This page has been archived and commenting is disabled.

Two Norwegians Face Up To 6 Years Of Prison Time For Doing What HFT Algos Do In The US Every Single Day

Tyler Durden's picture





 

In some very surprising news out Norway (thanks to all our Norwegian readers who alerted us about this), which once again condemns our own SEC for being a criminally negligent regulator, we learn that two Norwegians, Svend Egil Larsen and Peder Veiby, have been charged with market manipulation (a charge which carries up to 6 years of prison time if convicted), after succeeding to reverse engineer a stock trading algorithm used by broker Timber Hill, which is Interactive Brokers' key market maker. Allegedly, the two daytraders found a weakness in the Timber Hill algo on the Oslo Stock Exchange back in 2007 and 2008, and used it to outsmart the market maker and make a few hundred thousand NOKs in the process. The punchline is that the charge against the two is market manipulation with an intent of "using buy- and sell-orders that were not intended to be traded on, but to move the prices." The irony is that as we have demonstrated repeatedly by showing prima-facie evidence from Nanex, quote stuffing patterns by thousands of HFT algos running amok across various US exchanges, ATS and other trading venues, is precisely what happens every single day in the US - namely, algos which merely seek to push the bid or the offer in a given direction, with no intent of ever crossing a trade, all for the sole purpose of sending false indications of bulk orders coming. So when humans do it (and make peanuts compared to the billions the HFTs collect domestically), they end up going to jail; when our own system, which is geared to push stocks ever higher, does it - it is perfectly ok, and possibly even encouraged. After all, the HFTs provide liquidity, remember? Just ask Mary Schapiro. The sad conclusion is that those who wish to trade in markets that have not yet been overrun by SkyNet, or where regulation actually works, may be best served by trading on the Oslo stock exchange, and as far away from the US as possible.

As for those who wish to remain in the US, here is what you can look forward for: one of Nanex' most recent crop circles, appropriately called "Robot Hunting" and "The Awakening."

08-13-10
"Robot Hunting". Searching for Bots.


08-13-10
BATS "The Awakening". CancelBot is learning.


The article first appeared Norwegian paper DN, and can be read googletranslated here.

For those who are curious about the prestory, we present another google translated version, courtesy of Norwegian site NA24.com

Oslo Stock Exchange halted trading after share purchases made by this man.

Wednesday
flashed warning lights to market surveillance on the Oslo Stock
Exchange after a series of trades that took place in the stock Wilh.
Wilhelmsen. Wilhelmsen.

Several records of 50 shares were traded through Nordnet and provoked trade from the foreign brokerage Timber Hill. This is done by pre-programmed machines provided on trade in certain stocks to capture the movements.

The machines may be instructed to buy shares in companies that are subject to high trading activity.

This form of programmed trading is done by algorithm based machines that are among customers of brokerage houses. Sometimes, this strange effect on share prices.

Wilhelmsen made the share price rose around 6.4 percent before the trades to the Timber Hill got the price to fall back again. The next few minutes swung the price in the unusual pace.

This is done by machines misinterprets trade picture and conducts abnormal trading.

Stopped trading

Oslo Stock Exchange reacted to the trade patterns and imposed a temporary halt in trading for a closer look at the trades. After
conducting a preliminary investigation for suspected violation of
applicable rules, elected not to delete the exchange trades.

- Trade pattern will be the subject of a thorough investigation. Based on the findings will be sent to the Financial Supervisory
Authority, according to an announcement from the Oslo Stock Exchange.

After an hour open the trade again.

Do not do anything illegal

The man who claims he is behind these trades is not concerned about what the surveys will tell.

- Oslo Stock Exchange investigates the trades you are behind in the Wilh. Wilhelmsen. How do you react to that?

- It's good that they take hold of the important issues, "says Svend Egil Larsen NA24.

He says to NA24 that he is behind some of the trades, but not all.

- Have you done anything illegal trade in shares?

- No, the answer Larsen.

He fears not what comes out of the surveys that the exchange is now complete.

Know the rules

-
Tipper exchange examines if I know the other Nordnet-customer who
intervened in my game with the robot from Timber Hill, said Larsen.

- Have you planned this with someone you know?

- No one knows when the rules of the game, "said Larsen.

He is an experienced trading of shares and other securities, and now works full time as a trader. He follows a day on the stock exchange and is a known figure in the small daytradermiljøet in Norway.

-
I hope I do not feel competent to speak, "says Larsen, referring to the other Nordnet-customer who" interfered ".

Low
turnover on the Stock Exchange by financial crisis and brokerages
programmed trading makes it possible to implement this type of trading.
That he chose Wilh. Wilhelmsen, is not arbitrary.

- It's sad to see such a solid stock that WWI attracts so few players, "said Larsen.

Reacted

Oslo Stock Exchange announces that they might send the case to the
Financial Supervisory Authority, and that they should make some further
investigations.

- What kind of research do you want to implement?

-
We have responded to things in trade patterns,
but we do not discuss the specific what it is, "said press spokesman Tor
Arne Olsen at Oslo Stock Exchange to NA24.

Olsen says that they normally go in to
see who has acted, and whether there is anything unusual about the
trades and whether those involved are more aggressive than normal.
He points out that they have already conducted some surveys and that they considered that they would not clear the trades.

Challenge for brokerages

Oslo Stock Exchange will not go into how it is possible to manipulate
such trades, but points out that brokerage houses bear a great
responsibility.

- It's a great challenge for brokerages that this works properly.
Brokerages are solely responsible for what goes into the trading system
to the stock exchange is correct, "says Olsen to NA24.

Yet it is a challenge for both the Oslo Stock Exchange and brokerage
houses in the event of such abnormal movements that happened to Wilh.
Wilhelmsen Wilhelmsen said.

-Mechanical Trade is not entirely new, but relatively new in Norway,
"says Olsen, showing that it may be that the machines are not set up
well enough.

Olsen says that they have already reacted when brokerages do not have right on their trades.

Has criticized
As a result a programmed machine belonging to one of SEB Enskilda customers unusual movements in the Aker Yards share. In total, purchased 69,900 shares during the four minutes and that the price rose 1.6 billion.

Oslo Stock Exchange reacted when giving SEB Enskilda criticism in connection with the transaction.

Larsen NA24 that he has
previously been involved in trades that have led to the Oslo Stock
Exchange has had to impose a temporary pause in the trade to examine the
exchange rate movements.


 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/17/2010 - 15:41 | Link to Comment centerline
centerline's picture

KD did a great piece on this (quote stuffing) earlier this summer, with live feed evidence.  The manipulation was stupid obvious.

Tue, 08/17/2010 - 17:31 | Link to Comment LMAO
LMAO's picture

Translation bollocks:

 

I have not done anything illegal

The man who claims he is behind these trades is not concerned about what the investigations will show.

- Oslo Stock Exchange investigates the trades you are behind in the Wilh. Wilhelmsen. How do you react to that?

- It's good that they take hold of the important issues, "says Svend Egil Larsen NA24.

He says to NA24 that he is behind some of the trades, but not all.

- Have you done anything illegal trade in shares?

- No, says Larsen.

He doesn’t fear not what could come out of the investigations which the exchange are now conducting.

-Knows the rules

- I guess the exchange will try to find out if I know the other Nordnet-customer who intervened in my game with the robot from Timber Hill, said Larsen.

- Have you planned this with someone you know?

- No way, I do know the rules of the game! " Larsen said.

He is experienced in trading shares and other securities, and now works full time as a trader. He is active daily on the stock exchange and is a known person in the small day trader community in Norway.

- I sincerely hope I do not know this *other person* "says Larsen, referring to the other Nordnet-customer who" interfered ".

Low turnover on the Stock Exchange by financial crisis and brokerages programmed trading makes it possible to implement this type of trading. That he chose Wilh. Wilhelmsen, is not arbitrary.

- It's sad to see such a solid stock that WWI attracts so few players, "said Larsen.

 

 

ROTFLMAO, this guy seems to have targeted an Algo Trading HFT Robot and has really found a way of exploiting dodgy programming of this Bot.

They will probably try to accuse him of manipulating the manipulators....

 

LMAO

Tue, 08/17/2010 - 20:18 | Link to Comment ZackLo
ZackLo's picture

Yeah, thats EXACTLY what it sounds like..maybe that's why he is so confident? rofl, maybe someone got an order filled that they didn't want filled and he got on the good end;)

Tue, 08/17/2010 - 20:30 | Link to Comment Delta Neutral
Delta Neutral's picture

Can you please send the link with some  

markings about how it should be interpreted?

Wed, 08/18/2010 - 06:38 | Link to Comment LMAO
LMAO's picture

I'm not sure what you mean but the original NA24 article which this content refers to is this:

 

http://pub.tv2.no/nettavisen/na24/imarkedet/article2408561.ece

 

Also some interesting feedback from the econotwist posted by trx longer down citing "Peter Warren" amongst others:

by trx
on Wed, 08/18/2010 - 06:26
#527605

 

http://econotwist.wordpress.com/2010/08/17/norwegian-day-traders-crack-the-timber-hill-trading-system/

 

LMAO

Tue, 08/17/2010 - 15:42 | Link to Comment Gully Foyle
Gully Foyle's picture

 

Norwegian prison? It's like goddamned summer camp.

Tue, 08/17/2010 - 15:44 | Link to Comment Turd Ferguson
Turd Ferguson's picture

A Norwegian women's prison sounds like fun :)

Tue, 08/17/2010 - 15:53 | Link to Comment Young
Young's picture

Homer Simpson voice: mmmm noorweeegian woooomen :P

Tue, 08/17/2010 - 15:46 | Link to Comment Bankster T Cubed
Bankster T Cubed's picture

nice find

SEC could give a rat's ass

they work directly for manipulator el superior, Goldman F***ing Sachs

Tue, 08/17/2010 - 15:54 | Link to Comment Tarheel
Tarheel's picture

the SEC is one of america's worst performing organizations.

Wed, 08/18/2010 - 01:49 | Link to Comment dcb
dcb's picture

I disagree the oligarchy has it doing excatly what it wants it too. almost nothing. anyone who reads this site and hasn't figured out that the stock market has become a tool of wall street to make money trading knows very little.

the system is a rigged scam

Tue, 08/17/2010 - 15:54 | Link to Comment 10044
10044's picture

Isn't that what denninger vlogged on july 5? It is there folks, the SEC looks the other way to watch porn at work

Tue, 08/17/2010 - 15:55 | Link to Comment old_turk
old_turk's picture

Do they have prison's for the silicon based?

These two just have the misfortune of being carbon based.

<sarc/off>

Tue, 08/17/2010 - 15:58 | Link to Comment Sausagemaker
Sausagemaker's picture

I bet there's silicone in the aforementioned Norwegian Women's Prison.

Tue, 08/17/2010 - 15:57 | Link to Comment Dingus
Dingus's picture

Ha ha

Tue, 08/17/2010 - 16:09 | Link to Comment william the bastard
william the bastard's picture

You mean they ran HFT on Statoil (STO). That IS the Norwegian market.

Tue, 08/17/2010 - 16:30 | Link to Comment Godisanhftbot
Godisanhftbot's picture

I'd like to see a chart of this so called manipulation. Probably looks just like 5000 other stocks we trade here every day.

How the hell can you tell whats real and manipulated since EVERYTHING is manipulated at some level.

Tue, 08/17/2010 - 16:40 | Link to Comment Dr. Acula
Dr. Acula's picture

Who is the victim of their "crimes"?

Which money was "stolen" exactly?

Why should their quoted prices affect your subjective appraisal of a stock? If they make up a silly price, and you believe it, whose fault is that?

"all for the sole purpose of sending false indications of bulk orders coming"

Stock markets are supposed to be a way of allocating capital to best satisfy the the demands of consumers. How soundly capital is allocated is indicated by profit and loss. Stock markets aren't supposed to be silly mathematical games and second-guessing every 5 seconds - if you play that game, honestly, you deserve what you get. Why not just play roulette instead?

 

Tue, 08/17/2010 - 17:20 | Link to Comment Racer
Racer's picture

IF it was a long as 5 secs the ordinary mortal MIGHT have a chance but 3000 quotes a second cancelled and reinstated? C'mon....

Tue, 08/17/2010 - 16:45 | Link to Comment wiskeyrunner
wiskeyrunner's picture

Are you people paid to post here on every article. Sure seems that way.

Wed, 08/18/2010 - 01:20 | Link to Comment Problem Is
Problem Is's picture

They're the night shift...

Turd and Buzzsaw are day shift... milking the OT...

Tue, 08/17/2010 - 16:48 | Link to Comment Rimpinths
Rimpinths's picture

The Norwegian case involved actual trades, not quotes. Pre-arranged trades in order to manipulate prices are illegal here in the US too. "Quote stuffing" is not the same thing as what happened in Norway. In spite of all the pretty pictures published by Nanex, there is still no evidence of anything illegal. Do you have any evidence of HFT Algos conducting pre-arranged trades? If you don't, then it's a stretch to say that those Norwegians are doing "what HFT algos do in the US every single day."

Tue, 08/17/2010 - 16:55 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 How hard would it be for two hft bandits to conspire and wash trade in order to manipulate the price?

 I'd bet its been done.

 

Tue, 08/17/2010 - 17:24 | Link to Comment Dr. Acula
Dr. Acula's picture

>How hard would it be for two hft bandits to conspire and wash trade in order to manipulate the price?

Why does it matter?

-If you value an owned stock more than the money you'd receive plus the bother of selling it, then you will not sell it.

-If you value an owned stock less than the money you'd receive plus the bother of selling it, then you will sell it.

-If you value some money more than a stock you'd receive plus the bother of buying it, then you will not buy it.

-If you value some money less than a stock you'd receive plus the bother of buying it, then you will buy it.

No one can force you or trick you into an objectively bad trade. It's all up to you and your subjective appraisals. And if someone "manipulates" the market, and the price is artificially too high or too low, then that's an arbitrage opportunity. Why be upset when someone presents you with a gift?

 

Tue, 08/17/2010 - 17:21 | Link to Comment Rimpinths
Rimpinths's picture

It's probably not hard for two HFTs to conspire, which is why the proposed consolidated audit trail will help a lot in tracking down such acts. I bet it's been done too. But it's wrong to present the Norwegian case as equivocal to quote stuffing, and it's wrong to state that the Nanex charts are prima facie evidence that something illegal is going on. They are not equivalent, and the Nanex charts so far have not proved that anything illegal has occurred.

Tue, 08/17/2010 - 17:34 | Link to Comment Dr. Acula
Dr. Acula's picture

"It's probably not hard for two HFTs to conspire"

Then let them. Like cartels, who face risks like cheating members and newcomers undercutting them, the "conspiring" HFT's will risk facing cheating members and outside arbitrageurs who sense profit opportunity. Like cartels and unions (i.e. cartels of employees), "conspiring" HFT's are a fundamentally unstable, losing proposition.

You call it "conspiring". To me, it is cooperation. Tell me, should all kinds of cooperation be forbidden? Or just the ones that result in financial losses? I wish more people cooperated in a way that resulted in them losing money and enriching me.

 

Tue, 08/17/2010 - 20:31 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Sorry, but on the micro scale there is no 'arbitrage' .  Sellers and buyers who need to trade TODAY rely on the market for the best price.

 The notion that anyone knows whether GOOG should trade at 450 or 451 is ludicrous.  But hft programs sensing a buyer, can easily force  them to pay 451 when the 'market' would have let them have 450 shares.

 Multiply that by 5000 stocks and you have some idea as to what's possible.

 

 

Tue, 08/17/2010 - 16:58 | Link to Comment Widowmaker
Widowmaker's picture

Here in the States bangin' someone else's teenage algo-bot results in taxpayer-funded bonuses of record proportion instead of criminal charges.

Really, who's kidding who here?

Tue, 08/17/2010 - 17:42 | Link to Comment Nothingman
Nothingman's picture

This may be a bit off topic, but it is within the general theme of corrruption.  I came across an article today regarding a Public School Fund in Alabama investing in derivative trades with JP Morgan.  That article is here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5Ik3.eSSSq0&refer=home.  To summarize, some toadies at JP Morgan apparently conned some good ole boys from 'bama into buying these interest rate swaps, undoubtedly assuring them that they were getting a great deal.  Of course all the bets went sour, and the losses are enormous.  The authorities are investigating to see if any foul play was involved: "At least five former JPMorgan derivative bankers have been informed by U.S. prosecutors that they’re targets of a grand jury investigation, according to Financial Industry Regulatory Authority records. JPMorgan is also among banks that sold derivatives to Jefferson County, Alabama, which was pushed to the verge of bankruptcy because of the cost of the trades."  So it seems the scum at JP Morgan have effectively bankrupted Alabama Public Schools in order to assure their flawless profitable day streak continues unabated.

 

How are the school districts coping, you may ask?  By extorting money from their students' parents, that's how!  I found this article which, when read in conjunction with the above article, is really quite horrifying.  http://www.wbhm.org/News/2003/School_Fees.html.  Students are charged extra fees for just about everything in many Alabama school districts, particularly Jefferson County, which was mentioned in the above story as having been nearly bankrupted by the derivative trades.  Students are even required to bring toilet paper - 36 rolls per student in one district.  It's hard to ignore the obvious connection here; Wall Street (other banks than JP Morgan were apparently involved in these trades as well) is profiting directly at the expense of poor, recession stricken families in Alabama.  Even though the article mentions that "By law, schools can't refuse to let kids participate if their parents don't pay the fee", you can be sure they are doing just that, as most families certainly could not afford the legal fees involved in taking the district to court to enforce said laws.  Interestingly, I can't find any mention of the people at The Alabama Public School and College Authority who were responsible for this gross mismanagement of public funds, losing their positions or being held accountable.  Where's the outrage?  They are stealing money from our schoolchildren for the love of god... where does it end?

 

Wed, 08/18/2010 - 07:56 | Link to Comment Nothingman
Nothingman's picture

some jp morgan stock holder junked me?  go to hell, asshole.  this has all the markings of a really good story.  didn't know where else to post it.

Tue, 08/17/2010 - 18:10 | Link to Comment Careless Whisper
Careless Whisper's picture

The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,"

http://www.businessinsider.com/goldman-stolen-code-can-be-used-to-manipu...

So Goldman admits that it's software program can manipulate markets, and nothing has been done.

WTF ?

Wed, 08/18/2010 - 12:12 | Link to Comment Problem Is
Problem Is's picture

The DOJ admitted for the Goldmanites that their code was a front runner...

In court when GS snapped their fingers and the FBI arrested Sergey Aleynikov...

When GS claims they are the victims of crime... the FBI grabs the guy in hours and the DOJ is in court the next business day...

Holder's DOJ idiots haven't moved that fast the entire length of the Obummer show...

When GS steals $$$Trillions in fraud the FBI is busy arresting penny ante mortgage scammers for $1.7 million in Florida and San Diego...

But the FBI can't find Wall Street on a map...

Wed, 08/18/2010 - 00:26 | Link to Comment trx
trx's picture

There's some really pissed off investors in Norway right now:

 

* “How the hell can we earn money intraday if we are not smarter than then those f***ing robots? They’re everywhere!”

* “…and five minutes later, 10 cents more, then 10 more …. The entire stock rose a dime in half an hour? Do not punish them – shoot them!”

* “Why don’t the police file charges against robot instead?”

* “You nailed it!  The next thing will be the Norwegian authorities employ robots who charge traders automatically if the trading robot loses money.”

* “If they’re convicted, it is hereby price manipulation to sell on the bid price when the previous trading was sold on ask. At the same time it will be manipulation to buy the on the ask when the last trade was on bid. Brilliant! We have met the general equilibrium.”

 

Here's a few updates and some more amusing commentaries:

Update: Day Traders Crack The Timber Hill Trading System


Wed, 08/18/2010 - 01:17 | Link to Comment Problem Is
Problem Is's picture

Get It Straight Norwegies...

HFT is a registered trademark of Fraud Street Incorporated.

Use of a HFT franchise without a registered license and Fraud Street franchisee status agreement... is expressly prohibited.

Use of official HFT registered equipment and software without the expressed written consent of Jamie and Lloyd is also... prohibited.

Wed, 08/18/2010 - 01:27 | Link to Comment youngandhealthy
youngandhealthy's picture

SOLUTION TO HFT PROBLEM:

Charge for each order or/and cancellation

 

 

 

Wed, 08/18/2010 - 03:50 | Link to Comment Jus7tme
Jus7tme's picture

Why don't we get rid of High Frequency Trading altogether by instituting "Blind Time-Quantized Stock Trading"?

Here's how it would work: Every 5 seconds, the whole world submits their encrypted, time-stamped, id-stamped orders. A black box decodes the encrypted orders and matches them up. In the case of order imbalance, a randomization is used to ensure fairness. Some rule is instituted that one cannot submit a large number of identical small orders (for the purpose of increasing the probability of getting *some* of the orders picked). You get the general idea. Then there is a 5 second waiting period for reporting back the executed trades and digesting the results.  Then another 5 second period for submitting orders. And so on.

The details of the algorithm has to be established so that fairness is ensured. I'm sure some computer scientist with background in game theory and queueing systems can work out the details to general satisfaction.

 

 

 

Wed, 08/18/2010 - 09:02 | Link to Comment Downtoolong
Downtoolong's picture

I’d like the SEC to answer these questions:

 

1-      Do they think Svend and Peder are guilty?

2-      Would these two have been prosecuted for the same actions here in the U.S.?

 

 I’ve long suspected that most of the regulations in the financial markets are intended to prevent the little guy from beating Wall Street at its own games.

Thu, 08/19/2010 - 17:43 | Link to Comment Geoff-UK
Geoff-UK's picture

The serf is not allowed to embarass the feudal lord.

Wed, 08/18/2010 - 09:40 | Link to Comment barkingbill
barkingbill's picture

well im glad we dont have this culture of integrity and honesty in our country...things might actually get better....

so getting back to the mosque story....

Wed, 08/18/2010 - 11:14 | Link to Comment LMAO
LMAO's picture

 

LMAO calling Mary Shapiro, come out, come out wherever you are.....and stop junking contributors to this thread!

 

LMAO

Wed, 08/18/2010 - 12:14 | Link to Comment Problem Is
Problem Is's picture

"...and stop junking contributors to this thread!"

It is just one individual's time of the month...
Bloated, cramps, cranky, junking every little thing that annoys them...

Let it go junker.... Menopause will set you free...

Wed, 08/18/2010 - 12:43 | Link to Comment dvsteenk
dvsteenk's picture

perhaps those who falsely flag as junk a valid contribution (ZH editors to decide) should be put at risk of being exposed as a manipulator of opinions and/or their membership should be cancelled

Thu, 08/19/2010 - 15:12 | Link to Comment trx
trx's picture

LATEST:

Lecturer Hugo Matre at the  University of Bergen in Norway, who is an expert on exchange and securities laws, believes the two Norwegian day traders that outsmarted the Timber Hill trading robot, probably will be convicted for violation of the prohibition against price manipulation.

“The most important in a practical context here, is that the prohibition of market manipulation includes actual transactions,and  if these are likely to influence the market.”

 

Illegal To Outsmart A Trading Robot, Expert Says
Thu, 08/19/2010 - 18:15 | Link to Comment LMAO
LMAO's picture

Thanks for the heads up,

 

Of course mr. Larsen did not do himself a favour explaining everybody how he outsmarted the algo trading robot. If he had told everybody....."Hey, I'm a day-trader trying to make a living buying stuff cheap and selling with a profit", authorities would have had extreme problems even trying to charge him with market manipulation.

That being said, it's a total and utter disgrace that the real manipulators, the HFT algo trading bots, who certainly make sure that anything related to price discovery and a free market is really something from the past, are going scot-free.

 

Larsen being related to royalty may provide us with a devious twist if this farcical nonsence continues.

 

LMAO

Fri, 02/25/2011 - 08:32 | Link to Comment george22
george22's picture

I disagree the oligarchy has it doing excatly what it wants it too. almost nothing. anyone who reads this site and hasn't figured out that the stock market has become a tool of wall street to make money trading knows very little.

the system is a rigged scam.

eviga watches|000-153|1z0-043|thomas sabo necklaces

Do NOT follow this link or you will be banned from the site!