It's Official: It's A Broken Market And "Hundreds Of Thousands" of Orders Affected

Tyler Durden's picture


It will not come as a surprise to too many Zero Hedge readers but we feel a big told-you-so dance coming on again.  Via BATS:

  • BZX Exchange (10/24/08 - 01/04/13) Average Daily Incidents: 410.1 Total Incidents: 433,039

In simple terms BATS admits that the Reg NMS trading principle of NBBO (National Best Bid or Offer) has failed; meaning the core premise of market structure since 2005 has been massively abused by at least one and likely all exchanges. The bottom-line is that the primary and really only safeguard in the market when HFT was unleashed was never operational and the SEC has had i) no actual supervision over who or what was abusing the NBBO and ii) no way of keeping track of what really happens in the market.




Dear Member,


Please be advised that BATS has determined that upon an NBBO update on BATS' BYX Exchange, BZX Exchange and BATS Options, there are certain cases where the Matching Engine will allow for a trade through or an execution of a short sale order at a price that is equal to or less than the NBB when a short sale circuit breaker is in effect under Regulation SHO. These cases result from the sequencing of certain required events in the Matching Engine related to re-pricing and sliding orders in response to the NBBO update.


In the first case, a visible order that is posted and has been price slid can execute at a price that trades through another market center's protected quote if that away market center locks the displayed price of the BATS order and then BATS receives another order that crosses the working price of the resting order.


In the second case, the system was programmed to allow non-displayed peg orders to re-price in response to a change in the NBBO prior to sliding previously booked contra-side hidden orders that now cross an away market center. As a result, it is possible that in response to a change in the NBBO, the price of a resting hidden order could be crossing the NBBO momentarily and an execution could occur at that crossing price against a peg order that is re-priced in response to the NBBO change, resulting in a trade through. This particular issue can also result in a short sale order executing at a price that is equal to or less than the NBB while a Regulation SHO circuit breaker is in effect.


These system compliance issues have resulted in the following incidents:


Trade Throughs




BATS Options

(02/26/10 - 01/04/13)
Average Daily Incidents: 1.4
Total Incidents: 617


BYX Exchange
(10/15/10 - 01/04/13)
Average Daily Incidents: 14.4
Total Incidents: 7,884


BZX Exchange
(10/24/08 - 01/04/13)
Average Daily Incidents: 410.1
Total Incidents: 433,039


Regulation SHO Incidents




BYX Exchange
(02/28/11 - 01/04/13)
Total Incidents: 174


BZX Exchange
(02/28/11 - 01/04/13)
Total Incidents: 3,489


BATS plans to deploy a permanent change to correct the second case on or about January 18, 2013 and the first case on or about January 25, 2013. Correction of the first case must be preceded by a rule filing with the SEC.


Please contact the BATS Trade Desk or your Director of Sales with any questions.


BATS Trade Desk

Your rating: None

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Wed, 01/09/2013 - 23:49 | 3139636 Temporalist
Temporalist's picture's gone!

Wed, 01/09/2013 - 21:09 | 3139175 SubjectivObject
SubjectivObject's picture

So what forced BATS to divulge this?

Pending litigation?

Why not let the charade contiue unanounced?

Wed, 01/09/2013 - 21:20 | 3139219 El Oregonian
El Oregonian's picture

Jon Corzine was in control, right? Good, then everything is resolved, no charges, and the SEC and the rest of the watchdogs can go back to sleep. ZZZzzzz...

Wed, 01/09/2013 - 21:21 | 3139224 CPL
CPL's picture

Power shortages.

Wed, 01/09/2013 - 21:22 | 3139228 yogibear
yogibear's picture

It's a Cover Your Arse announcement. 

Wed, 01/09/2013 - 21:09 | 3139176 cnhedge2
cnhedge2's picture

short sale order at a price that is equal to or less than the NBB? it means the shrot sale drives down prices, right?

Wed, 01/09/2013 - 21:09 | 3139177 SHEEPFUKKER

I feel a 4 year investigation coming on. 

Wed, 01/09/2013 - 21:52 | 3139332 JLee2027
JLee2027's picture

With an end result that nothing happens.

Thu, 01/10/2013 - 05:21 | 3140051 Poetic injustice
Poetic injustice's picture

"No guilt admitted, 10,000 dollar fine".

Wed, 01/09/2013 - 23:08 | 3139525 Water Is Wet
Water Is Wet's picture

This time they'll find manipulation in the silver market for sure!

Wed, 01/09/2013 - 21:11 | 3139180 Wakanda
Wakanda's picture

The Mayans were right.

Wed, 01/09/2013 - 21:31 | 3139266 Joe moneybags
Joe moneybags's picture

They might be right, but they haven't sent me my 2013 calendar yet.

Wed, 01/09/2013 - 21:35 | 3139280 knukles
knukles's picture

rock, hammer, chisel

Thu, 01/10/2013 - 05:22 | 3140052 Poetic injustice
Poetic injustice's picture

Because you tried to pay with dollars. They accept only gold.

Wed, 01/09/2013 - 21:12 | 3139183 dbTX
dbTX's picture

The "market" has been more than broken for a long time; and they wonder where the retail investor is. I'm at home thank you very much buying rental property with both hands.

Thu, 01/10/2013 - 00:33 | 3139737 Acidtest Dummy
Acidtest Dummy's picture

yep, casinos are for losers.

Wed, 01/09/2013 - 21:13 | 3139188 Cognitive Dissonance
Cognitive Dissonance's picture

"....but we feel a big told-you-so dance coming on again."

Does it include alcohol and loose women?

<Just askin' so I'll know if I should bring my Blue Suede Shoes.>

Wed, 01/09/2013 - 21:38 | 3139288 knukles
knukles's picture

I'll never join one of those online dating services. I prefer to meet someone the old fashioned way.

Through alcohol and poor judgement.

Wed, 01/09/2013 - 23:01 | 3139500 Cognitive Dissonance
Cognitive Dissonance's picture

I seem to remember a comment left by you a day or so ago about waking up from a blackout drunk and getting the hell out of wherever you were in a big hurry.

Is that what you're talking about? :>)

Wed, 01/09/2013 - 21:14 | 3139195 fonzannoon
fonzannoon's picture

The S&P was up like 14% last year.

The PPT has neither the time nor the inclination to explain ourselves to a retail sheep who rises and sleeps under the blanket of no volume ramps that we provide, and then questions the manner in which Kevin provides it. I would rather you just said thank you, and went on your way, Otherwise, we suggest you pick up a bloomberg terminal and get better execution. Either way, the PPt don't give a damn what you think you are entitled to.

Wed, 01/09/2013 - 21:59 | 3139349 espirit
espirit's picture

Amen +1

Wed, 01/09/2013 - 22:35 | 3139427 AccreditedEYE
AccreditedEYE's picture

Yup. Annnnd, BTFDYI

Wed, 01/09/2013 - 23:50 | 3139640 Just Ice
Just Ice's picture

Dip?  You must mean last year's.  Hourly trendlines on indices I'm following appear rather vertical.  (started shorting tfh nuzzling 880)

Wed, 01/09/2013 - 21:16 | 3139198 The Axe
The Axe's picture

This would have been  way easier if the ferry   just sunk   !!!!!!

Wed, 01/09/2013 - 21:17 | 3139202 FinalCollapse
FinalCollapse's picture

SEC ??? Ha ha ha ha ha!

Wed, 01/09/2013 - 21:21 | 3139222 yogibear
yogibear's picture

The SEC is busy with porn this time of year.

Wed, 01/09/2013 - 21:38 | 3139289 Vegamma
Vegamma's picture

I thought the SEC was in offseason since they just won another football championship.

Wed, 01/09/2013 - 21:20 | 3139214 tom a taxpayer
tom a taxpayer's picture

Will I be getting a refund or something?

Wed, 01/09/2013 - 21:20 | 3139216 yogibear
yogibear's picture

A small fine and all is forgiven.  Maybe someone threaten to expose the trading irregularity They announce to CYA.

That's how it works when fraud is is so rampant. 

Wed, 01/09/2013 - 21:25 | 3139240 Sabibaby
Sabibaby's picture

instead of slapping them on the wrist why don't we slit their wrists and watch them bleed out?

Wed, 01/09/2013 - 21:39 | 3139294 knukles
knukles's picture

Cut yourself for Justin Beiber games!

Wed, 01/09/2013 - 21:20 | 3139218 Theos
Theos's picture

So the error rate was what, 0.000001%? 

Wed, 01/09/2013 - 21:25 | 3139242 Everybodys All ...
Everybodys All American's picture

that's what they used to say about the number of subprime loans.

Thu, 01/10/2013 - 01:29 | 3139863 Sabibaby
Sabibaby's picture

In the article you can see the percentages. Comprehension is key here.

Wed, 01/09/2013 - 21:21 | 3139225 rsnoble
rsnoble's picture


Other than that thought, this crap is just way too fucking complicated. If we ever do get a big solar flare etc boy are we gona be screwed.  Howard what are we gona do without a microwave!!!  

Wed, 01/09/2013 - 21:22 | 3139226 Cdad
Cdad's picture

Just like on GWR well as SHW.  The HFT, inside, plugged in criminals execute their trades at whatever price they like...skewing the charts, and setting shorts positions where you and I cannot.

The crime wave continues...I guess.  And so to...the death of capital formation shall continue until such time as the SEC, the Zombie fucking criminal banks, and DC finally realize...that we Average Joe's are not as stupid as presumed.

You see...we have the internet now.  Mind control is much harder as a result.  So good luck dancing the S&P on the head of an HFT the complete bankruptcy of America approaches.  Good luck indeed...dear criminal syndicate known as Wall Street.

Good grief [and by that I mean...FUCK YOU SEC!]  Every last one of you pricks should be fired tomorrow.

Cdad...flushing with indignation.  Go get 'em Nanex!

Wed, 01/09/2013 - 21:22 | 3139227 Catullus
Catullus's picture

Please forward all formal written complaints to the complaint box next to the bathroom... in hell.

Wed, 01/09/2013 - 21:24 | 3139234 Sabibaby
Sabibaby's picture

If you work for the SEC, prepare to have your nuts chopped off!

Wed, 01/09/2013 - 21:52 | 3139333 Dr. Sandi
Dr. Sandi's picture

Yeah, right.

More likely gnawed off by crickets, which I can hear now.

Wed, 01/09/2013 - 21:24 | 3139235 ziggy59
ziggy59's picture

Hmmm...BATS, GS, JPM, etc..gotta be a Word Jumble in there...

Wed, 01/09/2013 - 21:25 | 3139239 The Shootist
The Shootist's picture

wake me when the DOW drops 1,000 points, yawn.

Wed, 01/09/2013 - 21:32 | 3139270 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I'm waiting for DOW $3,500 or XOM with a 6% dividend, which ever comes first.

Wed, 01/09/2013 - 21:32 | 3139271 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I'm waiting for DOW $3,500 or XOM with a 6% dividend, which ever comes first.

Wed, 01/09/2013 - 21:26 | 3139244 Spastica Rex
Spastica Rex's picture

Sometimes it seems like none of this shit really matters...

Wed, 01/09/2013 - 21:41 | 3139301 knukles
knukles's picture

Ah, those precious moments of clarity....

Thu, 01/10/2013 - 04:26 | 3140009 Temporalist
Temporalist's picture

It just doesn't matter!  It just doesn't matter!

Wed, 01/09/2013 - 21:29 | 3139257 Joe moneybags
Joe moneybags's picture

I've got more than a few trades that I'd like to see cancelled.

Wed, 01/09/2013 - 23:11 | 3139535 edb5s
edb5s's picture

Goddamn you, VXX.

Wed, 01/09/2013 - 21:30 | 3139262 Racer
Racer's picture

Yes and like the mortgage fraud, libor fraud etc., etc., etc., etc., 

All that can be expected is microscopic fine if that and back to the normal fraud, more fraud and more fraud.

Do not put any of your money in this fake 'market' unless you are a complete an utter amoeba

Wed, 01/09/2013 - 21:34 | 3139278 Joe moneybags
Joe moneybags's picture

+1 for original amoeba metaphor

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