"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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Village Idiot's picture

heading in the right direction - thanks for responding.

grunion's picture

My pleasure.

Let me know how it works out. I believe you are on to something. Many folks are looking for an active response/countermeasures that is somewhat more...complex? Than the TEA party, without all the extremism and with focus, intent and tenacity. We know what needs to be done.

Although I am of limited financial, intellectual and political means, I would be happy to help.

 

Village Idiot's picture

"Although I am of limited financial, intellectual and political means, I would be happy to help."

 

Thank you for the offer.  I know this idea just needs an appropriate place, and the appropriate minds to incubate. Very short gestation period - guaranteed! 

Who might know where that place is?  Standing by.

MayIMommaDogFace2theBananaPatch's picture

There's a site called "Conspiracy for Good / I am not a Member" that seems to capture the idea you're going for, fairly well. 

However, it all looks just a little too slicky for me...A honeypot maybe? 

I first saw it 6 months ago and they've got < 350 people?  Anyway -- you might get some loose ideas from the language and angle of their 'trailer' video.

Curious if you also find the site to be a little creepy.  I mean, "we'll contact you when the time is right" ???  WTF?  Just being cute?  I dunno...

thesapein's picture

another slick honeypot for fighting a nonviolent war against a more powerful opponent:

http://www.aforcemorepowerful.org/resources/nonviolent/methods.php

Keeping in mind that "the enemy" is actually way ahead of "us" on this nonviolent front, as well.*

*not sure who these groups are in present context.

DoChenRollingBearing's picture

Yet another repost of my response to Village Idiot's call to arms:


Let's pick a day and make this easy for everyone.  How about Thursday, August 12?

EVERYONE goes to their ATM (early enough during the day) and pulls out the max you can.  When the machine runs out of money, go into the bank and ask for $1000 (sort of a fine on them for not having enough money in the machine).

I pick Thurs, Aug 12 because it gives a little time to organize and get the word out.  Then Thursday's and Friday's market action would be REAL INTERESTING, hmm?

I'm ready, let's do it.  Thanks again VI for your call to action yesterday.

 

EDIT: I think I am going to repost this a few times in similar upcoming threads.  Alternative ideas welcome (as VI has said).  Oh, and buy some gold too.

DoChenRollingBearing's picture

.

.

Oh, and send the SEC / HFTrs / banksters / politicians, etc. for a quick trial in Iceland, put 'em all in dump trucks, and throw them into Katla.

thesapein's picture

I was hoping to see them put on game shows, like the Running Man or Death Race.

thesapein's picture

A problem I see with this is that a lot of us who visit ZH have probably already stopped trusting our moneys with these banks. My business with shady institutions is already at a minimum.

Same goes for a run on gold or silver. I've already been doing all I can with my own accounts.

I'd be happy to spread the word though.

Windemup's picture

 

If you tell two friends, and they tell two friends, and they tell two friends,...

By August 12 that should just about do it.

Village Idiot's picture

I first saw it 6 months ago and they've got < 350 people?

 

I'll check it out.  350 people, hmm.  I was thinking that an engaging rallying cry at ZH would get a least a thousand committed? No?

Start off with small stuff - do a brodey (burn-out) across someones lawn.

 

Seriously though, have any "call to arms" been attempted here? If so, anything of a successful nature?  Bueller?

Cistercian's picture

Why not use the ZH logo?If it is ok with Tyler of course.I would just use the stylized zero with the h inside and drop the words.Everybody here would see it instantly.

MeTarzanUjane's picture

Plain and simple. The sticker for all involved even those resisting the resistance.

http://i32.tinypic.com/8wboue.jpg

hayleecomet's picture

I'll put my thinking cap on, Village.

Misean's picture

Kelly's Heros

http://en.wikipedia.org/wiki/Kelly%27s_Heroes

"Oddball: Who is that guy, Crapgame?
Crapgame: Him? Name's Kelly. Used to be a lieutenant, pretty good one, too, till they gave him orders to attack the wrong hill. Wiped out a half a company of G.I.'s. Somebody had to get the blame and he got picked."

"Kelly: [after he finds the hidden gold bar in the Colonel's bag] Sit down on this bench. I want you to have a drink.
Col. Dumpkopf: Under the Geneva Convention...
Kelly: This isn't Geneva, Colonel."

grunion's picture

I just sent this article to Senators Hutchinson and Cornyn. I sure hope I haven't doomed someone.

freshman's picture

Robots have indeed taken over the human world.

thesapein's picture

You didn't think billions of years of evolution were just going to suddenly stop for us, did you?

Leo Kolivakis's picture

HFT has become part of the modern market's DNA. And in the next decade, it will become worse, not better. Either you accept this or risk getting continuously frustrated with "erratic" market moves. Don't try to beat multi-million dollar computers programed by "wizards", you will lose. Understand that HFT works well when VIX is between a range, say 15-25. Above 25 these strategies break down, and below 15, they need to take extra leverage to make the returns. I see HFT as a structural fact of the market. It will never go away, so get used to trading alongside computers.

ZeroPower's picture

HFT will never go away because of the profits for the shops, but i think the market as we know it will change or a new market might replace it. Still many years away no doubt.

As for VIX, i've heard of greater successes $$ when volatility is at the highs. Above 25 is rare for an extended period of time, and so instead of being long/short-only the funds will sell premium to take advantage of the more expensive options.

thesapein's picture

I like that thought. DNA is basically a crystal structure that tags things like photons, directing the flow of resources. Crystals, in a sense, create handles on otherwise random packets, creating patterns that oscillate like the notes in the above graphs. 

Abiggs's picture

Where did you come up with your VIX/HFT range idea? That's just a crock of shit - the vast majority HFT strategies incorporate some form of stat arb or another which thrives on volatility. In reality it's the other way around, HFT strategies break down when the VIX falls below 20...

Blaise Pascal's picture

Really, first, let's just appreciate this for the beautiful, creative and artistic art-work that it is.  And the commenter who said the boyz just like to p*ss their names in the snow is spot on.

Completely criminal, but that is the game.  Obviously, no one, literally, can compete on a micro time-frame; a few days or weeks is a gamble, and long-term investing is dead.  You could buy real internationally-based revenue and earning streams, based on commodities (XOM, BP, etc), and do well.

But how to play it?  Short the leveraged ETFs on both sides of a vertical; write calls on them.  Let time work for you.  YOu'll never get rich, though you might be surprised at how comfortable you are.

And Dodd-Franks exempts SEC from FOIAs?  That, plus Pelosi's stripping out the proposed amendment that technical experts be added to the Obama Gulf spill comedy (er, "investigative") commission, DESPITE unanimous bi-partisan recommendations from Committee, tells you much. 

First, these Democrats and Obama are worse plutocrats than Republicans and Obama, as they are hypocrites (at least Bush actually believed the stuff he said, and had a framework for making the decision).  Second, the only real question is how much can be looted from all before the collapse?

They want to fix the educational system?  Start by teaching critical thinking, and self-accountability.  As long as Obama talks about Snooki with Behar and Whoopi, and Idol rules, and twenty-somethings are glued to their phones, the game continues.

That said, Liz Hasselbeck is worth watching and thinking about, in a private sort of way.  ;)

unrealrally's picture

are you sure this is a single program? It could very well be a "war" played out by machines trying to outwit each other. If the programs are stupid enough, there could easily be these repeating patterns. This is like a repeating pattern during a chess endgame.

If it were quote stuffing indeed, wouldn't a given program throw random orders (size and price) instead of these repeating patterns? I'd think that this is just the result of badly coded algorithms that chase each other up and down the price and size ranges...

litoralkey's picture

Constraints on the Algos by the exchanges, that is the "liquidity provider mechanism" results in movements of no more than a penny per order.

And yes, competing algos definitely are fighting the spreads.  Just looking at this stuff, it's apparent most of these Algos will be blown up using 2d and 3d slices of 4d fractal sets to so randomize the order flow the competing algo shops can no longer functionally trade in the market without brute force $$s to crush the smaller algos.

Sine,SawTriangle,Square,Noise, etc. will soon be replaced with 2d slices of mandelbulbs.  

(Think of them as a single image of a MRI scan.)

thesapein's picture

So these patterns aren't necessarily the result of any single HFT server or program?

That makes intent hard to prove.

It could be the case that these traders kind of stumbled upon algorithms that worked well for them but only because of a coherence and the periodic "notes" that can emerge from the overlap. Is it possible that their creators don't even know that they're breaking the rules on these tiny timescales?

edit: Of course, they know. But it could be hard to prove intent. Oh, no, we never bothered to look at those patterns.

thesapein's picture

I like your image of a MRI scan, analogy.

To complicate things a bit, have you studied squeezed coherent states? Do any of these patterns look familiar to you:

http://en.wikipedia.org/wiki/Squeezed_coherent_state

I noticed that they're basically adding a dimension to be able to generalize a formula for both noise and coherence, but it's NOT a fractal dimension. What if someone played with this exact same generalization but in a fractal dimension...

litoralkey's picture

Physics is definitely not my forte, outside of a layman's fascination with the possibilities of graphene, (buckyballs, graphene tubes, pseudo-magnetic fields etc.)

The fractal equations point is my general point, however thinking it through now, the programmers have to have enough $$s behind them to swing bid/ask wider, more complexity and more risk involved.  The oligopoly already exists, there are not going to be new Algo shops allowed to cut in on the business without serious money and power behind their entry.

It also makes sense why Goldman Sachs was able to have Sergey Aleynikov arrested so quickly.  

http://www.cjr.org/the_audit/a_code_theft_at_goldman_is_a_t.php

http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html

The HFT patterns being used are rudimentary(in the overall field of fractal equations), and could have easily been attacked successfully from an organization with the money, power, balls, and access to trade flow and dark pools.  "Predatory Fractal Disruption of Liquidity HFT Mechanisms".... That would be a heck of a PhD thesis...

p.s. I have no 1st hand info if different Algos blackboxes are actually dueling in the spreads, but for highest volume stocks like C, SPY, QQQQ, etc there has to be multiple programs running.

p.p.s. apparently people are hiring to increase Algo shops...

http://www.wilmott.com/messageview.cfm?catid=5&threadid=77811

Village Idiot's picture

http://www.wilmott.com/messageview.cfm?catid=5&threadid=77811

 

"excellent benefits and work environment as well as great opportunity for advancement."

 

 

New_Meat's picture

and:

"... Statistics, Computer Science, signal processing, game theory, machine learning, artificial intelligence, data mining, market microstructure theory, econometrics or time series analysis. "

and we have all of the disciplines needed to characterize the market as a system.  Put those classic patterns (delta, step, ramp) as well as the fractally-looking thing (NAZ Blotter).

If they can characterize the market in close to real-time (that is, they can closely approximate the market's current "transfer function") means they have a toolbox of inputs to derive expected outputs.

Is this going on in individual stocks with stock futures, or would that leave too many fingerprints.

Barrons used to advertise for quants with superior talent to be compensated well above average.

- Ned

 

 

litoralkey's picture

Eye opening to me, never seen the graphs of the algos.  This is less complicated than it seems when it's being demagogued.

Having spent a few years studies audio engineering in MIDI studio environments, this stuff is exactly parallel to various soundwave equations used in modern synthesized sound programs, and Algorithmic Composition.

Very very cool.

Search out Algorithmic Composing for more info

http://www.ist.rit.edu/~jab/Fibo98/

I want to see more....

http://www.ist.rit.edu/~jab/Fibo98/PGA-1.mp3

addvalue's picture

So why not hook up a couple of synths to a market datafeed giving every major suspect stock its own tone and livestream the audio result right here on the frontpage of Zero Hedge.

This way everybody can 'listen in' to the manipulation in full glory and even learn to recognize stock (tone), HFT strategy (waveform) and who knows what more...

We'll give Marja the exclusive rights for mixing the results into some sort of musical representation of it all...

Cheers

trav7777's picture

who's bringin the X tho?

addvalue's picture

what is X?

To elaborate a little, Nanex has the datafeed and synthesizing into sound from it may open a whole lot of interesting possibilities.

Think of the SETI project, ever listened to the sound files of white noise from the stars? Sometimes there is an unknown audible pattern the human auditory system picks out of an enormous amount of static (white) noise, that is how sensitive we actually are to sound.

The HFT market signals will be much more 'pronounced' to the regular (Slow) trading activities then that of SETI (and easier to filter/transform into something better to spot too)

Cheers

thesapein's picture

What sorts of patterns are sometimes heard from the stars?

You just peaked my interest.

addvalue's picture

Try this one, could not find one from SETI but from Jupiter but you'll hear what I mean...

http://www.radiosky.com/rjcentral.html

Cheers

addvalue's picture

Thats a good one, thank you...

Cheers...

thesapein's picture

Oh, I so love this thread of thought.

The timescale would have to be way expanded, the "livestream" would actually be old news by the time we could hear it, but would still be better late than never.

addvalue's picture

? Why is that? HFT is how fast? milliseconds? less?

Sound upto say 10kHz could be mapped 1on1 to 10.000 trades / sec... realtime.. Faster patterns can be transformed.. Filters can select market instruments and I just starting to think of all the ways to engineer the sound to best fit the purpose (manipulation spotting and/or making weird music)

Cheers

edit:

You may even inverse the idea and transform your favorite music, may it be mozart, rock or techno into HFT trade orders and see if that outperformce the HFT algo's. At least that would give the script kiddies writing the current HFT algos something to freak out about when done by a few music enthousiasts here on ZH...

Cheers

thesapein's picture

Birds don't even chirp as fast as HFT. Yet, to really hear the full composition of many bird songs, most of us non-gifted non-Mozarts can't make quite make out the tunes without recording and slowing down the playback of bird songs. I never really heard a bird song until I heard one slowed way down. But maybe that's just me.

 

addvalue's picture

FT (fourier transform) comes in handy, that will shift any high/low tone into the audible range without changing the speed.. (like singing into a karaoki kit and sounding like really heavy bariton live) But look again at the screenshots, the first one is not that fast really.

Cheers...

thesapein's picture

But, but, but look at the Blotter graph. It has a pattern that repeats 6 times within 09:34:26 to 09:34:33. It's not exactly a simple pattern either.

addvalue's picture

If I am not mistaken that is 6 seconds, 6 patterns, about 1 Hz and not audible by itself but if the underlying stock is suspect it could be assigned a specific instrument, say saxophone, the tone would be set by the price and the loudness by the volume, you would get a sort of woOow_woOow_woOow_woOow_woOow_woOow_ etc..

Cheers

New_Meat's picture

"So why not hook up a couple of synths to a market..."

instead, hook them up to the buy side and play "Tubthumpin" to make Chumba as happy as he'd let himself be. 

"I get knocked down,

then I get up again..."

As the price goes up and down on the minute bars.

- Ned

addvalue's picture

OK, I'm in, anybody want to join?

I'd suggest starting with Nanex.com for the feed and then to elitetrader.com for the Graybox-Trading forums to get us some tools. Suggestions for the sound engineering are welcome...

Cheers...

Village Idiot's picture

"This way everybody can 'listen in' to the manipulation in full glory and even learn to recognize stock (tone), HFT strategy (waveform) and who knows what more..."

 

Do they sound like whales?

addvalue's picture

I Guess that depends on the sound engineers preferences...

.... Cheers