Watch As HFT Debate Devolves Into Epic Screamfest In Milliseconds

Tyler Durden's picture




 

The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis "Shame On You," for apparently telling the truth of what occurs in the stock 'market and letting everyone in on it'. The tension grows when he presses Katsuyama on whether he really believes it is rigged... who then erupts "I believe the markets are rigged.. and that you are a part of the rigging." Then the gloves come off "you wanna do this, let's do this!" and then it got worse (or better)...

Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)... but to watch the status quo crushed under the awesome honesty of reality as this is all exposed, watch on...

 

 

And here's the highlights...

 

Who won? (based on CNBC's own ongoing poll - link)

 

Things escalated a little for O'Brien (as 3 hours later)...

 

As a gentle reminder of why the BATS CEO is upset to start with...

How a rogue algo crushed the BATS IPO

In Nanex' own words:

Start at line 192 -- these weren't stale quotes from Nasdaq by any means. These were highly accurate and precisely updated quotes from a sophisticated algorithm programmed to take BATS's price to 0. You can see the BATS trades just before the algo on Nasdaq starts up. In other words, after the BATS trades print, everything is fine (except of course for BATS' system). Nasdaq's system is just fine. So is CQS (the SIP). That algo did its job with the precision of a master watch maker.

 

The data and charts make this abundantly clear. The trade(s) that shut down Apple would be considered stale/bad quotes. But not those 500+ trades on Nasdaq.

Nanex' verdict:

It had to be someone who's machines are directly connected to Nasdaq because they used Intermarket Sweep Order orders.

And visually:

Look at the timing! There are many quotes lasting less than 1/10,000 of a second in there! (10 quotes/millisecond). And note the almost perfect 45 degree line in log-scaled blue line below.

 

Had to be from same algo. Way too perfect. Way. Too. Perfect.

 

If BATS' system hadn't failed, this algo would have likely been obscured.

Alas, BATS did fail, and the result was March 2012's epic embarrassment for BATS which already cost the CEO his chairmanship, and the firm hundreds of millions in fresh equity, but also which destroyed any hope that the retail investor may be coming back to what is now a permanently and terminally broken market.

 

And with this occurring now, it is unlikley O'Brien will ever get it back...

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Tue, 04/01/2014 - 14:25 | 4614426 medium giraffe
medium giraffe's picture

Comedy gold.

Tue, 04/01/2014 - 14:33 | 4614450 kliguy38
kliguy38's picture

I feel sorry for the HFT traders....they're accusing the market of being rigged...they're just picking on these poor guys tryin' to help us little people

Tue, 04/01/2014 - 14:37 | 4614480 NoDebt
NoDebt's picture

O'Brien looked bad.  Sounded bad.  Desperation is the word that kept coming to my mind.

Probably not so much a fear of little IEX, but soemthing's wrong there at BATS that the scars of the botched IPO have apparently not healed even to this day (it's been a year- plenty of time to regroup, unless they're finding that regrouping isn't possible).

Tue, 04/01/2014 - 14:39 | 4614487 SilverIsKing
SilverIsKing's picture

Trying to nip this in the bud before IEX eats their lunch.  He is desperate and it showed.

Tue, 04/01/2014 - 14:44 | 4614512 Rick Blaine
Rick Blaine's picture

Yeah, this was pretty fucking solid.

I wish all episodes of The Walking Dead were as good - some are...some aren't.

Tue, 04/01/2014 - 14:52 | 4614546 NoDebt
NoDebt's picture

If that was "trying to nip it in the bud" it was the worst fail, ever.  I'd be telling my broker 5 minutes later "henceforth, route all orders through IEX, never BATS."

Tue, 04/01/2014 - 15:03 | 4614576 Pladizow
Pladizow's picture

Al Capone couldnt have dreamed of a casino skim as grand as HTF!

Tue, 04/01/2014 - 15:08 | 4614607 CrazyCooter
CrazyCooter's picture

I was thinking about this last night and it dawned on me; they are trotting out this new exchange to get the disillusioned investors back into the game. This dovetails with the fact this story is OLD. But the anti-HFT exchange is NEW.

There is no excuse for all this publicity NOW, so long after the fact. Why is the 100th book on the subject any different?

Regards,

Cooter

Tue, 04/01/2014 - 15:19 | 4614635 Keyser
Keyser's picture

O'Brien didn't do himself or BATS any favors with that performance. True or not, he slanted the argument away from the topic and towards his abrasive personality, which means more to the average CNBC viewer than the facts. 

Tue, 04/01/2014 - 15:58 | 4614812 Amish Hacker
Amish Hacker's picture

I also note that 10% of CNBC viewers can watch that video and come away "unsure" about who won. Is this the same 10% who are "undecided" before every election? I suspect that the cause is media-induced mass hypnosis.

Tue, 04/01/2014 - 16:03 | 4614827 NotApplicable
NotApplicable's picture

In other news, CNBC had their highest viewership in years, but ran no commercials for 23 minutes.

W00T!

Tue, 04/01/2014 - 16:18 | 4614884 dow jones 20000
dow jones 20000's picture

I can definitely Katsuyama being suicided in the enxt few weeks.

Tue, 04/01/2014 - 16:39 | 4614984 toys for tits
toys for tits's picture

I just want to thank the Tylers for monitoring all this BS with the associated commercials and bringing us the highlights.

Bravo.l

Tue, 04/01/2014 - 17:00 | 4615077 LawsofPhysics
LawsofPhysics's picture

Yes, watching these desparate paper-pushers (who bring no real value to the economy) get their "come-upins" should be televised (alonge with their executions).

Tue, 04/01/2014 - 19:49 | 4615515 TeamDepends
TeamDepends's picture

Only thing missing was some HFT clearly pregnant momma bounding on-screen and declaring (Springer style):  "The China man be the baby daddy".

Tue, 04/01/2014 - 21:29 | 4615796 Four chan
Four chan's picture

o'brien came off as a slimey unlikeable bitch trying to be a bully.

Tue, 04/01/2014 - 22:45 | 4615982 DeadFred
DeadFred's picture

Life can rarely beat a performance like this for dramatizing the issue in question. Does HFT distort a the market and damage confidence? So we had several people trying to hold an exchange of ideas (=market) but whenever someone wanted to make a point (=buy or sell) an agressive, obnoxious person (HFT played by himself) scalped the transaction. This left the participants frustrated and unhappy about the process. Meanwhile the hosts (= stock exchange and SEC) failed to control the predatory particpant (by saying STFU!) and what could have been a worthwhile exchange devolved into something nasty. Obrien proved himself to be a sociopath and cannot be allowed to do whatever he wants because he cares nothing about societal norms. He and the HFTs will only respond to force. The SEC needs to shut him down or rigidly control him.

Tue, 04/01/2014 - 22:58 | 4616004 toys for tits
toys for tits's picture

 

 

+100

 

Fuck the SEC. Let the marketplace take him out.

Wed, 04/02/2014 - 06:21 | 4616487 GetZeeGold
GetZeeGold's picture

 

 

 

 

 

O'Brien - thank you sir. May I have another?

http://www.youtube.com/watch?v=qdFLPn30dvQ

 

Wed, 04/02/2014 - 07:02 | 4616517 StandardDeviant
StandardDeviant's picture

+1 for you, sir.  I was with DeadFred right until that last bit.  That's what markets are for.  Katsuyama has exactly the right idea, starting an exchange to try to win over disenchanted customers.

(But I wish I'd not heard that spoiler until I 'd had the chance to finish "Flash Guys", which I just started reading yesterday.)

Wed, 04/02/2014 - 11:06 | 4617339 eatthebanksters
eatthebanksters's picture

Well, I guess that settles that!  Imagine your billlion dollar idea just got flushed...well if it was crooked to begin with you're a follnot to expect this.

Wed, 04/02/2014 - 04:44 | 4616426 Dubaibanker
Dubaibanker's picture

Why did Knight Frank algo bring down its own price and the price of another stock dramatically if HFT is not a worry? The 'retail' investor would have suffered would they have not?

http://www.bloomberg.com/news/2012-08-02/knight-says-losses-from-trading...

 What was the Dow Flash crash of 2010? http://en.wikipedia.org/wiki/2010_Flash_Crash

If these are not indicators of market being rigged by these silly HFT firms, I don't know what is?

The above examples are not just any errors, they are grave errors which the Govt is allowing and promoting instead of curbing them.

Poor retail investors, when they wake up in the morning, suffer heavy losses due to these HFT firms who have no logic of trading except making money for themselves and letting algos loose in the markets. Retail investors are the key source of providing capital when an IPO comes but front running and insider trading along with HFT and billion dollar investors make so much noise that retail investors just scurry away kiling the real market. If retail investors stop giving money to mutual funds and hedge funds and banks, how will these HFT trade?

I would also like to ask where do these HFT get their money and their capital from? Are money laundering checks applicable on them? Who are their owners?

If HFT did not exist 20 years ago, then how were the markets functioning at that time? They were pretty damn stable back then and when a company announced job cuts or poor production, the stock actually went down unlike today, when NO MATTER WHAT news comes out, the STOCK KEEPS RISING!

Also, I would not want to pay 2 pennies and get raped, I had rather pay 25 cents to trade and NOT get raped!

This provision of liquidity defence is such a load of crap. Can it be quantified? What worked nicely and in a very stable manner for decades, is being taken over by machines and liquidity is ultimately provided anyways by a retail investor. These big giant corporations who have billions in cash come to disrupt the markets and ideally speaking Top 500 corporations in Western countries should be banned from investing in stock markets purely because the function of a large company like Apple or GE or GM is to focus on their business and not be in the business of manipulating the markets with their billions which also is against the rights of a retail investor whom they are supposed to be helping which they are most definitely not. Greed is NOT good. Where is the Govt? Just imagine if there was just 1 company on the planet and millions of investors, how would they do an IPO? Would an HFT provide this goddamned liquidity or would investors wait in a line and submit their IPO application and get allocation and could trade between 9am and 5pm under a tree?

Let there be a HFT to trade stocks of Top 100 or 500 corporations in a separate pool in an alternate exchange meant only for them and let me see how HFT provides this goddamn liquidity? There is no damn liquidity if there is no retail investor. PERIOD.

Think about it, the licence of GS or Citi is to accept deposits and give loans, what the hell are they doing in HFT business? They should be stopped before it gets any more worse and follow the conditions of their licence. Let them create a separate firm and trade among themselves. Did anyone ask a Retail investor if he would like to trade through a HFT or not? When was the last time the Govt which is 'By the people, for the people' actually tried to think of the retail investor living in a home on an isolated street and doing trading whether he needs an HFT or not?

FOR GOD'S SAKE, DON'T KILL THE RETAIL INVESTOR. WAKE UP, YO SEC, FSA, FBI, DOJ....IS ANYONE MONITORING WHAT GIANT COMPANIES ARE DOING? WHY HAVE A SYSTEM OF BUSINESS LICENCING AND ALL THAT? THE BILLION DOLLAR GUYS ALWAYS WINS ANYWAYS, WITH OR WITHOUT A LICENCE.

Wed, 04/02/2014 - 07:11 | 4616525 StandardDeviant
StandardDeviant's picture

Just for the record, that was Knight Capital, not Knight Frank (a UK estate agency, which probably knows very little about HFT).

Endlessly rising stock prices likely have more to do with trillions of dollars' worth of QE than they do with HFT.  Not to say that that makes HFT a good or bad thing; just that it's possible to have more than one form of shenanigans going on at the same time.

Oh, and -- unconscionable bailouts to certain market participants aside -- WTF does the government have to do with any of this?  If you don't like the scalpers who hang around on BATS, go trade on Brad's new exchange.  That's Capitalism 101, isn't it?  Sheesh...

Wed, 04/02/2014 - 07:49 | 4616556 Dubaibanker
Dubaibanker's picture

Oops... on Knight Frank, it just slipped out...though the article does mention Knight Capital which is what I meant to write.

QE has a point but I was focusing on just the trading element because even QE money has to enter the stock markets through a bank or some financial intermediary. 

Govt's role is to ensure that all business is legit and done with no nefarious purposes just like insider trading or front running. I am sure you have heard of Rajarathnam and Rajat Gupta scandal at GS or the SAC scandal. What was that? Same thing....trading seconds or minutes ahead of everyone else which has to be monitored by someone, that someone is the Govt. Let us not get into the fairness of it all. It is totally unfair that millions of small investors get shafted by dozens of billion dollar players. This is not capitalism, this is pure ruthless greed. It has got nothng to do with BATS or IEX, a normal regular guy has no clue what BATS and IEX mean or stand for? He is interested in buying 100 shares of Apple or Citi and goes online or to his broker and asks them to buy. How does he know whether he even has the right to go through one exchange or another.

And coming to my main point, that how does Citi or GS or Knight or anyone else even have the money? It belongs to retail or individual investors. They accumulate it, and use it against the same people who are on the other side of the trade through HFT. Without mutual funds or hedge funds or pension funds or banks running amok whose money come from individual investors, this whole HFT thing will fall apart because there will be no one to trade. I wish all retail investors would only take out ALL their money from the market from ALL the mutual funds or hedge funds or banks or deposits etc JUST FOR ONE WEEK, and let us see how long QE or HFT or anything else lasts.

So much for capitalism. Capitalism has broken down long ago. It it is crony capitalism, with a BIG CC which is supported by the Govt. No Govt cares about the small guy who is the 99%. Govt should be in the business of supporting the small people and the tax payers but not the large corporations who can most definitely fend for themselves.

Tue, 04/01/2014 - 17:01 | 4615080 mliu_01
mliu_01's picture

Come on ppl. HFT is not rigging. That is the most honest part of their business. You dont' really want to know what is the real rigging. They are making a fool out of everyone.

Tue, 04/01/2014 - 17:35 | 4615168 Keyser
Keyser's picture

True, HFT is the lesser of many evils. This is yet another case of "watch the shiny object" as the HFT traders are thrown under the bus while the real culprits much higher in the food chain. 

 

Tue, 04/01/2014 - 17:48 | 4615210 hobopants
hobopants's picture

We can only hope they throw the wrong person with the right information under the bus and then the real truth comes out in a fashion that exposes the "full" game in a congressional hearing or high profile news program.

Although I'm sure this is intended to be a distraction like you're saying, good things could come of it.

Tue, 04/01/2014 - 18:16 | 4615277 fuu
fuu's picture

veyron = William O'Brien?

 

Any relation to Edith O'Brien?

Tue, 04/01/2014 - 18:29 | 4615302 rbg81
rbg81's picture

QE is the grand illusion.  HFT is the surtax on that illusion.

If you trade using limit orders, HFT doesn't matter a bit.  Anyone who places a Market order is just asking to get fucked.

Tue, 04/01/2014 - 18:58 | 4615352 zerozulu
zerozulu's picture

To click fast you need to go into mouse properties and slide the click rate bar to the extreeeme right and click OK.

Tue, 04/01/2014 - 21:05 | 4615726 Remington IV
Remington IV's picture

until they penny you 50 times in a row

Wed, 04/02/2014 - 04:01 | 4616404 dannyboy
dannyboy's picture

That's what everyone thought, until you realise that it's the limit orders some of these HFT's are specifically targetting now.

Wed, 04/02/2014 - 09:53 | 4616660 rbg81
rbg81's picture

How are they doing that?  With limit orders, you buy or sell merely if the stock price passes your predefined threshold.  Of course, there are those times where a small fraction of your order is filled.  But I don't sense that this happening more frequently than usual.

Tue, 04/01/2014 - 22:13 | 4615913 TheReplacement
TheReplacement's picture

Skimming a % off of every trade will eventually suck the liquidity out of the market unless those proceeds are put back into the market.  Either way, it is parasitical and unnecessary.

Tue, 04/01/2014 - 18:16 | 4615262 Againstthelie
Againstthelie's picture

HFT IS rigging, because in low liquidity stock (i.e. TSX gold explorers), you could see fake bid/asks. And people base their orders on them and when the order is submittet, suddenly the fake bid/asks are no longer valid, because they are taken out, before the order is executed.

 

Lot's of strange things possible.

For example a stock can be dumped on the market, but the impression is created the bids were higher.

Say I have a relatively big position of an illiquid gold explorer to sell and I have a HFT connection and the necessary software.

I could place artificially high fake bids/asks, before I sell a protion of my stock. They are fake, because their only intention is to show up in the orderbook, but not being executed. They are withdrawn, before someone's sell order at my elevated bid hits.

So I want to sell a position in an illiquid stock, that would drive the stock down. So at a minimum amount of time before I sell a portion of my stock, my fake bids are cancelled, only the lower real bids remain, the stock is sold at a lower price to a real bidder. But who probably has bidden higher because of my higher fake bids! And immediately after the execution, before someone can react, I have the artificially high fake bid up again. People look again only at the elevated fake bid and probably their order prices will be influenced by my artificially high fake bid again.

 

Being faster than one, is not rigging. It can easily be avoided by using limit orders.

But that they can fill the orderbook with fake orders and people place their orders based on these fake prices, then this is rigging.

Tue, 04/01/2014 - 18:29 | 4615306 toys for tits
toys for tits's picture

Absolutely.

 

Just because HFT has grabbed the headline of the moment, it doesn't mean we're ignoring the FED's massive asset giveaway.

It's all in due time.

Tue, 04/01/2014 - 19:39 | 4615476 weburke
weburke's picture

and it shall continue till them old black (bloody?) moons say.

Tue, 04/01/2014 - 19:47 | 4615502 weburke
weburke's picture

enjoy the time. bail july 2015

Tue, 04/01/2014 - 21:06 | 4615733 Remington IV
Remington IV's picture

until they penny your limits all day long , then you feel their sting

Tue, 04/01/2014 - 20:58 | 4615710 Antifaschistische
Antifaschistische's picture

Exactly....as if, the reason why retail investors are leaving the stock market is because when we place a trade for AAPL, some HFT may trick us into paying $.01 per/share more than we would have otherwise paid.  LOL

Tue, 04/01/2014 - 22:19 | 4615934 TheReplacement
TheReplacement's picture

If they get you coming and going it doubles.  Across a whole market it becomes a big pile of misallocated pennies.  These people aren't producing anything but their own wealth at the expense of others.  They are parasites and their ways are parasitical.  It is perhpas emblomatic of the markets, finance, heck, the economy itself.  That will make people pull back - tip of the iceberg.

Wed, 04/02/2014 - 04:06 | 4616408 Archduke
Archduke's picture

agreed, speed is not the issue.
abuse of high speed naked
cancellations is the issue.

the order book should be binding.
cancelled orders way out of a sliding
spread should be penalized proportionally.

Tue, 04/01/2014 - 16:59 | 4615071 EverythingEviL
EverythingEviL's picture

Cant believe it hasn't happened already

Tue, 04/01/2014 - 16:19 | 4614895 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

That's the 10% who watched with the volume turned down to zero.

Tue, 04/01/2014 - 18:15 | 4615272 StupidEarthlings
StupidEarthlings's picture

+1

I think that those 10% shouldn't be allowed to vote. .in poles..or in politics. 

 

Jmo?

Tue, 04/01/2014 - 22:11 | 4615907 TheReplacement
TheReplacement's picture

To you, it was confirmation.  To the average person it was a couple of guys arguing, one of which had an abrasive personality.  No score was kept.  No final analysis was performed.  No consensus was reached.  To the average person (10% of CNBC viewership?) it was inconclusive and you didn't like the one guy.

Tue, 04/01/2014 - 15:58 | 4614816 bsdetector
bsdetector's picture

And CNBC being the honest broker? Haha, their business must be way down.

Tue, 04/01/2014 - 16:41 | 4614996 toys for tits
toys for tits's picture

Sue herself said that she's worried about what the general public believes based on these revelations.

That is total bullshit for a "journalist" to say.

Tue, 04/01/2014 - 17:37 | 4615173 Keyser
Keyser's picture

CNBC's focus was on the term "rigged", which could trigger a knee-jerk reaction by retail investers. Of course, you have to consider who CNBC's masters are. 

 

Tue, 04/01/2014 - 18:34 | 4615311 toys for tits
toys for tits's picture

Your comment about the masters they are serving is noted and agreed.

It's just today in the heat of the moment she betrayed her bias for a market position (escalation).  

If someone comes on their show claiming that the market is rigged and have credible evidence, it is their job to report it.

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