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

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nmewn's picture

About this whole concept of law and the enforcement of it seems a little useless when the criminals make the laws.

knukles's picture

Generally might be termed a "Criminal Enterprise"

Acidtest Dummy's picture

Well, to be fair, "All crime begins with politicians."

HaroldWang's picture

Wasn't it just last week when several stocks like AAPL, GOOG, etc. were going nuts in the middle of the day? And no one even seemed to care or talk about it after it happened, except here of course. But not one other source hardly even mentioned a pretty big screw up. Seems like it's so common now, no one really cares.

SmoothCoolSmoke's picture

Tyler , keep your eyes on the spinning watch and repeat after me.: "Markets that go up are not broken. Markets that go up are not broken.  Markets that go up......

Joe moneybags's picture

"...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."

Wow.  I'll never trade another stock again as long as I live.

knukles's picture

When you don't know, just mumble some shit

Just Ice's picture

Touche.  Things that aren't right must always be explained in complexity.  How else to baffle 'em with bullshit and, if need be, later call it disclosure?

lewy14's picture

The scandal isn't that there's bugs, it's that the "feature list" is untestable and subtly inconsistent with the NBBO. Non-displayed peg orders? Really? WTF.

Require all matching engines to be open-source. Post them to GitHub. Limit order types to a sane minimum. Sorted.

lunaticfringe's picture

Let me add this to the list of shit that shocks me.

King Obama. check

Jon Corzine grand theft. check

Rule of law which only applies to the "little people" check

New law requiring precious metals transactions be made with something other than cash. check

Broken stock market. check


Ok. Got it.

yogibear's picture


if you were wondering about the unusual pricing at times there was an explanation.

Too bad there isn't a dam thing you can do about because we already covered ourselves!


old naughty's picture

eh, we muppets can do the (victory) dance, can't we.

Little mercy. Sweet.

sockratte's picture

8 days left to the next bug

Spigot's picture

 America's and Europe's 21st century answer to 20th century Soviet era propoganda: Potemkin Markets.

chump666's picture

...and the 3pm meltups?

"Once you realize what a joke everything is, being the Comedian is the only thing that makes sense"

The market flush will be orgasmic

Joebloinvestor's picture

When are they gonna announce the markets are manipulated?

Cheshire's picture

Did they just say the markets gonna crash on Jan 18.

pndr4495's picture

At some point the parasite destroys the host and must find another ; is what has evolved in our markets really innovation ?  I wonder....  Can the human being slow poke floor personnel bring back the ORIGINAL integrity and ethos to the markets.  Doubtful , because Humpty Dumpty has fallen off the wall , and clearly our markets are broken .  Authors Arnuk and Saluzzi are absolutely right about that.  The fallout from this evolution could be real messy - especially if it ends up as an us v. them contest.   

Acidtest Dummy's picture

Wealth flows from access to power more than from hard work or risk taking behavior.

razorthin's picture

These fukkers are going to be cleaned out by the class action sharks.  Good riddance.

TruthBeforeAll's picture

On a lighter note, Hasbro is looking to replace a couple of the Monopoly game pieces with updated versions. Maybe ZH could offer them some suggestions as to what those pieces should be.

Monopoly Upgrade

YouThePeople's picture

a little metal printing press

Archduke's picture

investment banks and hedge funds, denominated in billions.

utilities can be central banks. prison and go are irs and fed.




Monedas's picture

Oriental Ave. moved over by Park Place .... Mediterranean Ave. stays put !

buzzsaw99's picture

Step 1) Cause flash crash

Step2) ???

Step 3) Profit!

All Out Of Bubblegum's picture

I'm long on beans and rice.

ebworthen's picture

O.K., never EVER cut, de-seed, and slice a Jalapeno pepper then take a piss without washing your hands first!!!

I just did this and my dick is on FIRE!!!


Oh, and don't put money in the Wall Street casino unless you are comfortable losing it.

Michelle's picture

Regarding jalapenos - Wear disposable gloves and use a very sharp knife so the juice doesn't spray out when cutting.

Regarding Wall Street - Wear full body armour and pack a glock.


Spigot's picture

Michelle, I am disturbed to consider who, among your male intimates, let you know you should wear gloves next time !8-*

Acidtest Dummy's picture

Read Customer Reviews: Veet for Men Hair. You will laugh, and realise yours was not that bad.

I got it from mefi.

Monedas's picture

Cut off the stem .... exposing pulp and seed mass .... insert paring knife .... separate pulp and seeds .... then slice and dice, etc. .... wash hands with hot soapy water .... do not rub eyes, nostrils, penis, anus or vulva .... enjoy !

dirtyfiles's picture

the only thing unmanilulated yet is the weather ?

El Hosel's picture

...  Hardly, they have been trying for a while, somebody here at ZH might be able to shed more light on those efforts.

Cathartes Aura's picture

best to shed your own light on the subject, as people hold pretty polarised opinions. . .

but type "stratospheric aerosol geoengineering" into your favourite search engine, read what you're drawn to - this might get you started.

also, another poster had this up earlier, recommended viewing.

best wishes, stay curious.

Yen Cross's picture

 OFF TOPIC: Does anyone really believe these numbers out of China?


  Tentative   CNY     Chinese Trade Balance 31.60B 19.70B 19.60B  

Are you fucking kidding me?  The PBoC is talking lowering the RRR and doing reverse repos, and the print is 75% higher!

chump666's picture


China is losing the plot in a titanic way. 

Yen Cross's picture

 Chump, 200 day simple moving average (DXY) is the pivot. That girl Orly runs the 5 point pivot (Gartly). She is pretty good on this particular trade.

  Don't get lost in the pattern. A reversal is coming,.

chump666's picture

I am pretty amazed at Asia buying the USD for the last 6mths.  I think it's USDs under the mattress trade.

For me, it's the S&P and Dow reversal.  Very tuff trade since the market is heavily geared and the HFTs are supporting the MAs. So it's tight and sideways. The money printer supports need to be tested, i think everyone trading on the earth is wondering when that will happen.

Yen Cross's picture

 Chump you are not off on your thinking. The $ has been bought during risk on , and NOT been bought "risk off".

 The h4 chart need some adjustment. I suspect the Fed. is playing games with liquidity, with Asia and South America on swaps.

  Japan is corn holed , and we know it. South korea and Indo-China are going to eat them for lunch!

  Traders are perplexed over the $ strength during equity market strength. My guess is that the Fed. want's a really low price for it's next bond purchase.

 Do what you want Chump. I'll do what I want. i made money in December. It's just rinse wash $ all over again.

dirtyfiles's picture

and I'm long bears here

Yen Cross's picture

CYN: print / 31.60B vs 19.70B consensus . previous post was 19.60B!

 Must read>Is this spike 'one last hoorah' for iron ore?

Michelle's picture

"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."

Ask Knight Capital, there are some dead bodies under that pile. Anybody else find it interesting and surprisingly coincidental that Knight's system update just happened to be released on the same day as the NYSE Retail Liquidity Program and was it's true purpose to sniff out the culprit? Also interesting is we haven't had another market wipeout since, makes one go hmmm....

Atomizer's picture

Get back into the market you idiots, the tank continues to be holding room temperature measurements. We're climbing out from the path to recovery you fucking lemmings! Watching panic ensue one popcorn puff at one time.


williambanzai7's picture

I could have a field day rewriting that monstrosity of opacity and jargon and perhaps I will.