How To Shut Down Retail Trading

Tyler Durden's picture

Via Nanex,

On January 8, 2013 there were two separate events where an exchange stopped disseminating quotes, which caused the last quote sent from that exchange to lock (bid price equals ask price) or cross (bid price is greater than ask price) the NBBO (National Best Bid/Offer) when market prices moved higher or lower on other exchanges. Crossed quotes cause many problems for wholesalers (who internally match orders), order-routers, traders, financial web-sites, business news channels, and any of the 2.5 million subscribers that use the consolidated quote to analyze stock prices. From IWM to HLF, the crosses (and thus integrity of the consolidated feed) were everywhere.

Market Stability

In August 2012, we made a fascinating discovery: whenever the NBBO crosses in a stock, several dark pools will stop reporting trades and wholesalers (internalizers) will stop matching customer orders (you can read that paper here). Because the SEC looked at flash crash data with mostly 1 minute snap-shot data, they concluded and wrote in the final flash crash report that internalizers stop matching retail customer orders when stocks have large price moves. But this is untrue. Internalizers only stop matching customer orders when the NBBO crosses in a stock. Which makes the integrity of the consolidated quote extremely important in maintaining market stability.

NYSE Outage

The first event began at 14:10:30, when NYSE's quote stopped updating in symbols within the alphabetic range SJ through TCZ. Within 31 seconds (14:11:01) the NBBOs of 35 of these stocks began to lock and cross as prices moved away from NYSE's stale bid or offer. NYSE finally cleared their quote at 14:19:29 which removed their last posted bid and offer from consideration as the NBBO: this had the effect of unlocking/uncrossing NBBOs in those stocks, allowing the market to resume normal trading. NYSE began quoting and trading in these stocks at 15:05:33.

NSX Outage

The second event began at 14:43:10, when NSX's (also known as the CINC exchange) quote stopped updating in symbols within the alphabetic range HD through ITUB. Within 2 minutes (14:45:03) the NBBOs of 48 of these stocks started to lock and cross. Off and on over the next 45 minutes, NSX sporadically updated quotes and trades and some symbols had a crossed NBBO from a stake NSX quote until 15:28:12.

The examples below provide more evidence that crossed quotes have a definite impact on trading at Dark Pools and order matching at Wholesalers (who internalize orders from E*Trade, Ameritrade and other retail brokers).



Trades from the NYSE for affected trades... note the total darkness for multiple seconds...


and everyone's favorite - HLF! - Herbalife (HLF) showing trades color coded by exchange and NBBO (Shaded Red if Crossed - Best Bid > Best Ask)


and even iShares Russell 2000 (IWM) showing trades color coded by exchange and NBBO (Shaded Red if Crossed - Best Bid > Best Ask).


Both of which are ripping recently... broken markets everywhere

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cougar_w's picture

Speed + volatility = continous insanity.

Perpetual Burn's picture

So reg NMS was created to prevent this, and yet...

sitenine's picture

Houston, we have a gambling problem...

kliguy38's picture

Retail trading is pure gambling except the house in Vegas gives you better odds than WS

Leopold B. Scotch's picture

And by law you must only invest in "officially authorized" investments via offiically authorized trading platforms via officially authorized account structures.

It's a very elegent funneling of all saved wealth, retirement or otherwise, into the gullets of Lord Blankfein and crew.   For our protection, of course. 

(Curse those Madoff's renegade-types that don't want to split it with the cartel, for not just keeping it in their pants according to plan.   I mean, this is, like, being able to legally print money...  Oh, -- Wait...  they run that gig as well...)

Dr. Sandi's picture

So when are they going to legitimize bets on cock fighting?

caimen garou's picture

it's legit already, the cocks are named democrats and republicans!

Dealer's picture

No risk of that.

Ignatius's picture

How to shut down retail trading?  Easy.  Post another gun confiscation article on ZH.


Seasmoke's picture


-Fred Flintstone

Say What Again's picture

Perhaps someone (via their machines) is "probing" the markets, looking for vulnerabilities.

Remember what happened over the last few weeks?

What was I thinking?!?!?  They're just manipulating the markets, like they always do.

Mi Naem's picture

Cyber Warfare. 

Testing, testing, 1, 2, 3.  Testing. 

Racer's picture

Any human life form who trades in this 'market' should have their head examined!

orangegeek's picture

Instead of hitting CNTRL-P, the stupidheads hit CNTRL-ALT-DEL.


Damn stupidheads.

HedgeAccordingly's picture

great analysis. well put together. 

brokenclock's picture

I can't take it anymore. I can't believe after all these years of factual information that people are completely clueless to what's going on in our financial system.  I can't even tell you the ignorance or stupidity of what I hear from people who are highly educated.  I can't even tell you how many of these people think the FED is us or the government and they have no clue it's privately controlled.  They don't care, don't want to know, and have no idea how it effects them. That is the scariest part.


So now i will make the challenge again. Because apparently factual information is not getting to the mass. it's only getting to a select idividuals who have open minds and can see the trees through the forrest. Maybe we can get Kim Kardashin to shake her ass and be a spokes person for zero hedge or have zero hedge sponsor the suber bowl. Maybe have the real tyler be the next bacherlor on prime time tv. All crazy ideas but spellbound by the stupidity at this point.

The challenge,  make as many people aware of this site as possible. I will be happy to take out four 30 second adbuys on CBS on Sunday for the MASTERS golf tournament. Along with  10,000.00 umbrellas to be given out that day with zero hedge on them. That will give exposure on every camera angle and hole during the televised event. Hit these fraudster bankers right in the mouth with there own target market.

Is this frustrating to anyone else? Do you see how oblivious the mass is to not knowing anything? 

I want idea and suggestions to educated these zombies and anyone willing to help expose the truth.   

We can call the campaign, "STOP THE INSANITY" brought to  you by zero hedge.




NotApplicable's picture

Well, they stopped selling ads to The Masters back when all of the race-baiters were going to boycott the sponsors, so that's going nowhere.

The umbrellas though? That would be pretty cool, though I'll bet they'd do everything in their power to prevent them from getting onto the course (citing exclusive sponsorship agreements, like at the Olympics last year).

brokenclock's picture

They will be media buys on CBS affiliates.  Masters does not control that.  They also won't stop the umbrellas,  I go to the Masters every year. It will be too late at that point. We also give them to clients with there company logo. Thye have never stopped them.  The ads will be subtle. Zero hedge,  "Financial advice for the smart investor".  They will approve those. You buy them through local affiliate media buys. Target specific states. It can be done.   It will be too exposed and too late for them to even know what hit them. 



buckethead's picture

He said "The real Tyler" as he lambasted others for ignorance.

ebworthen's picture

Like a slot machine that "breaks" anytime a jackpot is hit.

"Sorry, the machine malfunctioned, but if you put more quarters in I'm sure you'll win eventually."

Yeah, right.

Vegas casinos are more legitimate than Wall Street's.

Say What Again's picture

I need a drink.  Where's the cocktail waitress?

Say What Again's picture

Speaking of "controlled" markets, how did you like the ES ramp right up to VWAP on the close.  I never would have expected that to happen (wink)!!!!

Smuckers's picture

Looks like somebody fucked up a GOSUB on the original QuickBasic platform that all this shit is deriving from.