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SEC Busts HFT Firms For "Tricking People Into Trading At Artificial Prices"

Tyler Durden's picture




 

On Monday, in "High Frequency Trading: Why Now And What Happens Next" we predicted that "the high freaks are about to become the most convenient, and "misunderstood" scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following...

  • Frontrunning: needs no explanation
  • Subpennying: providing a "better" bid or offer in a fraction of penny to force the underlying order to move up or down.
  • Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
  • Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
  • Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
  • Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.

... will become part of the daily jargon as the anti-HFT wave sweeps through the land."

Of course, another name for "layering" is "spoofing" which is precisely the term that the SEC used today when it announced that it charged the owner of a New Jersey-based trading firm and several other defendants "in a scheme to manipulate the market through an illegal practice known as "spoofing."

From Reuters:

The Securities and Exchange Commission said that Joseph Dondero, a co-owner of Visionary Trading LLC, as well as several other owners and a New York-based brokerage firm called Lightspeed Trading LLC will collectively pay $3 million to settle the charges.

 

Spoofing involves a trader placing orders without the intention of having them executed, a strategy that tricks people into buying or selling stock at artificial prices.

 

Reuters reported earlier this week that the FBI is also investigating the practice of spoofing more broadly in a probe into high-speed trading.

The SEC was kind enough to step away from the porn for a minute for the following soundbite:

"The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand," said Sanjay Wadhwa, a senior associate director of the SEC's New York regional office.

 

"Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC."

 

The SEC's case comes just days after the FBI and the Commodity Futures Trading Commission each said they were looking more broadly into the practice of spoofing, as part of a wide-ranging investigation into strategies that may be deployed by high-frequency traders.

One HFTer down, millions of vacuum tubes to go:

Dondero has agreed to settle the charges, pay more than $1.9 million, and be barred from the securities industry.

So is this getting clearer now? Yes: precisely those same "strategies" so pervasively used by HFTs, because Virtu didn't have a 99.9% successful trading history in the past four years from "providing liquidity", and which the SEC had no problems condoning as long as the market was going higher, are suddenly being frowned upon, and HFTs are starting to finally feel the wrath of the regulator. But that will be nothing compared to the wrath of the general public, which just like the CEO of BATS has zero understanding of how HFT actually works, when the upcoming market crash is blamed not on the Fed but on 25 year old math PhDs who "trade" and whose lobbying cash at the SEC no longer works now that almighty Goldman has finally turned its back on the high freaks.

Just as we predicted would happen.

And just as a reference so readers can get a sense of the "valuable services" a company like Lightspeed "Our trading software gives you access to real-time quotes and executions faster than ever before" Trading provide, here is an entry from their blog titled, "Ways to Trade the Twitter IPO."

With the huge popularity and notoriety of the name, it is unlikely that many active traders will get their hands on shares at the offering price, but is there a way to trade this stock once it opens to the public? Some are easy, others aren’t likely to be available to you, but here some potential plays.

 

Stay Long

 

The same thesis for going short also works for going long. Especially if the stock doesn’t make a huge jump at the open and appears to be slowly moving higher, going long for the day or longer could be a lucrative play. Just as the outsized volatility could work in your favor in a short position, it could also work as a long position.

 

No Options Available

 

Each exchange determines how soon options will be available on an IPO. For a stock as large and public as Twitter, it’s likely to be fast – as quick as a week but that doesn’t help you on the opening day.

 

If shorting and options trading aren’t practical strategies, what can you do?

 

Trade Related Names

 

The popularity of Twitter will bring more attention to the social media space and that could cause a short term move higher in those second derivative plays tied to Twitter. $FB, $LNKD, and Chinese media company $SINA are likely to see buying interest. Go long or use options. Don’t blindly throw money at these names, though. Look at the charts and see if they’re due for a bounce.

With sage advice such as this, is it any wonder the firm had to "spoof" in order to immitate Virtu's trading perfection?

As for "tricking people into buying or selling stock at artificial prices", surely Visionary Trading and Lightspeed Trader are the only cockroaches. Surely.

 

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Fri, 04/04/2014 - 14:08 | 4625576 Crash Overide
Crash Overide's picture

I want to see people in handcuffs!

Fri, 04/04/2014 - 14:11 | 4625590 NotApplicable
NotApplicable's picture

Are low-level, back-office brown people with funny accents acceptable?

Fri, 04/04/2014 - 14:12 | 4625601 Bearwagon
Bearwagon's picture

No we want people with cufflinks in handcuffs ...

Fri, 04/04/2014 - 14:13 | 4625613 Pinto Currency
Pinto Currency's picture

 

 

Waiting for "SEC busts Federal Reserve for tricking people into trading at artificial prices"

Fri, 04/04/2014 - 14:18 | 4625627 Slave
Slave's picture

Immeadiately what I thought of too.

The sheep are being herded as we speak...

Fri, 04/04/2014 - 14:24 | 4625648 LawsofPhysics
LawsofPhysics's picture

LOL...    And the recent eCON graduate student from the "finest" school sayes "Price Discovery?  What's That?"

Fri, 04/04/2014 - 14:48 | 4625787 Thought Processor
Thought Processor's picture

 

 

Please.  If all the majors aren't already doing this 100% of the time I would be very surprised.

 

This is what is keeping this game afloat.  If it unravels, everything unravels.

 

That's why these 'Busts' will only be superficial.  It's a perp walk.

 

Move along people.

Fri, 04/04/2014 - 15:04 | 4625879 BTCTalks
BTCTalks's picture

Vietnam sentencing bankers to death by firing squad.

http://www.globalpost.com/dispatch/news/regions/asia-pacific/vietnam/140...

Fri, 04/04/2014 - 15:24 | 4625981 Doubleguns
Doubleguns's picture

They need an excuse for why the stock market crashed.....again. HFT are the false flag so no one will blame or suspect the FED, PPT, Treasury, Bankers etc........ 

 

I bet most sheeple fall for it. 

Fri, 04/04/2014 - 15:59 | 4626198 zaphod
zaphod's picture

The SEC is going to take down a few HFT firms as a token effort.

The ones selected to be made an example of will not be politically connected to the SEC.

The other 95% firms that remain untouched will be staffed by former SEC regulators in 3-5 years continuing the revolving door between the government and wall street.

Fri, 04/04/2014 - 14:55 | 4625829 AldousHuxley
AldousHuxley's picture

The tides are already turning.

 

Goldman put their chips in betting on IEX over xchanges where HFT are allowed to front run. 

 

THE Big Boss already switched sides....front running industry change dynamics. Once SEC and rest of goldman lobbysts go after banning HFTs through federal powers, GS will be there to profit while other brokers lose HFT revenue. THAT is the only reason B Katsuyama is even allowed to speak.

 

With rothchilds front running war news to fixed price retail brokers bundling orders and letting market makers in on the spread...(yes that's how they are able to give you trade at low cost) to the latest HFT front running institutional orders...the name of the game in the business of FUTURE PREDICTION has always been FRONT RUNNING 

 

http://www.bloomberg.com/news/2014-03-22/goldman-sachs-endorses-iex-stoc...

Fri, 04/04/2014 - 14:25 | 4625651 Say What Again
Say What Again's picture

Let's play this forward.  If these HFT firms start having HUGE legal fees, they will need to raise capital.  Just paying the retainer on this shit will be big, and if you aggregate them together, that's a lot of money.

Will they be forced to liquidate a significant portion of the positions?

That will be fun to watch.

Fri, 04/04/2014 - 14:29 | 4625663 centerline
centerline's picture

I'm just waiting for the bots to get turned off and everyone finds out there is no market.  lol.

Fri, 04/04/2014 - 14:40 | 4625739 mccvilb
mccvilb's picture

How unforunate literally and figuratively, CL.

Fri, 04/04/2014 - 14:40 | 4625735 eclectic syncretist
eclectic syncretist's picture

With the market having a hard time bouncing back for the first tiem in a while, and being that it is a Friday afternoon, the odds are looking like they'll be better than 50:50 that we start monday down too.

Fri, 04/04/2014 - 15:09 | 4625907 g speed
g speed's picture

SWA---they only have to do this-    http://www.laundryman.u-net.com/page5_mlstgs.html   --and thats a lot of money

 

Fri, 04/04/2014 - 14:22 | 4625642 McMolotov
McMolotov's picture

I want to see people with cufflinks in handcuffs being pushed out out of helicopters.

Fri, 04/04/2014 - 15:25 | 4625990 Doubleguns
Doubleguns's picture

Windows and Nail guns not enough for ya?

Fri, 04/04/2014 - 14:14 | 4625605 Pinto Currency
Pinto Currency's picture

 

 

Fri, 04/04/2014 - 14:35 | 4625708 Iam_Silverman
Iam_Silverman's picture

Yup, I was speechless too when I read the accusations!

Fri, 04/04/2014 - 14:18 | 4625630 American Dreams
American Dreams's picture

Goldman just got tired of their slice of pie getting smaller without their consent.  "If we can't deciede how much pie we want to give everyone else then fuck um, shit in this one, and kill the pastry chef"

The front line is everywhere

AD

Fri, 04/04/2014 - 14:16 | 4625598 DoChenRollingBearing
DoChenRollingBearing's picture

These are just Show Trials for the consumption by the masses.  HFT, while sleazy and probably illegal, is just a smokescreen, keeping us (rather, many Americans) from seeing the real criminals:

Banksters

Fri, 04/04/2014 - 14:31 | 4625673 Rainman
Rainman's picture

agree....round up the usual small fry suspects .... and wrist slap em ! 

Fri, 04/04/2014 - 15:12 | 4625926 g speed
g speed's picture

so  prevalent it has a name---"straw man"

Fri, 04/04/2014 - 14:16 | 4625619 Al Huxley
Al Huxley's picture

If you want to see people in handcuffs, go to a police station in the low-rent district.

Fri, 04/04/2014 - 14:19 | 4625632 B2u
B2u's picture

and then orange jump suits after conviction...

Fri, 04/04/2014 - 14:31 | 4625672 Proofreder
Proofreder's picture

and then orange jump suits ever afterward ...

fixed it

When Banksters go on trial, they wear Brooks Bro's or Armani - Orange IS the new Armani in the low-rent district (9 ?)

Fri, 04/04/2014 - 14:24 | 4625649 Pumpkin
Pumpkin's picture

Handcuffs? No, that won't happen.  I've seen this movie before.  They just fine the piss out of them to get their cut.  Just another cost of doing business to get that government stamp of 'approval'.

Fri, 04/04/2014 - 14:40 | 4625738 Crash Overide
Crash Overide's picture

I forgot, we don't have a justice system anymore, it's a "legal" system and if you have enough paper/digital currency you can buy just about anyone.

Sad.

Fri, 04/04/2014 - 14:09 | 4625581 Kaiser Sousa
Kaiser Sousa's picture

but Mary "Mo" White just said the other daythat the markets arent rigged????

what gives.........

Fri, 04/04/2014 - 14:18 | 4625604 NotApplicable
NotApplicable's picture

She was referring to the grocery stores where she shops. Their loyalty card programs are on the up and up. Honest!

Fri, 04/04/2014 - 14:21 | 4625636 disabledvet
disabledvet's picture

can't do it in the debt markets. "that's what gives." this isn't an SEC problem for "Governor" or "Mayor" so and so.

"If you like the burger don't ask how it got made."
This still looks like a plain and simple default to me..."as if 2008 never ended."
Sure the Government has Gone Crazy here ("shovel ready projects"...now known as "War here...and here, and here....oh, look! here as well!")

So sure..."we're shocked I tell you! Shocked!" But don't tell me these clowns haven't known since Day One they didn't understand the Freq Show. For all we know the SEC came up with the idea.

Fri, 04/04/2014 - 14:10 | 4625587 Catullus
Catullus's picture

To the CNN Money writer who still doesn't understand: it's like yelling out a price in an auction that you have no intention of executing on.

Fri, 04/04/2014 - 15:01 | 4625858 TN Jed
TN Jed's picture

Reminds me of early days eBay.  Multiple self-accounts raising the bid.  Then eBay implemented the "reserve" price.

Fri, 04/04/2014 - 14:10 | 4625588 yrad
yrad's picture

I had a hooker once accuse me of "spoofing" on her...

Fri, 04/04/2014 - 14:17 | 4625625 Al Huxley
Al Huxley's picture

You weren't using a condom?  With a hooker?

Fri, 04/04/2014 - 14:26 | 4625655 Relentless101
Relentless101's picture

Doesn't need one cause his dick is protected by all those red bumps.

Fri, 04/04/2014 - 15:28 | 4626010 holmes
holmes's picture

Not gonna ask how you would know that.

Fri, 04/04/2014 - 14:27 | 4625657 yrad
yrad's picture

Um, I was her portfolio manager. You guys are perverts.

Fri, 04/04/2014 - 14:28 | 4625662 Al Huxley
Al Huxley's picture

Then why did you mention she was a hooker, instead of referring to her as a muppet?

Fri, 04/04/2014 - 14:31 | 4625680 yrad
yrad's picture

Touché

Fri, 04/04/2014 - 14:24 | 4625647 booboo
booboo's picture

Was the "hooker" a guy? If so you were poofer spoofing and that is a whole other ballgame.

Fri, 04/04/2014 - 14:10 | 4625589 Bill of Rights
Bill of Rights's picture

He Gave us a Phone, He's gonna do more!

Fri, 04/04/2014 - 14:11 | 4625597 Kaiser Sousa
Kaiser Sousa's picture

and explain this chart on a day when the Fraud Markets r imploding....

http://www.kitco.com/charts/livesilver.html

Fri, 04/04/2014 - 15:18 | 4625949 monad
monad's picture

bullets or silver... bullets or silver... bullets or silver... bullets first, then silver.

Fri, 04/04/2014 - 14:14 | 4625606 ebworthen
ebworthen's picture

What?  S.E.C. didn't go after Goldman Sachs but a small unknown? 

And, slapping their wrists with a fine instead of jail time?

I'm shocked I tell you, shocked!

G.S. is already onto the next scam.

Not sure what it is, just that G.S. is onto it.

Fri, 04/04/2014 - 14:56 | 4625833 mccvilb
mccvilb's picture

SEC can only bring civil suits. To bring criminal charges you'll need tangible evidence. Best bet is to call Eric Holder and Geraldo Rivera for that. 

Fri, 04/04/2014 - 14:13 | 4625609 fonzannoon
fonzannoon's picture

layering...spoofing....i am excited for the day a small NJ firm or whatever gets accused of "fucking people in the ass with a telephone pole". maybe thats when we turn a corner.

Fri, 04/04/2014 - 14:23 | 4625644 NotApplicable
NotApplicable's picture

That would be "Corzining."

Fri, 04/04/2014 - 14:17 | 4625614 economessed
economessed's picture

Oh, fer Crissakes!  Just fine them $5,000 and send them a sternly-worded letter suggesting they should never do it again. 

Then the powers that be can go about their business and tell the cameras how tough the regulation and enforcement is; that individual investors should have confidence in this squeaky-clean market we have here.

<sarcasm much?  why yes, yes I do.>

Fri, 04/04/2014 - 14:17 | 4625620 Relentless101
Relentless101's picture

Zero hedge declares HTF is rigging the worlds markets... conspiracy theorist. Michael Lews says it... slightly less of a conspiracy theorist and possible some people may take a closer look. Now everyone is on the bandwagon and they knew it all along. Where the fuck were you this whole time. Fuck even last week or the week before? They should all burn.

Fri, 04/04/2014 - 14:34 | 4625698 disabledvet
disabledvet's picture

believe it or not you can "spoof" your own cell phone.

http://www.spooftel.com/freecall/
http://articles.latimes.com/2013/jun/20/business/la-fi-lazarus-20130621

if this HFT thingy is a "fraudulent conveyance" as it clearly is (demanding in effect "people's social security numbers") then you're committing a felony. a very BIG felony actually.

this doesn't sound like the purview of the SCC but the F...C....C.

Of course if the FCC refuses to enforce even the pretense of law then by definition this brings in "the other Agencies." For example...the Pentagon. Needless to say you don't want to be on the "terror watch list."

Fri, 04/04/2014 - 14:17 | 4625621 LawsofPhysics
LawsofPhysics's picture

< Meh >  Wake me when they claw back the money and lock Obrien up in a real "pound you in the ass" prison...

Fri, 04/04/2014 - 14:39 | 4625723 disabledvet
disabledvet's picture

prisons? that costs money.
http://sofrep.com/16631/sof-training-excercise-outside-houston/

"that's why they call it training."

Fri, 04/04/2014 - 14:19 | 4625631 medium giraffe
medium giraffe's picture

$3 Million? Wow, I bet that showed them.

Fri, 04/04/2014 - 14:21 | 4625635 Al Huxley
Al Huxley's picture

Yeah, that will pretty much clean out the executive admin assistant's 'hookers and blow money' jar.

Fri, 04/04/2014 - 14:20 | 4625633 drooley
drooley's picture

Is there a class action lawsuit we can join?  I want to be compensated for my 1000+ trades.

Fri, 04/04/2014 - 14:21 | 4625637 firstdivision
firstdivision's picture

"Tricking People Into Trading At Artificial Prices".....so....about all those recent Tech IPO's.....

Fri, 04/04/2014 - 14:28 | 4625658 bankonzhongguo
bankonzhongguo's picture

Hang the bankers, the regulators, the lobbyists and the politicians.

(and their collective families)

No Justice.

No Peace.

Fri, 04/04/2014 - 14:29 | 4625667 laomei
laomei's picture

Oh my, a whole $3m. However will they come up with that amount?  Can the SEC fuckers once, just once make an example of flat out arresting everyone, seizing all assets, clawing back every bit of everything, regardless, and THEN fining the fuck out of these scum personally while banning them from trading and banning them from access to computer/phones/etc?  Doesn't even have to be a major player, just set an example.

Fri, 04/04/2014 - 14:33 | 4625690 Tenshin Headache
Tenshin Headache's picture

Absolutely nothing will change until we see long jail sentences.

Fri, 04/04/2014 - 14:34 | 4625700 Proofreder
Proofreder's picture

Just SO much better if it's Jamie 

Fri, 04/04/2014 - 14:31 | 4625681 Kassandra
Kassandra's picture

Someone at Lightspeed and Visionary forgot to pay their pizzo. Heads will roll.

Fri, 04/04/2014 - 14:35 | 4625707 Seasmoke
Seasmoke's picture

Pay the fine in pennies. That will teach them.

Fri, 04/04/2014 - 15:03 | 4625866 Joebloinvestor
Joebloinvestor's picture

You can try, but payment in pennies may get you a fine.

http://cashmoneylife.com/paying-debts-with-legal-tender/

Fri, 04/04/2014 - 14:41 | 4625746 Iam_Silverman
Iam_Silverman's picture

With a fine that large, I am sure that the traders at those companies will see their bonus decline by a few pennies next year!

Fri, 04/04/2014 - 14:43 | 4625755 Duc888
Duc888's picture

 

 

Nothingburger until i see clawback until at least 2008.

Fri, 04/04/2014 - 14:50 | 4625799 centerline
centerline's picture

Someone better watch Waddell and Reed.  Feels like fat finger accident might be coming up.

Fri, 04/04/2014 - 14:54 | 4625821 Remington IV
Remington IV's picture

Lightspeed = Lights Out

Fri, 04/04/2014 - 14:56 | 4625834 Market Rage
Market Rage's picture

So today the HFTs are showing us what happens when they take their ball and go home?

Fri, 04/04/2014 - 15:03 | 4625865 medium giraffe
medium giraffe's picture

Was wondering that myself.

Fri, 04/04/2014 - 15:06 | 4625890 ReactionToClose...
ReactionToClosedMinds's picture

"your bunny has a very good nose" .......redux.............. who remembers that?

Fri, 04/04/2014 - 15:14 | 4625933 RaceToTheBottom
RaceToTheBottom's picture

GS to the rest of WS:

"I don't need to run fast, I just need to run faster than you".

Fri, 04/04/2014 - 15:19 | 4625955 chirobliss
chirobliss's picture

And Michael Lewis gets blamed for crashing the markets on CNBC in 3..2..1...

Fri, 04/04/2014 - 16:00 | 4626144 Tortuga
Tortuga's picture

Well hey, I figure I've been spoofed  to the tune of about 50 to 100k, when hypothecations and/of  market maker pre trades on false pretenses are factored in.

Evidently my complaint files are languishing/lost over at the SEC.

Who's got the 800 number for the class actions? Get it while it's hot my father always used to say.

I know, I know, it's peanuts to youse ZH'ers but it took me a laoong time to save my base even with boomer entitlement and white priveledge legacy working for me.

Fri, 04/04/2014 - 16:04 | 4626224 alangreedspank
alangreedspank's picture

50k-100k worth of extra 1/2 pennies ? You must be doing a hell of a lot of trades?

Fri, 04/04/2014 - 20:27 | 4626949 Tortuga
Tortuga's picture

Well  yeah.

Us pissants gots rights too.

Fri, 04/04/2014 - 16:02 | 4626215 alangreedspank
alangreedspank's picture

Spoofing involves a trader placing orders without the intention of having them executed, a strategy that tricks people into buying or selling stock at artificial prices

Doesn't that require another HFT getting duped at the other ends for this to matter ? Computer 1 places fake order, Computer 2 detects it and acts accordingly, somehow, before Computer 2's order is executed, Computer 1 reacts accordingly.

I doubt Computer 2 could be a human for this to even matter ?

Fri, 04/04/2014 - 17:53 | 4626553 Mediocritas
Mediocritas's picture

Layering is effective against traders on any timescale, even the slowest meat-based trader.

You're watching the order book to get a feel for how the battle front line (price) is shifting. You see a bunch of large orders stacking up behind the bid (layered at many different prices). It gives you the impression that the bid-side is more solid than the ask, that there's more depth to the bid and more desire to buy than sell at current prices. This convinces you that there,s about to be a rout, a run up in prices so you hit the ask to get ahead of the move.

Normal to see this happen after a run, when the front-line has shifted and both sides of the book are consolidating around the new price. If one side over-extends, then the counter-attack can actually push back further than where the old front-line was drawn. Watching just the inside bid and ask really doesn't provide much insight into where the price is going next, instead one has to watch the active jostling of quotes deeper into the book.

Layering is an attempt to manipulate price movement by deceiving traders with big, fake orders. This is part of what I'm talking about when I say "the book is a lie". It's damn hard to find proper prices when the lion's share of the quotes in the book are FAKE.

Layering fake quotes has been going on forever, just that electronic trading takes it to a whole new level in which fake quotes are now the dominant volume of quotes. A completely broken market in which just watching the book can't tell you much (it's all a lie), instead complex quote origin and tracking realtime analysis is required to know what's real and what's not, something which is beyond the capabilities of even many "sophisticated" traders.

Just keeping up with quote flows alone is technically difficult.

Fri, 04/04/2014 - 16:09 | 4626256 shovelhead
shovelhead's picture

"Quick, grab a nickle and dimer from the Rolodex. They're gonna be wondering what the fuck we've been doing down here at SEC."

Fri, 04/04/2014 - 16:55 | 4626409 ThisIsBob
ThisIsBob's picture

Just an observation:  Since decimalization, the spread on volume stocks is around a couple of cents, and then lets say they steal another penny.  Few here remember when it used to cost an eighth to make that same trade.

Fri, 04/04/2014 - 17:11 | 4626454 yellowsub
yellowsub's picture

So when can we sue for stock manipulation?

Fri, 04/04/2014 - 17:28 | 4626506 Mediocritas
Mediocritas's picture

Settlement?! Always a fucking settlement.

Jail time. Criminal convictions. Until then the SEC is just fluffing for Wall St as usual.

Fri, 04/04/2014 - 17:32 | 4626520 hustler etiquette
hustler etiquette's picture

What does the SEC do with the monies once collected? Salary increases, bonuses

Fri, 04/04/2014 - 18:20 | 4626599 Mediocritas
Mediocritas's picture

Also, consider HOW the SEC pins a firm for layering. The alleged wrong-doing here is that a firm manipulates perception of the order book by layering in big, fake quotes, in other words pretending to be a big buyer or seller with intent to push the price in a certain direction.

Nothing new here, it's been happening since trading began and is effectively the same as "talking your book". Take a long position, then stack up fake bids under the inside bid to try to manipulate traders into hitting the ask (and vice versa). Not unique to HFT.

Now how does the SEC ping a firm for layering? Well it has to prove intent to manipulate and the surefire way to do this is to compare how much powder a firm actually has to how much powder it's pretending to have via layered quotes.

What this means is that the SEC is only going to catch the small fish (as usual), because big firms with deep pockets can always just claim that their fake layering was legitimate and the SEC can't prove otherwise.

Same as it ever was. The SEC only catches small fish while the giant squids swim on by. Of course sophisticated, statistical analysis of quoting/trading behaviour could identify bogus layering by traders of ANY size, but the SEC is hardly known for its sophistication. (Nanex has shown several examples of dumb layering, likely fake, by HFT bots in the past, repeating patterns in the book with bizarre sizes).

Fri, 04/04/2014 - 20:18 | 4626918 Kina
Kina's picture

LoL .. the SEC would arrests their mothers, rape their own children, slit the throats of babies and prosititute their sisters before prosecuting their corrupt masters.

 

Don't underestimate how low life the executive of the SEC are.

Sat, 04/05/2014 - 00:31 | 4627445 ToNYC
ToNYC's picture

HFT got away from Goldman; round up the usual suspects. 005 rides off on the white horse, fade to black.

Sat, 04/05/2014 - 11:00 | 4627924 Pumpkin
Pumpkin's picture

The regulators are doing such a great job.  Spoofing sounds so much better than fraud.  "It was just a 'spoof' ", or "It was only 'fraud' ".  Yep, if I were stealing, I'd go with 'spoofing'!

Sat, 04/05/2014 - 12:18 | 4628048 MedicalQuack
MedicalQuack's picture

You know someone asked me the other day about why do I go over and read at Zero Hedge when I'm a healthcare blogger:)  I was amused but answered their question.  This is one of the rare places where you have people that understand the power of financial math models and know "data mechanics" very well.  I don't care if it's financial or health insurance, the two are connected in a lot of ways. 

This article here "tricking people into trades"..do you not think you don't get tricked with health insurance models for profit?  If you haven't thought about that, do it.  They are in there for the money and not because they care for you. Have you not noticed how healthcare has become just as complex as markets?  Think about is as there's been tons of articles out there on why health insurers keep their game complicated too, and thus so it's the same parallel.  You can't win there either with trying to understand that system either and Obamacare is just bunch of broken algorithms from the government, insurers, 3rd party consultants that don't work together.  Now that is unlike the markets who have part perfected to get your money but the complexity element is the same model.  Keep it complex so people don't understand it.

Code is code and Nanex doing what they are doing will eventually break this open for people to start asking questions in other areas too, and that's a very good thing as the same models live outside of the market with creating a virtual world that is so damn complicated that they can play on it and make money.  I have said this a few times to folks but take note of the numbers of quants being hired by health insurers, this stuff is even beyond their own actuaries to model and how many actuaries do you see that know how to write code?  Maybe a rare few but actuaries work with tools created by quant models..duh? This is the level it's moved to over in health insurance and of course they are all publicly traded companies on the market, another common element. 

So do you get tricked..sure every day out there and complexities drive it.  You guys get that here for sure.  On another topic though and worth a look though speaking of the news that drives stock trading, take a look at where that element is going.  Nobody could have predicted what's going on over there with journalism, but every where you read, newspapers are looking for money, so you can now enjoy many more articles with "click bait" so they can collect their ad exposure revenue.  I read the other day, the Oregonian paper, journo evaluations, partly based on how many clicks they get.  Of course we are going to have good news out there for sure and it's not the journos faults as they need jobs and need to eat too, but thought I would call attention to this as not many are seeing this. 

Ok here's the next deal..bot news.  And it is happening out there as it's cheaper to do data base news with a bot that an write a story, and even search the web for additional content to add from other articles and use the information while at the same time avoiding plagiarism.  Heck go wrangle  a data base for news now, cheaper than hard news..it's scary.

Next level, what moves stock..news.  Are you getting this, bot news moving bots on markets.  Ok so you have a news story that comes out either by a human or a bot and the markets read the feed.  Next step the news bot is programmed to also react to this news and let's say it wants to write a story or is programmed by the creator with parameters you can set on where the weight of the verbiage to be in the article ok? Now we have a new bot news article that may challenge the original article with good or bad news analytics..geez...

Are we headed for the battle of bots with news now to manipulate stocks?  Very smart people out there know what they can do with computer code and models and it's above the level of what most consumers could understand..hmmm...yup let's keep this complex and fool a few more.  Do you see where I am going with this new element?  If left to it's own manipulators, well feeds could get really interesting and trading bots may really get confused (grin)..so want some more roller coasters out there? Here's a post I did relative to one company, Narrative Science, where I tried out their free version.  I think I ticked off Forbes and Pro-Publica a little bit as they are both already using it and "don't put that out there" (grin).  So the Feds are going to put all this raw data out there about what Medicare pays doctors, not in a format the average consumer can understand.  See where this is going once the data scientists at the Times and other newspapers who have hired them is going to go..rev up those analytical algos, get a news story out here  with plenty of ad click bait so the paper can make some needed money. 

http://ducknetweb.blogspot.com/2014/04/hhs-to-release-data-from-cms-on-w...

Now that I explained that element, is it any wonder Jeff Bezos, the CEO of Amazon bought the Washington Post...his stock is traded with bots:)  It might be a little self defense in there too with his logic to at least know there is one news source where he has a say:) So far he seems to be promoting getting more humans in the news and that's not a bad idea at all as we like hard news versus the data stories we are all drowning in today as it's over done.  Nate Silver seems to think we want all of that data news, but do we? 

This is just a bot, bot, bot world is it not:)  The journobot is coming and is already out there so again how will this be potentially used to drive markets..I know this is a deep topic here, but it is out there.  Stingy corporations with all this cash won't throw news agencies a bone or a few dollars to keep quality news around?  They should be very interested in this as those news bots will make or break their stock...lol. They probably won't take notice until the newspapers are so strapped for money that the percentage of bot news outdoes what the human journos write and then Houston we might have a problem.

In summary one new element we can add in here to trick people with what has value out there.  If you missed it, I'll give this link again to a very interesting video done by physicist Sean Gourley and it's a bit depressing but does a good job with this telling us what little value we have out there with 61% of all web traffic is now bots, was 51% last year, will it be71% next year? 

We are there as free labor to serve the bots as techno serfs to do the tedious surveys and other items that the bots can't do.  We are free and the bots he said are about worth $100 each. It the danger of the artificial virtual worlds coming in here and messing with the real world. 

http://ducknetweb.blogspot.com/2014/03/algorithms-that-exploit-sean-gour...

We did get a warning on this too from Larry Ellison not too long ago and he's a coder from day one and said "be careful with artificial pieces of software that's smarter than you" and heck his daughter made a movie about it called HER.  That company is a grinding machine creating software that gives us efficiencies like Microsoft does as well but the new element out there is not about efficiencies, they have other agenda out there. So when you get the wisdom of the old coders being worried about the world out there, well I think they both have some to say, they know the power of code and can see the complexities others are building to keep us "in the grays" as far as not knowing where virtual and real world values exist or how to tell the difference at times. 

http://ducknetweb.blogspot.com/2014/02/larry-ellison-ceo-oracle-hcm.html

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