On The Mysterious Case Of The Phantom Stock Trades

Tyler Durden's picture

Our friends at Themis Trading have put together another quite fascinating white paper which makes a disturbing observation: on an intraday basis, the widely watched market gauge indices such as the Dow Jones Industrial Avereage, the S&P 500, the Nasdaq and the Russell 1000, are based on less than 30% of all shares traded, therefore conveying incomplete trading data. The reason, which is intuitively known by all who follow the increasingly more fragmented and more compartmentalized into dark pools and other various ATS venues, market topology is that as Themis says: "the market has become increasingly dominated by trading volume from arbitraging index, ETF, and other derivative movements versus the underlying equities.... Nowadays, in a world of microsecond trading, these indexes have become phantoms - they reflect some trades involving their components, but not the majority of them." In other words it is becoming increasingly obvious why in a world of HFT, ETF, algo, ATS and everything else penetration, there is now a scramble between the legacy exchanges to merge. The alternative is a slow, painful death due to terminal obsolescence brought upon from unregulated trading venues, which often times see the alternative trading system operator have exclusive firewall and gateway privileges, where anything goes and where such obsolete constructs as Reg NMS are routinely ignored: after all how can the SEC possibly track down the billions of unique trades each and every day and catch all the transgressions. Themis provides a solution to this skewed motivation for all traders to increasingly vacate the actively regulated open exchanges: "indexes should be calculated based on every trade involving a component that crosses the consolidated tape, which includes trades from non-primary exchanges such as BATS, DirectEdge and NYSE Arca."

More take home points from Themis:

Would you bet on the Kentucky Derby (legally, of course) if the results reflected only some of the horses in the race? Would you have confidence in a publicly traded company that reported results from only some of the subsidiaries? This is currently the case with the major stock indexes in the US. The indexes that everyday retail and institutional investors rely upon are being calculated on an intraday basis without a full deck, so to speak.

In a post Reg NMS world, fragmentation amongst market centers has reduced the amount of trades that occur on the primary exchanges. The primary market alone is no longer a complete enough source of data when calculating an index value since it represents only about one in four trades. Index suppliers must adjust their methodology to accurately reflect all trades intraday in a timely manner. If they don't, they risk regulators or Congress doing it for them.

Below is Joe Saluzzi, explaining his findings to Bloomberg TV:

The full Themis Trading white paper is below.

Themis White Paper

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ebworthen's picture


I have a better solution; get the fucking machines out of a human market.

Put the markets back to the physical level as you would put currencies back to a physical manifestation of being able to turn in your currency for gold or silver.

Without the physical limitations we ride the four horses of the apocalypse to HELL.


baby_BLYTHE's picture

if we actually had true honest money (define if however you wish), these algos would not be able to front-run the general market.

Fractional Reserve banking of course perpetuates this problem. End that and Supply & Demand would once again find its true footing in the market place to benefit the broader population at large (Lower prices and higher interest rates on savings).

ebworthen's picture


We now have tyrannical usury via fiat money, devalued currency, and casino markets.

James T. Kirk's picture

I cannot agree more.  Fiat money will be the death of this nation.  Fiat money provides evil people of the world with an unlimited petri dish of "nutrients," whereby any contrived financial "invention" now manages to spark the greedy hope of unearned riches, in those people who choose to skim the world of riches, instead of actually creating wealth.  What moron, even 10 years ago, would trust such transparent manipulation, dishonesty, and illusion, to "trade" in all these contrived markets?  When greed overrides common sense, and pride in the nation that we used to be blinds us to insanity, our end is near. 

squexx's picture

An even better idea would be to get rid of a certain very evil, hook nosed tribe behind it all!

LowProfile's picture

I would like to imagine posts like these are generated automatically.  It would be easy enough to do.

Sad to say they may not be.

You should realize that you would do your cause a great favor by fully separating and leaving the rest of us the fuck alone.

rocker's picture

@ebworthen   You are absolutely correct.  We just want to see real trades don't we.  Godman Shafts, Shitygroup, the Morque and the Bank of Crimes who can trade 90 days straight perfect would not like a honest market. Would they?

The machines must go. Godman Shafts has their special software, (in the wrong hands can manipulate markets). Their own words. Hello Somebody.

So, what would help. How about the SEC and or the DOJ doing their job. That seems faint to me, status quo, HiHo.

Some have suggested a tax on each trade. I am not sure, but I would surely give a dollar per trade tax if it helps to shut them down. Surely, anybody who has watched a equity shoot up to double it's value and fall back in less than a minute or two knows I am right on this.  And better yet, how about anybody who drives a stock up or down by more than 30% must hold the position for 24 hours. That would be something that makes them go Hmmmmm.

Either way, what is going on now must be stopped. Today, the markets were a disgrace to integrity and capitalism on any level.

The markets displayed nothing less than outright FRAUD today. Somebody, please: END the FRAUD. End Phantom Trades. 

ebworthen's picture


Fraud and debauchery is the problem.

Where are the tar and feathers?

Where is the rule of law? 

Where is common decency?

The real, painful, awful truth is that systems like these lead to collapse, the death of innocents, and the wailing and gnashing of teeth.

The damn fools can get away with decades of lust, quantum measures of thievery and greed, yet what it leads to is HELL for the culture and society.

This is why swift justice; consequences, free markets, the invisible hand, and executions are critical to remain the balance.  Without justice penury leads to much more suffering than delaying, forestalling, and equivocating justice out of its rightful place in civilization.

Mesquite's picture

Hear hear..

Been observing, and now archiving, these

obvious games for awhile now..

Glad to see others see it too..

Been questioning my own sanity..

Be safe all..


baby_BLYTHE's picture

I was born in the US. My mother was 100% Finnish and my Father was both German+Polish

I narrowed it down to: I am 50% Finnish, 25% German+Polish

100% White gentile woman and proud of it, though ;)

max2205's picture

Huh? So now TPTB can print ETF at whatever price they want. Perfect

ReactionToClosedMinds's picture

this is a serious issue,  But like the need for reform of the Federal Reserve System (neuter the NY Fed adn raise the profile of the other regions) no one talks about this or is likely even aware of this.


thank you 'lame stream media'

hbjork1's picture

Yes, sounds very serious in several ways.  And it may tale some legal tools to deal with it.

rocker's picture

They are aware, they just don't care. They are under pressure to allow the thieves to steal your money.

buzzsaw99's picture

The alternative is a slow, painful death due to terminal obsolescence brought upon from unregulated trading venues, which often times see the alternative trading system operator have exclusive firewall and gateway privileges, where anything goes and where such obsolete constructs as Reg NMS are routinely ignored: after all how can the SEC possibly track down the billions of unique trades each and every day and catch all the transgressions...

Let the legacy exchanges die. Who cares?

Privileges, yes, we know quite a few squid, er, billionaires, er hedge funds, er, people who have those.

The SEC? Don't make me laugh.

Cdad's picture

The primary function of the ETF is that of a puke bucket.  You see, when a criminal syndicate Wall Street banker has had too many underlying equities, the puke bucket is raised, and in the raising it becomes the synthetic receiver of equities.  With the puke bucket raised, criminal bankers can vomit excess underlying stocks into the bucket [at favorable prices].  Have you ever noticed how a million shares of some stock can be sold...without moving the price?

Once the vomiting is complete, the puke bucket is again lowered.

This, by the way, is called "investing."  And as the white page points out, both the underlying stock and the ETFs can be entirely disassociated from the broader index throughout the day, giving Average Joe the idea that "investing" is going on.

Now, what the white page does not go into is the power of the ETF creation units machine, that thing which can produce infinity numbers of said ETF shares, making ENORMOUS puke buckets for the criminal banker to use.  And you can try to understand the math behind infinity shares of an ETF representing finite shares of underlying stock, and you will claw your eyes out trying to confirm that math.  Like most market manipulation tools the syndicate uses, it is very, very complicated...so much so that little people are not allowed to think of such things.

There is no longer a market.  Criminal syndicate Wall Street bankers have so polluted it with these things [and more] that the market no longer properly responds to real supply and demand.  Certainly, the market no longer trades on things like fundamentals.

And so as the syndicate tries to claw itself ever higher on Bernanke bucks, it is the dead bodies of credibility on which it climbs.

And I understand that the extent to which Average Joe is "invested," he has chosen ETFs as his primary instrument.  Yep, he has chosen to go long puke buckets.

Oh well.

Mesquite's picture

Nice description...

I sort of see it as  Tail Wagging The Dog..

I just observe what 'They' are up to..

And go along for the ride..


chump666's picture

Ah forget it, if you are small fry or medium fry, doesn't really matter.  I mean block trading have been going on for the last 40years. And now dark pools + HFT's are hyper trading on sec/sec it was always going to be hard to determine microsecond trade values.  But the flipside, major crash, time it with shorts or option puts and ride a maniacal HFT/block trade/bid-less trade.

Adapt to the markets! 

rocker's picture

By the way, Thank You Joe Saluzzi for trying.  Nobody tries to fix it. They just watch for the their 'cut' on Fraud trades Inc.

baby_BLYTHE's picture

Someone has been out for blood against me today.

Bring it on bitch... burn that junk button off!

JuicedGamma's picture

Taleb is an elitist. When he writes middlebrow he is thinking of you (unwashed masses).

Black swans are happenings which cannot be anticipated.
In the derivatives world traders buy the "wings" as protection.

The fact that black swans are now spotted everywhere may itself be a black swan. Certainly, the term is misunderstood and overgeneralized.

rocker's picture

After giving this much thought. 

Tax each trade and or tick $1.00 per trade.    Save our markets. 

Oh regional Indian's picture

Quite a startler. But in el-Riggo market, nothing is a surprise anymore.

Models are dead. Long live models.

The time of maximum novelty is with us.



SparkySC's picture

Slow down the trading and make it REAL.

The ponzi bid/asks out there, the .0001 front running, they delays in orders hitting the marketplace because they're intercepted by HFT software so they can hose you out of your money, it's just Bullshit.





The S&P could go to 200 just as easily as 4000..... 














janus's picture

could some clever bird say for sure where price discovery happens, and furthermore which is the market maker for what? and why does humidity make the cold colder and the hot hotter?

ebworthen's picture


Humidity takes heat away, the evaporative cooling power of water.

At a point the humidity defeats the ability of your body to cool itself via perspiration; your body can't wick the heat off your skin because the water won't evaporate.

At colder temperatures it works quite well, and at the same time "penetrates" clothing and skin to remove heat from your body.

The FED (and Treasury) is the market maker.  Price discovery occurs when they tell the TBTF banks when, how, why, what, and where they will manipulate things.

Throw in algorithms and HFT machines and exchange desks in the know, out of the know, somewhat in the know - and you have a milieu of chaos where an average person cannot make a market or discover prices.

The only sane response is to pull out altogether or to make macro decisions outside of the current, the waves, the spray, the heaving tides of insanity - and buy and sell the seasons.


janus's picture

If your answer is correct, and I have my suspicions that it may in fact be, then it's to be nothin but heat-wicking and silver stackin for ole janus -- at least for the forseeable...if there's anything coherent for the forseeing.

i must, however, confess that oil markets are lookin tasty too.


Nooooo!! The markets are not rigged. I am working on a thesis of wall st tradeing logic, that should get me a nobel prize for sure. Its called The Chewbacca Therom, It starts with the daily total of Wookies who came from Endor and then....

dcb's picture

I am getting trades happen that trigger and my platform hasn't registered the price as happening

JuicedGamma's picture

All your platform are belong to us

mynhair's picture

Shucks, I thought this was going to deal with those phantom T&S I keep seeing intraday that are way off current price, then miraculously disappear.

(selling last nite's USDHUF)

Mesquite's picture

One word:



g's picture

Simply amazing, and not in a good way.

AldoHux_IV's picture

Just another point in many illustrating the illusion of the wealth effect-- which is truly a cover for the theft and raping of individuals via the economic genocide that is current monetary/economic system.

Pat Hand's picture

Although lit markets may be less than 50% of the trading, they are probably most of the "informed" trading.  I suspect price discovery is just fine.   Liquidity / passive traders go to dark pools and crossing networks to get a fair price and to try to avoid getting picked off or frontrun.   This paper just makes an argument by hand waving.