SEC Uses HFT Firm-Designed Tool To Find That HFT Doesn't Cause Flash Crashes

Tyler Durden's picture

Just when one thought the SEC has hit rock bottom in stupidity, corruption and porn-addiction terms, to paraphrase the beloved Dennis Gartman, it whips out a shovel and starts digging.

Today's case in point: a report by the agency that Mary Schapiro made into Wall Street's punching bag (and whose legacy her Morgan Stanley-friendly replacement is set to perpetuate) according to which "unexplained rapid price drops in single stocks have generally been triggered by human error, not nefarious trading activity or high-speed trading algorithms gone wild, an official at the U.S. Securities and Exchange Commission said on Tuesday."

Not HFT-driven flash crashes you say? Reuters reports:

"What we are seeing is the result of sloppiness, combined with a lack of checks and balances," Greg Berman [formerly of RiskMetrics] said at a Securities Industry and Financial Markets Association conference. "In this day and age, there should be no excuse for these types of mistakes, especially considering the significant negative impact that these events have on investor confidence."


Most rapid price spikes are caused by old fashioned human mistakes, such as "fat finger" errors, where a trader may accidentally add an extra zero to an order, or by portfolio managers accidentally requesting a large order be immediately executed rather than meted out in a managed flow, Berman said.


"Contrary to public speculation, these types of events do not seem to triggered by proprietary high-speed algorithms, by robots gone wild, or by excessive order cancellations."

Oh, so like Waddell and Reed was to blame for the flash crash, not the fact that some 70% of the tape is filled with empty quotes in which one algo tries to outsmart another algo, and instead of trading blast hollow bids and asks just to game the NBBO?

But just how did the SEC come up with this startling conclusion which flies in the fact of all the factual evidence we have presented over the past 3 years?

Berman heads up a new initiative at the SEC that analyzes market data using a platform launched in January called Market Information Data Analytics System, or MIDAS, which was developed by Red Bank, New Jersey-based automated trading firm Tradeworx.


MIDAS gives the SEC access to all orders posted on the national exchanges, including modifications, cancellations and trade executions of those orders, as well as all off-exchange executions, putting the regulator on even footing with the most sophisticated high-speed trading firms.


Traditionally when a problem in the market has needed to be investigated, the SEC has gone to the exchanges, the Financial Industry Regulatory Authority, and the firm that introduced the error, to diagnose the cause. But MIDAS allows the regulator to do its own assessment as well.

And once again, the conclusion:

The SEC has found that high-frequency trading tactics have not caused or amplified the mini flash crashes it has examined, Berman said.

This is Tradeworx:

So, to summarize, the SEC which admits it was clueless in analyzing the modern, fragmented market (yet which found definitively that the culprit for the May 2010 flash crash was Waddell and Reed, and nobody else, using what technology at the time, nobody knows), uses a platform developed by High Frequency Trading firm Tradeworx... to reach a conclusion that High Frequency Trading firms are innocent of every flash crash resulting from an HFT algo gone haywire...

That sound, dear reader, is your head just going splat.

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idea_hamster's picture

Two words:  Regulatory. Capture.

Pladizow's picture

"SEC Uses HFT Firm-Designed Tool To Find That HFT Doesn't Cause Flash Crashes."

This is almost as stupid as trusting the people that are spying on you, when they say they are protecting you!

El Viejo's picture

Counting cards is disallowed in the casino.

Science, Truth, and double blind studies not Welcome!

ZerOhead's picture

"The SEC has found that high-frequency trading tactics have not caused or amplified the mini flash crashes it has examined, Berman said."

Perhaps we should give this Burman fellow the benefit of the doubt... he seems awfully smart and has an impecable CV just like Rubin and Summers... and it's not very bloody likely that this report was done on the cheap either... it wouldn't surprise me  in the least if it cost tens of millions...

Just sayin'...

blu's picture

Shorter SEC: "We looked at how we monitor this thing, and we monitor it fine. The tin-foil-hat peanut gallery can just shut the fuck up now."

ZerOhead's picture

Consider the fuck up shutted... <(NSA approved comment)

Colonel Klink's picture

Gartman, Shapiro, Berman, I don't trust a one of them.

Flacon, I'll Waxman to that group too.

smlbizman's picture

i think is how it actually works... ray liotta will explain

ZerOhead's picture

That IS the way it works...

Yes We Can. But Lets Not.'s picture

... and for or their next act, the SEC will use an 'adult entertainment industry' designed tool to determine that watching online porn in the office does not negatively impact employee job performance....

knukles's picture

An ancillary finding of the study, while not its main objective but nonetheless felt to be important by those participating was the finding that midget tranny porn was not considered to be the least bit perverted, degenerate, twisted, demeaning, abnormal or aberrant.  Several however, did refer to it as "kinda fucked up"

putaipan's picture

i've been saving this forever, but always held back from sharing thinking that someone at the sec was actually trying to get some work done. sorry. it's too late. but maybe it will crash their servers.

mickeyman's picture

Actually it is allowed. But not by you.

flacon's picture

Is that Henry Waxman in the animation? His nostrils gives him away. 

ParkAveFlasher's picture

Waxman is a Disney cartoon.  Do not be fooled.

Kiss My Icelandic Ass's picture



"Two words:  Regulatory. Capture."

One more : criminal.

PiratePiggy's picture

“I’ve abandoned free market principles to save the free market system.” – President George W Bush

Hopium Dealer's picture

Did the firm also find that real price discovery happens in nanoseconds?

Sudden Debt's picture

and they also found out that drones don't kill people....
violating every democratic law by killing privacy is good because they where able to locate a lost puppy thanks to all that wire tapping...
and people don't matter if they have less than a billion on their checking account...

Super Broccoli's picture

one day bernanke will prove how the sun rotates around earth ...

Sudden Debt's picture

that's a pretty dangerous hypothesis you're claiming here... I've seen woman being burnt at the stake for less...

ZerOhead's picture

It's actually a teensie weensie slightly eliptical orbit as it circles the earth... cuz as all bankers( & ZH'ers) know... the centre of the universe goes by the name of The Federal Reserve...

JJ McApe's picture

looool dat gif XD

syntaxterror's picture

Just more handouts for Team Wall Street.

AgShaman's picture

hahaha...."The Kids in the Hall" are crushing his head

kill switch's picture

We need more Snowden type high school dropouts to run this fucking corrupt clown show...As the days pass I'm running out of fucking words to decribe it all.

blu's picture

We'll have to start inventing new words to describe how beyond-fucked-up it has become.

MeelionDollerBogus's picture

I nominate:
squank (n) - an utterance, or the one who originates the utterings or mutterings, that are both squawking and from a wanker or ought to be associated with a total wanker.
This handy noun can also be compounded with other nouns posing as adjectives, e.g., fraudsquank. "Dick Cheney accused SNOWDEN of being a traitor! Now that's a fraudsquank if I ever heard one"

derived adjective and antonym to swanky: squanky. "My this place is extra squanky" (filled with squanking cockmunchers)

compound noun: freudensquank (n): the condition of having tried to play off others as squanks only to show yourself, in fact, to be the squank

Yen Cross's picture

 Ker Plunk. just like Chair-Satans  Qe {print fest}.

earleflorida's picture

Is 'Digital BlackWater' behind Benji's QEInfinity[?]... facilitating 'NSA's', current balance-sheet?-- via fat-finger 'Clappers' fat-finger hft!?' 

earleflorida's picture

'surely this glove doesn't fit the SEC's faux-conterminous escapades of a ubiquitous renegade call'd the... 'Whited Sepulcher'...?'

,... and if so, how can this be[lial]?

, follow the money ... "The making of a global security state"  {*[? for richness or in poverty? i wed thee!!! } by Tom Engelhardt 6/18/13

thankyou Tyler

Ps. all is relative in a Einstein world...

heinrich6666's picture

Best animated GIF perhaps ever.

We need more of these and less of bAnZaI.

IridiumRebel's picture

The Gif is great. Your comment, however, sucks. I got much love for WB7. 

Yen Cross's picture

 Billy-7 is the "epitome of TRUTH".  That man satirizes' evil like no other.

Bay of Pigs's picture

That comment will see nothing but blood red...

+1 for Billy Banzai.

Yen Cross's picture

 Bay of Pigs  Kicks ass!  teaching you how to trade? Homework time/


A is A's picture

Eff off. Banzai is the man.

The Invisible Foot's picture

Ahhh Free-Markets at work.

1C3-N1N3's picture

Next, we'll hear that the FDA has just received their report from the Coca Cola Co. stating that HFCS has nothing to do with diabetes.

human mistakes, such as "fat finger" errors

"Sleepy finger" is the new "fat finger." Get with it, SECCCCCCCCCCCCCCCCCCCCCCCCC.

DawgAss's picture

That's fucking gross!!!!!!!!!!!!!!!!