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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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Tue, 06/18/2013 - 16:51 | 3669355 idea_hamster
idea_hamster's picture

Two words:  Regulatory. Capture.

Tue, 06/18/2013 - 16:54 | 3669363 Pladizow
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!

Tue, 06/18/2013 - 16:58 | 3669375 El Viejo
El Viejo's picture

Counting cards is disallowed in the casino.

Science, Truth, and double blind studies not Welcome!

Tue, 06/18/2013 - 17:01 | 3669390 Fukushima Sam
Fukushima Sam's picture

Scanners, bitchez!

Tue, 06/18/2013 - 17:13 | 3669410 ZerOhead
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'...

Tue, 06/18/2013 - 17:18 | 3669430 blu
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."

Tue, 06/18/2013 - 17:24 | 3669446 ZerOhead
ZerOhead's picture

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

Tue, 06/18/2013 - 18:23 | 3669529 Colonel Klink
Colonel Klink's picture

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

Flacon, I'll Waxman to that group too.

Wed, 06/19/2013 - 00:09 | 3670427 Richard Chesler
Richard Chesler's picture

They're much better at porn.

Tue, 06/18/2013 - 17:30 | 3669454 smlbizman
smlbizman's picture

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

Thu, 06/20/2013 - 22:58 | 3677859 ZerOhead
ZerOhead's picture

That IS the way it works...

Tue, 06/18/2013 - 17:29 | 3669393 Yes We Can. But...
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....

Tue, 06/18/2013 - 18:14 | 3669520 knukles
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"

Wed, 06/19/2013 - 00:15 | 3670430 putaipan
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.

Tue, 06/18/2013 - 18:45 | 3669584 mickeyman
mickeyman's picture

Actually it is allowed. But not by you.

Tue, 06/18/2013 - 16:58 | 3669380 flacon
flacon's picture

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

Tue, 06/18/2013 - 17:05 | 3669397 ParkAveFlasher
ParkAveFlasher's picture

Waxman is a Disney cartoon.  Do not be fooled.

Tue, 06/18/2013 - 18:49 | 3669590 Colonel Klink
Colonel Klink's picture

Or you could say puppet.

Tue, 06/18/2013 - 18:06 | 3669506 Kiss My Iceland...
Kiss My Icelandic Ass's picture



"Two words:  Regulatory. Capture."

One more : criminal.

Tue, 06/18/2013 - 22:38 | 3670257 PiratePiggy
PiratePiggy's picture

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

Tue, 06/18/2013 - 16:51 | 3669356 Hopium Dealer
Hopium Dealer's picture

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

Tue, 06/18/2013 - 17:08 | 3669409 Sudden Debt
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...

Tue, 06/18/2013 - 16:52 | 3669359 Super Broccoli
Super Broccoli's picture

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

Tue, 06/18/2013 - 17:09 | 3669415 Sudden Debt
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...

Tue, 06/18/2013 - 17:22 | 3669435 ZerOhead
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...

Tue, 06/18/2013 - 16:53 | 3669362 JJ McApe
JJ McApe's picture

looool dat gif XD

Tue, 06/18/2013 - 16:54 | 3669366 blu
blu's picture

wtf is that?

Tue, 06/18/2013 - 17:43 | 3669475 SimMaker
Tue, 06/18/2013 - 20:19 | 3669821 cpzimmon
cpzimmon's picture

And a great film it was.

Tue, 06/18/2013 - 16:53 | 3669364 taketheredpill
taketheredpill's picture



Tue, 06/18/2013 - 16:54 | 3669365 taketheredpill
taketheredpill's picture

Scanners .

Tue, 06/18/2013 - 16:55 | 3669370 syntaxterror
syntaxterror's picture

Just more handouts for Team Wall Street.

Tue, 06/18/2013 - 16:55 | 3669372 AgShaman
AgShaman's picture

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

Tue, 06/18/2013 - 17:01 | 3669386 12ToothAssassin
12ToothAssassin's picture

Im pinching your face!

Tue, 06/18/2013 - 17:01 | 3669388 kill switch
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.

Tue, 06/18/2013 - 17:20 | 3669437 blu
blu's picture

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

Tue, 06/18/2013 - 18:34 | 3669522 MeelionDollerBogus
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

Tue, 06/18/2013 - 18:22 | 3669534 MacGruber
MacGruber's picture


Tue, 06/18/2013 - 16:57 | 3669377 Yen Cross
Yen Cross's picture

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

Tue, 06/18/2013 - 17:00 | 3669381 earleflorida
earleflorida's picture

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

Tue, 06/18/2013 - 17:50 | 3669483 earleflorida
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...

Tue, 06/18/2013 - 17:01 | 3669384 heinrich6666
heinrich6666's picture

Best animated GIF perhaps ever.

We need more of these and less of bAnZaI.

Tue, 06/18/2013 - 17:12 | 3669420 IridiumRebel
IridiumRebel's picture

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

Tue, 06/18/2013 - 17:17 | 3669427 Yen Cross
Yen Cross's picture

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

Tue, 06/18/2013 - 17:23 | 3669441 Bay of Pigs
Bay of Pigs's picture

That comment will see nothing but blood red...

+1 for Billy Banzai.

Tue, 06/18/2013 - 17:32 | 3669455 Yen Cross
Yen Cross's picture

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


Tue, 06/18/2013 - 17:26 | 3669448 A is A
A is A's picture

Eff off. Banzai is the man.

Tue, 06/18/2013 - 17:02 | 3669392 The Invisible Foot
The Invisible Foot's picture

Ahhh Free-Markets at work.

Tue, 06/18/2013 - 17:05 | 3669400 1C3-N1N3
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.

Tue, 06/18/2013 - 17:07 | 3669403 DawgAss
DawgAss's picture

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

Tue, 06/18/2013 - 17:11 | 3669418 ziggy59
ziggy59's picture

Hmmm... The term crooks and liars, for some reason keeps showing up in my mind

Tue, 06/18/2013 - 17:17 | 3669428 ziggy59
ziggy59's picture

Should only happen for real to these assclown corrupt MoFos that have been allowed to continue this shitstorm and markets...

Tue, 06/18/2013 - 17:18 | 3669431 Frastric
Frastric's picture


Tue, 06/18/2013 - 17:22 | 3669433 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

Absurd. Selling of stocks happens because other traders have been selling. Buying because others are buying. It's called trend. These HFT's are programed by traders with the same considerations. If the price moves a certain way it triggers stop losses or sell orders. If the SEC really believes what they wrote then they should get rid of the circuit breakers on the markets....

Tue, 06/18/2013 - 18:01 | 3669502 MeelionDollerBogus
MeelionDollerBogus's picture

You're absurd.

These machines are designed to trade up and down to create volatility & churn, to get fee rebates on the # of trades per SECOND which no human can do, and to trigger orders to CANCEL that are not from HFT's which is ILLEGAL.

Tue, 06/18/2013 - 18:17 | 3669526 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

Then we should have flat markets in a tight range.

Tue, 06/18/2013 - 23:23 | 3670341 MeelionDollerBogus
MeelionDollerBogus's picture

no, we should have volatile markets switching from tight ranges to sharp spikes. Like variable-rate dosing to test addictiveness or effectiveness of drugs on animals, you test the market's ability (humans) to tolerate the machine parasitic actions by making an approximate (but not precise) frequency of alternations from "flat" to "volatile" and within each regime of "dosing" you extract the maximum number of dollars which is the higher rebate for the higher churn paid by the exchanges to the HFT's for being "market-makers" (win or lose). In addition if they win trades that's extra money but if you lose x on a trade and gain x+0.0001 for the "market-maker bonus" you now have only ONE variable to be concerned with: how many times you can do that (small win) per millisecond (big win).

The dosing regime change is indicated from the concentrated quote-stuffing & conditional-order execution leading to cancellation of triggered trades of non-HFT's. The HFT's can be cancelled out in this way too BUT since they never miss a beat they merely re-introduce new trades the next millisecond and are unaffected.

It's the humans that are affected.

Tue, 06/18/2013 - 17:24 | 3669445 Atlantis Consigliore
Atlantis Consigliore's picture  ScannersHFT Scam vs MF Global Scam


John, we re in HERE. with Bernanke.....

Tue, 06/18/2013 - 17:27 | 3669449 ebworthen
ebworthen's picture

The inmates are running the asylum.

Tue, 06/18/2013 - 17:57 | 3669494 MeelionDollerBogus
MeelionDollerBogus's picture

The inmates are building new asylums to their own custom specs with assurances these will be the most efficient, honest & sane asylums known to mankind & annunaki alike.

Tue, 06/18/2013 - 17:36 | 3669459 MeelionDollerBogus
MeelionDollerBogus's picture

Next up, The Independent Association Crack Dealers unanimously find that crack cocaine is not addictive.

any bets that Tradeworx got the SEC a hookup for private meetings with the girls of Vivid Video to arrange this project & conclusion?

Tue, 06/18/2013 - 17:39 | 3669470 Yen Cross
Yen Cross's picture

 We need the Crack Dealers.  Honest cash flows couldn't be tracked without crack dealers<

Tue, 06/18/2013 - 17:42 | 3669473 monad
monad's picture

General Asshole foiled the education of these twits. Twice, he says. 

Tue, 06/18/2013 - 17:45 | 3669477 Darkside
Darkside's picture

BECAUSE the FRB of NY is probably the one doing the HFT. Control the Markets Control the MONEY

Could you imagine with the money they have The Systems They Could Build

Tue, 06/18/2013 - 17:52 | 3669485 Satan
Satan's picture

LOL! The SEC pay Tradeworx 2.5 million a year for the privilege of using MIDAS...that's almost as much as their various porn subscriptions...

Tue, 06/18/2013 - 17:53 | 3669486 FiatFapper
FiatFapper's picture

wrap-arounds and brown envelopes; there's no depth to how low it goes.

Tue, 06/18/2013 - 17:55 | 3669489 BullyBearish
BullyBearish's picture

MSM working overtime:

USA Today poll says that 98% of US population thinks that the US should invade Syria and remove Assad.

USA Today poll says that 79% of US population thinks that Ben Bernanke is doing a Great Job and saved the economy

USA Today poll says 68% of US population says Edward Snowden is a "traitor" and NSA surveillance is OK

USA Today poll just released says that 87% of US population believes the SEC's contention that flash crashes and other "trading anomalies" are just human error, not anything untoward or evil in any way. 

Tue, 06/18/2013 - 19:31 | 3669668 Hubbs
Hubbs's picture

now to find a statistically sound poll/sample to see if the population really believes this. If so then the govt isn't as dumb as I thought.

Tue, 06/18/2013 - 18:06 | 3669507 Fake_nation
Fake_nation's picture

Not to mention "Edison", the big algo that's going to predict what all the other algos are doing:

HFT is all based on a desire to have a completely controlled economy, the fantasy on which such mechanical algos are built.

Tue, 06/18/2013 - 18:13 | 3669519 Fanatic
Fanatic's picture

You gotta love the hubris of Tradeworks calling it MIDAS (after the king that made everything he touched turn to gold). LOL.

Tue, 06/18/2013 - 19:05 | 3669623 Joebloinvestor
Joebloinvestor's picture

Well, Toyota convinced everyone that its' cars don't go apeshit, except the ones that got killed.

Tue, 06/18/2013 - 19:13 | 3669646 Downtoolong
Downtoolong's picture

You think this is outrageous? Wait until next week when they release a report co-authored by Dick Cheney and the NSA titled, “How Ed Snowden and the Chinese Caused Every Flash Crash Since 2007”.

Tue, 06/18/2013 - 19:36 | 3669676 22winmag
22winmag's picture

This is nothing Dodd-Frank can't fix. Bring in the lawyers by the truckload.


Wait a minute, what the fuck exactly is Dodd-Frank except maybe a turd in a pissy punch bowl?

Tue, 06/18/2013 - 20:17 | 3669813 lasvegaspersona
lasvegaspersona's picture

So all that Nanex data was just pretty colors?

Tue, 06/18/2013 - 20:29 | 3669854 t0mmyBerg
t0mmyBerg's picture

i just love the exploding head.   that is all.

Tue, 06/18/2013 - 20:35 | 3669874 Money 4 Nothing
Money 4 Nothing's picture

As the fox fleeds the hen house with one in mouth.

Tue, 06/18/2013 - 22:16 | 3670201 Decimus Lunius ...
Decimus Lunius Luvenalis's picture

Whoa, whoa, whoa....whoa.  You're telling me that federal government agencies may actually have been formed to protect the very industries they are meant to police?  That the public good rationale is a ruse, a facade?  That the good intentions of many employees within these agencies are being used and manipulated into plausible deniability in order to dispel criticism as mere conspiracy theory?  That those that would go to work each day enforcing rules are used as a smoke screen to cover the fact that the industries and the paid-for legislators vis-a-vis lobbying firms actually author legislation behind the rules rendering those civil servants impotent?   Wacko.  

Wed, 06/19/2013 - 00:52 | 3670466 Joe A
Joe A's picture

I saw Scanners when I was a kid. It freaked me out. Cold sweat running down my back. Man, what a movie.

Wed, 06/19/2013 - 04:28 | 3670601 Joshua Falken
Joshua Falken's picture

Epic Fail


This is the moment, after everything else Obama has done freedomwise, that all of us free marketeers should truly know that the deck is rigged.

Wed, 06/19/2013 - 04:58 | 3670608 frenchie
frenchie's picture



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