BATS Admits CEO Lied About HFT On CNBC

Tyler Durden's picture

It is now quite clear why BATS CEO Bill O'Brien was so agitated during the Tuesday's screamfest on CNBC. As The Wall Street Journal's Scott Patterson reports, under pressure from the NYAG, BATS has hurriedly issued a statement correcting the CEO's false comments during the exchange with IEX's Brad Katsuyama. After Katsuyama said "you wanna do this, let's do this" clearly giving him an out, O'Brien stated that BATS priced its trades off 'high-speed' data feeds when in fact they price their trades off a much slower feed (and therefore 'enable' the exact HFT-front-running that is in question).

Here is the clip in particular where O'Brien lies following Katsuyama's question... that BATS uses the high-speed feed to price its trades...

The exchange in question...

What do you use to price trades in your matching engine on Direct Edge?” Mr. Katsuyama asked Mr. O’Brien.


“We use the direct feeds,” Mr. O’Brien said.


Mr. Katsuyama, whose IEX dark pool markets itself as a haven for investors against high-speed traders, later brought up the issue again. “You use the SIP to price trades on Direct Edge,” he said.


“That is not true,” Mr. O’Brien said.



But as The Wall Street Journal reports, it was true

BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.


BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.


The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.


Full BATS Statement below:

Clarification Regarding Market Data Usage


April 03, 2014


BATS Global Markets wishes to clarify the market data usage of its exchanges. With respect to routing, EDGA & EDGX use direct depth-of-book data feeds for all major exchanges, and data from the relevant securities information processor (SIP) for certain smaller exchanges. With respect to the matching engine, EDGA & EDGX currently use the SIP, but will be transitioning to direct feeds from all major exchanges in January 2015. BATS BZX and BYX exchanges currently use direct feeds for both routing and its matching engine from all major exchanges, and SIP data from certain smaller exchanges.

Apparently the NYAG decided to make a public spectacle and to force O'Brien to shame himself (in a very low frequency fashion) publicly on Twitter:

And here is Nanex with the clearest example of just what the difference between the 'slow' consolidated SIP feed (that BATS CEO lied about using) and fast 'Direct' feed (that BATS actually uses enabling HFT to skim as seen below) means...

The trade time-stamps in the consolidated feed are not the original time-stamps shown in expensive direct feeds used by High Frequency Traders (HFT). The time-stamps are getting replaced right before they are transmitted to subscribers from the SIP (security information processor, which creates the consolidated feed). This means direct feed subscribers are getting more accurate core market data than consolidated subscribers: a direct Reg NMS violation.



The loss of original time-stamps makes it difficult to reconstruct accurate audit trails or make comparisons to quote data. It also renders any computations based on trade data (e.g. charts, technical analysis) inaccurate.


We matched a few seconds of SPY trades on June 3, 2013 from a direct feed (Edge-X) to the same trades from the consolidated feed. In the selection shown in the image on the right, the first trade (163.21 and 400 shares) has a time-stamp of 10:00:00.013 in the direct feed and a time-stamp of 10:00:00.243 in the consolidated feed, a difference of 230 milliseconds!


Download the complete list (pdf).


See this paper for more charts and data on this event.

Ironic that the two versions of the same reality are "blue" and "red" in this chart... which pill will you swallow?

This leaves us with two possibilities, either:

1) The CEO of BATS has no idea what his firm actually does and is merely happy to earn an impressive amount of money skimming off the rest of the population of market traders no questions asked, or


2) The CEO of BATS is a liar and is merely happy to earn an impressive amount of money skimming off the rest of the population of market traders no questions asked.


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holdbuysell's picture

That's it, I'm selling my position in BATS...oh wait!

X_mloclaM's picture

"yer quoted ... hmgmgmhgm"

philipat's picture

So, let me see I understand this correctly. Goldman now wants to end HFT front-running so that it can route more (All?) trades through IEX so that it can return to a dominant position in front-running client trades?

Algosaurus Rex's picture

I'd like to take some BATS to little Billy O'Brien's head. Just another psychopathic liar...

synergize's picture

I'll take a little of option #1 and a little of option #2... a liar that doesnt know his own business

ebworthen's picture

Ditto.  Bet Bob Pisani forgets this admission and never mentions it.

Weasels and wastrals instead of Men.

Say What Again's picture

I think the solution for most of this is really very simple. 

First, no order can be cancelled until 0.5 seconds have transpired.  In other words, EVERY order has to live for at least 0.5 seconds. That's NOTHING to a human, but its an eternity to an HFT robot.  Think back to the days of floor trading, or trading in the pit.  If I made a hand gesture, and someone responded, I couldn't go back and say; "just kidding"  -- "I want a do-over"

Second, The exchange should be required to post the BID or ASK on the SIP BEFORE the Liquidity Provider, or anyone else "inside" the exchange, gets to see the order.  Again, this would slow down the execution by about 0.5 seconds, but a human would be OK with that, if they knew that promoted "fairness".

Third, No "Flash Orders"  Repeal the exception to Rule 602 of Regulation NMS.  A "Flash Order" is an order that has been sent to a "Liquidity Provider" to see if they want to take the other side of the order. The LP has about 300 milliseconds to decide if they want to take the other side of the order.  THIS IS BULLSHIT! They say that Flash Orders were prohibited in 2009, but I'm not so sure.

These three changes would neutralize 99% of the HFT advantages.  It really is that simple.


Oh -- Here is one more little "gem" from the BATS of old

They were laughing all the way to the bank.

toys for tits's picture

I say let them stay in business and let the marketplace of ideas sort it out.  

IEX will become the exchange of choice that way and no additional regulation needed.

I hear O'brien is looking to buy a nail gun at the local pawn shop.

Say What Again's picture

I agree with *some* of what you are saying.

I hope that IEX will draw enough real trade activity, that it makes the other exchanges take notice.  However, I still think that change to rules governing internal market behavior is absolutely needed.  Just consider "pay for order flow."  If TD-Ameriscalp is paid to route their orders to the BATS exchange, they are not going to re-route their orders to IEX, just to be altruistic.

caustixoid's picture

OR, here's the libertarian argument that doesn't involve more regulation (because THAT has worked so well...for porn sales...from the SEC) which is DON'T PUT YOUR MONEY IN CORRUPT MARKETS. 

Say What Again's picture

Right, what's next.  Do you suggest we all move to montana, live in little cabins, become self sufficient, and live off the land, because that has worked so well.

ilion's picture

So what that he lied. Everybody lies on TV. Is this some sort of news for anybody here?

Two-bits's picture

News, not really, but remember, when it becomes serious...

wallstreetaposteriori's picture

I feel another flash crash coming.... that will wake some sleeping giants.  I am LONG Margin Calls!

free_lunch's picture

Today Last chance to buy cheap GOLD ?

Four chan's picture

all three really good ideas. 

El Crusty's picture

i have an even better idea that is guaranteed to work- no more automated trades.
a human has to enter the trade into the system manually just like in the old days when things worked a lot more like they should..

Confused's picture

Doesn't matter. He said it on TV, and people HEARD it. No one heard the statement from BATS so it might as well not have happened. 


And none of the douchenozzles at CNBC will mention it. 

SoilMyselfRotten's picture

And there ends the television guest appearances of Bill Obrien. A truly disgusting man.

Confused's picture

Perhaps. But not his career. Which is the biggest travesty of all. 


This admission means nothing. And nothing will come of it. Which makes watching that clip again even more maddening. 

Handful of Dust's picture

The Laws don't apply to Wall Streeters, nor do the Commandments. Those are for the little people.

BringOnTheAsteroid's picture

Hahaha, you nailed it, commandments are for the little people. Not only that but the little people are programmed to defend the fact that they are subjugated by the church, they are the cheerleaders for their own masters. Fuckin great system if you can pull it off. The catholic church is one of the greatest scams in the history of the world. It's a multi-billion if not trillion dollar corporation that doesn't have to pay taxes and where is it's shareholders (the congragation) pay it dividends (donations). They've been implementing the concept "too big to jail" far longer than congress and Wall St. The big difference though is that adults are the victims of Wall St and only white collar crime at that, children have been the victims of the catholic church and in a far worse way than being front run or sold fraudulent investments.

Greatest fucking scam on the face of the earth.

OK, cue all the programmed minions to come out and defend their own servitude.

GooseShtepping Moron's picture

Stop it with your anti-Catholic crap. Do you not see that you have no idea what you're talking about? The Commandments were not concocted by the Church to oppress the "little people," they were instituted by God for the good of man inasmuch as obeying them produces righteousness unto salvation, and were entrusted to the Church to be safeguarded, taught, and kept.

Can you explain how violating any of the Ten Commandments makes a man more God-like, or even more human?

BringOnTheAsteroid's picture

It's not your fault that you immediately rise to the occassion and defend a system that has been designed many centuries ago to subdue and control humans. The commandments - you seriously have to be kidding me. So god, the all powerful, all knowing, all . . . . . whatever the other one was . . . . . . created these commandments ???????? You have been gotten to young haven't you. Tell me, where is the "Thou shall not rape", "Though shall not torture", "Thou shall not enslave", "Thou shall not  cover up the crimes of pedophile priests who fuck little boys up the ass" commandments.

You've been brow beaten my friend, indoctrinated, brain washed. The ten commandments - bar three (maybe four) of them are a joke. This almost more than anything else shows how stupid people really are. Why not make up your own ten commandments and hang them from your wall including the commandments I mentioned above.

Yet you defend the catholic church - the harbourer and protector of pedophiles.

What about this irony, "Thou shalt not make unto thee any graven image, or any likeness of any thing in heaven above, or things which are in the earth beneath" yet the catholic church is full of images of jesus.

FUUUUCCKKKKKK - can you people string two logical coherent thoughts together.

Scoobywan's picture

Why do you care so much?

Let Catholics do what they want, they aren't infringing any of your "rights" are they? And no you do not thave the right to not be offended...

I'm not catholic, don't believe in organized religion, and my wife is a god-fearing catholic that attends church every sunday. We get along just fine.

I'm stuck eating fish 7 fridays a year, but small price to pay.

Yes, I believe the Catholic church is a money making scam over a thousand years old. There are hundreds of money scams, are you as passionate about those as well?

He is defending his church, because you are attacking it......


malek's picture

I don't believe he is claiming a right not to be offended.

He does have a right to "attack" with words the lies by pointing out facts that collide with them, and now the Catholics cannot claim a right not to be offended.

Scoobywan's picture

You are correct. He most certainly does have the right to "attack" with words.

I said "you", but It would of been better worded as "no one" has the right to be not be offended.

If there is a word less offensive then "hypocrite" I do not know it, but most catholics would be that word. Including my aforementioned wife.


insect0man's picture

The Whore of Babylon can go to Purgatory!

Well, it would to Purgatory if Purgatory actually existed anyhow.  

Got Candles?

merizobeach's picture

"The Commandments...were instituted by God"

You total fucking moron: your ten commandments were straight up plagariazed from Egypt.

lifetide's picture

The Catholic and the Communist are alike in assuming that an opponent cannot be both honest and intelligent.   ~  George Orwell

Seer's picture

"Perhaps. But not his career. Which is the biggest travesty of all. "

No, the biggest tragedy is that children are dying of starvation while a pig like this gets to eat for doing nothing.

Confused's picture

Agreed. But within the context of the situation playing out before us, the fact that this scumbag will come out the other side unscathed is a travesty. 


But I get your point. 

magnumpk's picture

Let him know that Home Depot has nail guns on sale.

Seer's picture

Tack a note on his forehead...

MayIMommaDogFace2theBananaPatch's picture

Yeah, but did Katsuyama go to BATS in Kansas??!?!  Did he?!?!?  Huh?!?! </sarc>

Zerozen's picture

I'll take option 2. Watch how O'Brien pauses when he is asked the question. You can see the gears churning, it shows on his face. He's realizing he doesn't know the answer. He doesn't know the details of his own business.

spinone's picture

Bill O'Brien reminds me of every coke head I've ever met.

Squid-puppets a-go-go's picture

come now. he is a far cry from nigella lawson


WVHillbilly's picture

But, but.....he seemed so honest and truthful....

crazzziecanuck's picture

Mr. Lewis notes in his book that it's a widespread belief that the large Wall Street banks know they can never, ever beat the HFT shops so they're chosing to not participate. 

I'm a bit more cynical.  I think it could simply be a desire by the big banks to pressure the HFTs for more money to access their dark pools.  "Pay us to stop using IEX so you can rip off our own customers like before IEX."

Or maybe I'm just paranoid.

underman's picture

One broker/exchange loss is another broker/exchange gain.  Same ol story.  Sociopathic cutthroats the lot! 

piceridu's picture

No, GS wants to eliminate HFT so it can go back to old school theft and manipulation of insider trading and trading against their clients in order to scalp their muppets.

Seer's picture

Yeah, stop this speed rip-off nonsense, go back to stealing the old-fashined way- pure insider information.

Ecclesia Militans's picture


This makes total sense.

Insider information = premium product that the squid can transact in "the old fashioned way" 

HFT = some acne-scarred adolescent malcontent in Blablogistan can get in on that action

mrmister's picture

Goldman is trying to get positioned before the crash as the one that warned everyone it was rigged.

Tall Tom's picture

That is what the group is failing to understand. The Crash will be explained as a direct result of HFT rather than the withdrawal of QE.