HFT

We'll give you a hint, says Nanex: fantaseconds. Fantaseconds, everywhere. This is how High Frequency Trading (HFT) practically minted money during the financial crisis. With no regulators in sight, HFT robbed investors and other traders blind. With very little effort, Nanex has created numerous charts to illustrate the absurdity that markets functioned well during the financial meltdown. Many of the short term oscillations shown in these charts were created by HFT algos to induce a lag and create latency arbitrage opportunities. And yet the regulators could not spot a single one. Even after spending millions on MIDAS.

The documentary will air Novemeber 4th at Battle of The Quants in Shanghai and from there will hopefully make its way around the world

Think data leaks, in which the FOMC sends minutes to its banker supervisors a day in advance, where HFT algos pay millions to get key data to their collocated servers 10 milliseconds early, where journalists freely breach embargos and/or "secure" government lock-rooms are bypassed with a simple text message, are purely a US phenomenon? Think again. As Citi explains, today we saw just this taking place in the City.

Unlike on the two prior occasions when the "mysterious" (coughBIScough) gold seller sold so much gold he briefly broke the gold market not once but twice, this morning's concerted gold selling episodes, which briefly took gold to a three month low, were unable to obliterate the entire bid stack (at least for now) and crush enough liquidity to force the CME to announce another "stop logic" 10-20 second trading halt. However, there were some other peculiarities surrounding today's now recurring morning gold battering (which as we noted in a market where the CME no longer supervises any and all manipulation, were and are certain to continue). Specifically, what is curious is that starting at 3:48 am Eastern Time, Nanex found "six instances (there may be more) of 1 second periods in Gold futures with a high number of trades (700 or more)." As those who have been covering our coverage of HFT manipulation will note, these are precisely the kinds of momentum ignition, and not rational price discovery, events that seek to manipulate prevailing prices lower (or higher). The good news is that as everyone knows, aside from equity, electricity, FX, libor, aluminum, and credit derivative markets (in just the case of JPM) gold is never manipulated: Blythe Masters promised. So there's that.

It was precisely a month ago when, in "Vicious Gold Slamdown Breaks Gold Market For 20 Seconds" we observed how a furious gold sale managed to not only send the price of fold plunging but in the process it halted all gold trading on the CME for a whopping 20 seconds! Moments ago it just happened again. As part of the already noted massive gold slamdown just before 9 am Eastern, when "someone" sold an epic 2 million ounces of gold in one trade, the CME just went dark for 10 seconds, blaming it on an appropriately named "stop logic" event.

Recent speeches from the SEC indicate they plan to use Midas to look at the details behind quote stuffing, excessive order cancellations, the cause of mini flash crashes, and other nefarious activities. While these are all good uses for a market analysis tool (Midas), they pale in comparison to a data-feed delay analysis, because the former are governed by blanket, hard-to-prove manipulation laws, while the latter can be tied directly to a core rule that lies at the heart of Regulation NMS. An improper data-feed delay was the reason for the $5 million fine against an exchange in September 2012. Furthermore, millions of people are directly affected and disadvantaged by illegal data-feed delays. Therefore, it would be a great waste of public resources to not immediately pursue a data-feed delay analysis, because there exists ample evidence that an illegal speed advantage exists in direct feeds over the public quote.

There is a reason why John Taylor of FX Concepts, founded in 1981 and which once upon a time was the world's largest FX hedge fund, has kept a very quiet profile lately despite his often bombastic prognostications in 2011 and 2012: the firm may be on the verge of shut down following a recent surge in redemptions resulting from woeful performance in the past three years. FX Week reports that AUM at FX Concepts "have continued to fall and the fund's chief strategist confirms the board's ideas haven't worked so far." It adds that the hedge fund is in "dangerous territory after the departure of several major clients and falling assets under management, prompting the firm's board to rethink its strategy, officials have confirmed." As a result of a surge in redemptions, assets under management have declined from a peak of $14.2 billion in 2007 to less than $1 billion this year, having been at $4.5 billion in early 2012.

While we documented (and predicted) the surge in October 31 T-Bill yields, now that the market is increasingly pricing in the probability of a (supposedly brief) technical default of short-term US debt around October 17, aka the "X-Date", a more disturbing development has been the rapid rise in November 14 Bills, as increasingly more traders become concerned not only about a failure to successfully negotiate away the debt ceiling, but the possibility of a protracted debt ceiling fight continuing well into November. So just what are the US government's key obligations in the immediate aftermath of the X-Date? Here, once again, is a breakdown of key events and cash "deliverables."

News yesterday that Radioshack was planning to seek new debt financing in order to give suppliers more confidence - which in itself is kind of ironic that suppliers would find an even-more-levered company a better credit risk - sent the stock spiking higher by 10% in mere seconds as the machines took the headline and ran with it. Sanity was restored moments later as the stock hit the exchange limits and was instantly reverted back to unchanged. While the firm faces its own fireworks over employees punching customers "for being sarcastic," the stunning charts below show the real fireworks that the machines started...

• The new normal name of a broken market: glitches - NYSE, Nasdaq Consider Cooperating to Address Glitches (WSJ)
• Early Thursday Humor: Abe Tells Wall Street Japan’s Economy Is Exceptionally Good (BBG)
• Rising Rates Seen Squeezing Swaps Income at Biggest Banks (BBG)
• JPMorgan Mortgage Talks Said to Discuss $11 Billion Deal (BBG)
• Can't make this up: HFT firm "finds" Fed did not leak data early to benefit HFT firms (FT)
• Hertz Cuts Full-Year Forecast on Weak U.S. Airport Rentals (BBG)
• Greece does not need third bailout, seeks debt 'reprofiling' - deputy PM (Reuters) - right, it needs a fourth and fifth
• Hezbollah gambles all in Syria (Reuters)
• Twitter Adds J.P. Morgan and Morgan Stanley as Bankers on IPO (WSJ)
• Messi in Court Shows Tax Collectors Set to Pursue Star Athletes (BBG)

One week after we released the following damning evidence (below) of fraud in the "markets", CNBC has now claimed their scoop. Crucially, it seems, after reading Nanex's concise explanation of the proof of fraud, the Fed has now launched a probe into the release of its own FOMC statements. ... Our question then is, unless Nanex and ZeroHedge had pointed out this obvious cheat, would the fraudsters still be considered too big to care about special relativity, and if a fallen HFT tree collapses its wave function in the forest, and nobody reports, did an HFT tree just fall?

One of Einstein's great contributions to mankind was the theory of relativity, which is based on the fact that there is a real limit on the speed of light. Too bad that the bad guys on Wall Street who pulled off The Great Fed Robbery didn't pay attention in science class. Because, as Nanex shows below, hard evidence, along with the speed of light, proves that someone got the Fed announcement news before everyone else. There is simply no way for Wall Street to squirm its way out of this one...

Judging by the market's reaction to the June FOMC statement and press-conference, Nanex shows the four things that US market participants can expect to happen over the next few hours:

1. The HFT Machines Will Take Over (fake quotes will soar)
2. Quote Spreads will Widen (but all that liquidity provision?)
3. Quote Spreads will Become Unstable
4. The Number of Stocks Locked (Bid=Ask) or crossed (Bid>Ask) Will Soar

But apart from that - do as you're told and BTFATH as every commission-taking muppet will tell you the Taper is priced in.

Today, the Italian Senate will vote at 8:30 PM whether to formally expel the 76-year old former prime minister, Sylvio Berlusconi. Concurrently, the winner of three of the six Italian elections in the past 20 days will launch a delayed nationwide address on his political future. The contents of said address are unclear however, as Reuters reports, "political sources and local media said he would not use the address to torpedo the fragile left-right governing coalition of centre-left Prime Minister Enrico Letta - at least for now - despite weeks of threats to do so."  Furthermore, as WSJ adds, citing a column in daily newspaper Il Fatto Quotidiano, Marco Travaglio noted that Mr. Berlusconi came in third in the February vote but managed to pick the head of state, the prime minister and the government program. "Given all that, it would be crazy to trigger a crisis," observed Mr. Travaglio, a longtime critic of Mr. Berlusconi. That said, and as is well-known, the media magnate is highly unpredictable and in the past has made several versions of video announcements so he can choose one only at the last minute. However, no matter the content, what is most curious is that the vote, the Berlusconi expulsion vote and nationwide address, as well as the Bernanke press conference, which is also due at 2:30pm Eastern, will all coincide.

The following 100-second clip from Nanex represents 4 years of daily trading in the US equity "markets". Each line is a day in the life of quote spam and the y-axis is the volume of quotes... from around 1000/second in 1999, we now see 2 million quotes per second... progress?

Still believe in humans buying and selling stocks, influencing the machinations of broad-based equity valuations based on their aggregate (rational, frictionless, technical, fundamental, and infinitely liquid) beliefs... then what the f**k is this?