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Market Instability Rising Fast As "Limit Up, Limit Down" Halts Surge

Tyler Durden's picture




 

While the defenders of HFT continue spouting their usual platitudes (with the latest piece of "anti-hyperbolic" fluff coming from "Mr. Quant" (but don't call him an HFTer) Cliff Asness himself who said overnight that "markets are "rigged" in favor of, not against, retail investors"... so - rigged?) the reality is that while one can debate the ethics of HFT frontrunning orderflow until one is blue in the face (or until Goldman tells the DOJ to slam the hammer on the high freaks once and for all), the biggest adverse impact from HFT continues to be the inherent instability that algo trading creates in the market.

One needs only to recall what happened on May 6, 2010 and extrapolate that nothing since then has changed, and in fact HFT has become even more ubiquotous and pervasive, to get a sence of where the rigged, and exceptionally frail and broken market is currently.

For empirical evidence of just this, we once again go to the usual source which everyone ignores until months after the fact is seen as having been right about everything, Nanex, which looks at one particular aspect of market instability, namely Limit Up, Limit Down circuit breakers and finds something very disturbing:

The number of stock halts from the new Limit Up, Limit Down circuit breaker (LULD) is on the rise. Some of this increase is due to multiple halts in the same stock on the same day, and a significant subset of these multi-halt events are triggered, not from actual trading, but from a mere widening of the quote spread. One stock exemplifying this is Collabrium Japan Acquisition Co. (symbol: JACQU, market cap: $55M). On May 20, 2014, the stock halted 19 times! Even more interesting, every halt came exactly 5 minutes and 15 seconds after the previous halt. More interesting still, it halted at the same exact times the next day!

Keep an eye on the increasing incidence of these critical events which simply show just how broken the "market" is because as Nanex concludes, "LULD was created in response to the Flash Crash, and the creators of this method better hope there is not another flash crash, because LULD will be a disaster in that environment."

The facts via Nanex:

A table showing JACQU's halts:

# May 20, 2014 May 21, 2014
Halt Time Time Between Halts (mm:ss) Halt Time Time Between Halts (mm:ss)
1 09:45:15 n/a 09:45:15 n/a
2 09:50:30 05:15 09:50:30 05:15
3 09:55:45 05:15 09:55:45 05:15
4 10:01:00 05:15 10:01:00 05:15
5 10:06:15 05:15 10:06:15 05:15
6 10:11:30 05:15 10:11:30 05:15
7 10:16:45 05:15 10:16:45 05:15
8 10:22:00 05:15 10:22:00 05:15
9 10:27:15 05:15 10:27:15 05:15
10 10:32:30 05:15 10:32:30 05:15
11 10:37:45 05:15 10:37:45 05:15
12 10:43:00 05:15 10:43:00 05:15
13 10:48:15 05:15 10:48:15 05:15
14 10:53:30 05:15 10:53:30 05:15
15 10:58:45 05:15 10:58:45 05:15
16 11:04:00 05:15 11:04:00 05:15
17 11:09:15 05:15 11:09:15 05:15
18 11:14:30 05:15 11:14:30 05:15
19 11:19:45 05:15 Missed!

 

1. Daily Count of LULD Stock Halts.

Is FINRA or the SEC paying attention?

2. LULD Stock Halts by Date and Time of Day.

The size of each bubble indicates the halt number in a stock on the same day (the first halt would be tiny while the 10th halt would be a large bubble). A stack of progressively increasing bubbles shows us where multiple halts occurred in the same stock, such as the JACQU example in the table above: JACQU's halts on May 20 and 21 appear as two stack of bubbles at the lower right corner of the chart below.

3. Zoom of Chart 2

 

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Thu, 05/22/2014 - 09:51 | 4784531 fonzannoon
fonzannoon's picture

Lets say we get a flash crash. The dow drops 2,000 points and the S&P drops 400 points. They hit the kill switch on the market and say that this was not a crash, just technical difficulties. They then go back and reset each stock to it's 9:30am price and tell everyone to make pretend nothing happened. Considering there is no volume and nobody really active out there anyway. Would anyone care?

edit, is anyone else on here today? I'm not trying to grab the first post I swear.

Thu, 05/22/2014 - 09:54 | 4784546 Zirpedge
Zirpedge's picture

Nobody should say nothin, suck a lemon. Since markets are fixed, just keep the trajectories up and everyone is happy. We could then raise minimum wage and enact price controls to make everything equal.

Thu, 05/22/2014 - 09:54 | 4784549 Dr. Venkman
Dr. Venkman's picture

They would care that they missed the ultimate BTFD. And then pound the ask anyway.

Thu, 05/22/2014 - 09:54 | 4784551 Hippocratic Oaf
Hippocratic Oaf's picture

This has happened before, no?

Thu, 05/22/2014 - 10:54 | 4784731 what's that smell
what's that smell's picture

this ain't rocket science...

if 70% of the "trading" is HFT and HFT are programmed to ALWAYS BTFD....

then BTFD fer the love of dead god on a cross!

a trillion FED dollars, a thousand sell side analysts, a fellatrix sell side mass media, millions of "speculators" bleating the same bleat, a 200 year bull market, a bunch of code built upon said bull market data, and billions and billions of "retirement" dollars all can't be wrong!!!

Thu, 05/22/2014 - 09:59 | 4784558 Dr. Engali
Dr. Engali's picture

Nobody here but us retard holdouts. The day they have a complete market do over (and yes one day I believe we will have a crash just like that) is the day that the "market" loses what little shred of credibility it has left. They might as well just shut it off at that point.

Thu, 05/22/2014 - 10:05 | 4784561 LawsofPhysics
LawsofPhysics's picture

It would depend entirely on who's account balances suffered a loss (if any), and how much.

 

Come on Fonz, the NYSE is becoming less and less relevant every day.  As doc points out, credibility is the issue.

"full faith and credit"

Hedge accordingly.

Thu, 05/22/2014 - 10:41 | 4784683 derek_vineyard
derek_vineyard's picture

O probably has a ticker in his golf cart.  All that matters is to keep the SPX up. 

Thu, 05/22/2014 - 09:50 | 4784533 JJdog
JJdog's picture

who cares, just keep buying, the market is rigged by the Feds not the HFT. 

Thu, 05/22/2014 - 09:50 | 4784534 buzzsaw99
buzzsaw99's picture

they should have called it LULZ

Thu, 05/22/2014 - 09:50 | 4784536 LawsofPhysics
LawsofPhysics's picture

Market?  What fucking market?

Please, all I have been doing is front-running central bank idiocracy and with the help of the "tylers" trading spreads that are clearly unsustainable in this insane race to the fucking bottom.

It's the safest "investing" I can come up with...

 

Thu, 05/22/2014 - 09:51 | 4784541 fonzannoon
fonzannoon's picture

Laws, Platinum, Palladium, Rhodium...you like any of those over the others?

Thu, 05/22/2014 - 09:57 | 4784567 LawsofPhysics
LawsofPhysics's picture

More application in electronics and industrial catalysts for platinum and palladium.

 

 

Thu, 05/22/2014 - 13:28 | 4785373 shitco.in
shitco.in's picture

Palladium

There has been some good research posted here on ZH both in articles and in various comments about the metal.  Do some research on who mines it, where they are located, which countries are in Russia/Russian owned, etc... look into industrial uses of it and how demand might be impacted by a growing middle class in emerging economies.  Once you start down that path it should become obvious. 

Thu, 05/22/2014 - 09:51 | 4784539 Dr. Venkman
Dr. Venkman's picture

yes, very unstable. For Example, did you see that .02% downdraft at the open?

Thu, 05/22/2014 - 09:54 | 4784552 ShorTed
ShorTed's picture

So Cliff wants us to believe that he's an active participant in a market rigged against him, in favor of mom and pop?  Gimme a break!  Fuckin crony.

Thu, 05/22/2014 - 09:55 | 4784555 prudent1nvestor
prudent1nvestor's picture

All I see is space invaders?

Thu, 05/22/2014 - 09:57 | 4784557 ebworthen
ebworthen's picture

It's like saying that water runs where it wants to, then building: canals, dams, dykes, sluices, pumping stations, and evaporation ponds and exclaiming "Ah...nature."

Thu, 05/22/2014 - 09:56 | 4784562 Terp
Terp's picture

I lul´d

Thu, 05/22/2014 - 10:15 | 4784607 Quinvarius
Quinvarius's picture

Hyperinflated money supply plus derivatives and leverage cause volatility.  You can give Wall St 3 trillion dollars, but you can't tell them how to bet, or put anyone on the other side of their trades.

Thu, 05/22/2014 - 10:22 | 4784626 OC Sure
OC Sure's picture

Look at the weeks of daily market action prior to May 6th, 2010. Anyone caught on the wrong side then had plenty of time before the event to get protected, get out, or get short. It is quite an extrapolation to point to computer models, hft or otherwise, as the cause for rapid steep declines in markets because it is also then to say that rapid steep declines replete with gaps do not occur in open outcry markets, but they do.

Thu, 05/22/2014 - 10:31 | 4784648 SheepDog-One
SheepDog-One's picture

Well sure right NOW it could be argued that markets are rigged in the favor of retail investors.....but the same could have been said in the housing mania and Dot.Com mania as well when you could throw a dart at a stock page and always pick a winner.....well until it all suddenly falls apart anyway. This is just making excuses.

Thu, 05/22/2014 - 10:40 | 4784674 FieldingMellish
FieldingMellish's picture

Which is why we are at record low VIX?

Thu, 05/22/2014 - 10:46 | 4784702 The Merovingian
The Merovingian's picture

Ooooohhhh ... pretty bubbles!  Janet will be pleased.

Thu, 05/22/2014 - 10:58 | 4784754 juggalo1
juggalo1's picture

I don't understand how this can happen. Wouldn't a competing algo set a limit order say 5 to 6% below the last trade and snap up the shares before they hit the limit down? Are they cancelling the orders before they can be executed? Sure, it may be a thinly-traded stock but if a pathetic human can pick up such an obvious pattern, can't a sophisticated algo take advantage of this stupidity?

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