I think that includes a large majority of the ZH community. But wouldn't directly identify said patriot as a member of ZH.

Personally, I'd like to be driving down the road and give a thumbs up to the person next to me.  It's a start.

keep it simple, but identify two main themes - "patriot" (someone who cares and understands what is happening in this country) and one other word.  A word that tells the oligarchy that we are on to them (I could use some help here).  I'm thinking of some reverse psyops like, "dumb" perhaps.  Dumb Patriot.  Dumb may not be the word, but "they" do consider us as some form of dumb.

I use the the avatar "Village Idiot" because it acknowledges right up front that I may be, and sometimes am, the VI.  But you can't use it against me because I am the VI, after all.  We both know.  That is the key - one word that represents the power of the people, and another word that signifies a mutual understanding that, to the contrary, we aren't dumb.

I need a little help developing this, though, but hopefully you get the idea.  I would be privileged to contribute any way I can, financially or otherwise. 

I hope this idea gets some traction - I really would like to be running down the road and give a big thumbs up to my fellow Dumb? Patriot.

 

I'll probably post this around the site and see what happens.  Cheers.

 

 EDIT:  For you "Oligarchy" may not be the defining word or group that is taking us down.  Feel free to replace with something else.  Also, a poster was kind enough to point out that this is not just an "American" issue.  A global translation would be even bigger.

It's a start