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VIX-Manipulating HFT Algo Is Booted From Dark Pool, Exposed For Whole World To See

Tyler Durden's picture


VIX was monkey-hammered lower once again today, lifting stocks vertically to Russell 2000 record highs and The Dow within a point of 17,000. The question is who (or what) is doing it. Nanex appears to have found out who...It appears the un-visible hand of VIX manipulation (that we have shown previously) has been forced into the open public markets as Barclays goes dark. Simply put, massive bursts of 1-lot TVIX orders flood and delay the markets enabling HFTs to manipulate the tail that inevitably wags the market (via VXX, SPX options, and leverage) and now that the dark pools are disappearing, we see it all in real-time.

We have previously noted the odd 'dark pool' manipulation we suspected was occurring in VIX derivatives... Through massive VXX selling in dark pools...

Is someone (cough Fed via Citadel) using dark pools to manage their volatility suppression - which implicitly spooks the actual markets in implied vol and thus in a "tail wags the dog" manner, juices the entire US equity market... but we do not find out about it until after hours as the dark pool unleashes its volume at VWAP pricing...


Makes us wonder if this is the fingerprints of the NY Fed's Kevin Henry hard at work managing perceptions via dark pools with as much leverage as possible via the vol markets.

just like he did here the week of The Fed Minutes


As he did this week...


And now Nanex exposes the "odd-lot" algo that appears to have been forced into the light...

There is a new High Frequency Trading  (HFT) Algo afoot, probably designed to measure, or cause system latency. This algo sends extreme bursts of 1-share orders in a symbol to two different exchanges: Nasdaq and BATS. The result is a system-impacting surge of quote updates, similar to quote stuffing, but accompanied by an extremely high number of 1-share trade executions. These trade executions often consume the entire SIP output line, as indicated by continuous sequence numbers with no gaps.

Other observations:

  • The algo seems to prefer low, to very low priced stocks.
  • The price executed at both Nasdaq and BATS is always the same - this isn't from arbitrage.
  • There are always a large number of quotes accompanying this burst of trades.
  • The table below shows a list events we detected on July 1, 2014. Take a look at the event outlined in red. This event involved the symbol TVIX which traded at $2.89. At 12:09:49, over a 2 second period, there were 6,986 trades in TVIX: 3,493 executed on Nasdaq, and 3,493 executed on BATS. Every one of these trades was for a single share which cost $2.89 each.

Now take a look at the graph below...


It plots these events as colored bubbles, with each bubble sized according to the number of trades during the event. Extreme events show up as large bubbles - such as the TVIX event which is the largest bubble. The vertical axis shows the time of day, and each day's events are plotted along a vertical line. This helps to see if the algo runs at certain times of the trading day.

The bubbles are color-coded depending on which combination of exchanges are involved - in this close-up of 4 days, only one other exchange combination appeared - Phil and BATZ (green).

The bubble labeled GLUU was the most extreme of these events, until it was superceded by TVIX, which happened while we were writing this paper.


If we expand the chart and look further back in time, we find that the NQ+BATZ combination is new. The columns of large orange bubbles make a significant appearance on June 26, 2014, which is, coincidentally or not, is the first trading day after the New York Attorney General announced it was suing the Barclay's Dark Pool (this is a must read). We aren't sure if the two are related, but it's possible. Maybe a HFT got kicked out of a dark pool and it's figuring out a new way to game the system.

And here's the rigging algo in action...

TVIX Trades on July 1, 2014 over about 30 minutes of time, including the event at 12:09:49. 

*  *  *

The Bottom Line...

1) On days when the VIX has been slammed notably lower, we have seen more than coincidentally massive after-hours volume spikes in VXX and TVIX (where manipulators can hide their actions)


2) This is the footprint of dark pools flushing their orders to the public markets


3) Since June 26th (when Barclays was hit by the Dark pool probe), a 'new' algo has appeared in TVIX


4) Today's major algo manipulation (above) and plunge in VIX suggest the dark pool rigging is in the open more transparent public markets now...

So we know how they do it... will anyone see it as front-running of 'riggedness' and do something about it?

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Tue, 07/01/2014 - 16:35 | 4915068 Glass Seagull
Glass Seagull's picture



Just one more reason to avoid any VIX "etf" (can we even call them that?) like the plague.  VX futures, please and thank you.

Tue, 07/01/2014 - 16:40 | 4915079 ilion
ilion's picture

I'd love to have lunch with the guy who presses the ON botton for this algo. It could be the God himself.

Tue, 07/01/2014 - 16:43 | 4915091 Four chan
Four chan's picture

im sure in 8 years some ny ag will get right on this.

Tue, 07/01/2014 - 17:10 | 4915180 ziggy59
ziggy59's picture

..and will be fined 85k..

Tue, 07/01/2014 - 17:25 | 4915228 Theta_Burn
Theta_Burn's picture

....and no prison time

Tue, 07/01/2014 - 17:46 | 4915314 Headbanger
Headbanger's picture

I wouldn't call the VIX being "monkey hammered" exactly today.


It looks more like a "pennant" correction pattern completed after five waves up.

Which means expect a spike up in VIX the next few days.

Which also says expect equities to sell off sharply.

Wed, 07/02/2014 - 00:19 | 4916664 DeadFred
DeadFred's picture

I for one see a ray of sunshine in this. When I watch the government getting for and more broken day by day it's good to see one example where they are becoming more efficient, more market manipukation for the buck. May they rot in hell for doing it but it is more cost effective than buying SPY outright.

Tue, 07/01/2014 - 17:47 | 4915319 dwayne elizando
dwayne elizando's picture

Tylers, if I'm not mistaken, isn't TVIX an ETN owned by Credit Suisse? If that's true then isn't this essentially a manipulation of Credit Suisse debt prices, being that it's a note?

Tue, 07/01/2014 - 23:33 | 4916544 bilbert
bilbert's picture

Nope - we're pretty much at the point where we know it's all bullshit, and are no longer surprised when it's right out there in the open.

Best of all, the average worker/taxpayer doesn't know that ANY of this shit is even happening.

Yep - 5 years ago we were all tin-foil-hat crazies, just waiting for some proof of what we KNEW was bullshit, would come to light.

Now, the light is bright as day - and we have been proven right AGAIN (so what), while the tiny burro's carry miniature saddlebags of "Bad, BAD, Bank!" monetary penalties back to the authorities as penance for their wrongdoings.

Yep - I've been waiting 5 years for THIS..........

Thank goodness for Bart Chilton, for standing tall, and exposing the massive metals manipulation, YEARS ago, when it might have made a difference. 

Take away?  Delay ANY fucking thing long enough, and even the admission of guilt will be rendered inconsequential.

MY favorite disconnect?  Easy-Peasy, and glad you asked!:

ALL of the Too-Big-To-Fail Banks are STILL not required to adhere to FASB 157 accounting rules - e.g. "Mark-to-Market" accounting regulations (yep, look it up), but ALL are still traded on the NY-Fucking-Stock Exchange, as if they had real profits and shit, and as a rather painful poke in the eye with a sharp stick, still get to give top execs million $$ bonuses for causing this huge cluster fuck, instead of sending them to jail (Winning!)


Tue, 07/01/2014 - 16:37 | 4915072 Kaiser Sousa
Kaiser Sousa's picture

what about the culprit/mechanism which has brought Silver down below $21 every fuckin day for the last 2 weeks whick kicks in every time when the phony paper price hits the $21.10 mark...can we see that...


Tue, 07/01/2014 - 18:08 | 4915389 NotApplicable
NotApplicable's picture

Everybody knows to sell at $21.10, duh.

Tue, 07/01/2014 - 16:38 | 4915075 czarangelus
czarangelus's picture

(in the silver bears voice)


What does that mean?

Tue, 07/01/2014 - 16:39 | 4915080 Atomizer
Atomizer's picture

Hahahahaha. Another daylight robbery in progress.

Ring, ring, hello 911. How can I help you.
I have a burglar on my trading platform.


Tue, 07/01/2014 - 16:42 | 4915081 Squid Viscous
Squid Viscous's picture

looks like I picked the wrong week to buy TVIX, again...I should just go back to sniffing glue

Tue, 07/01/2014 - 16:42 | 4915086 FieldingMellish
FieldingMellish's picture

Do something about it? Thanks for the Tuesday Humor.

Tue, 07/01/2014 - 17:06 | 4915159 Rainman
Rainman's picture

40% of US volume is from the dark pools, more than double what it was 6 years ago. Can't do anything without blowing the whole stawk ' trading 'scam into smithereens. 

Tue, 07/01/2014 - 16:43 | 4915090 dirtyfiles
dirtyfiles's picture

thanks ZH for the investigation good job

of course not even one ass hole will be punished for that

even with proof like this

financial system is in one big pile of stinking  shiit

Tue, 07/01/2014 - 18:26 | 4915449 zipit
zipit's picture

What are you talking about?!  The Vampire Squid with get massive fine of like $800,000.  That will teach them!

Tue, 07/01/2014 - 16:46 | 4915098 p00k1e
p00k1e's picture

Eveything is a scam. 


Grab what you can. 

Tue, 07/01/2014 - 20:16 | 4915865 Ness.
Ness.'s picture

I just took your advise...  and the bitch slapped me ;)  

Wed, 07/02/2014 - 00:00 | 4916624 Carpenter1
Carpenter1's picture

Everything is indeed a scam, and everyone on Wall street knows it. Not a one of them believes we're in a recovery,  they just want the free money party to continue as long as possible.


I do believe we are in fact in the end game.



Mon, 07/07/2014 - 14:16 | 4932320 MeelionDollerBogus
MeelionDollerBogus's picture

scam scam scam green eggs and scam!

Tue, 07/01/2014 - 16:54 | 4915110 what's that smell
what's that smell's picture

who cares.

if i got a tomato and i want to sell my tomato to somebody whom wants to buy my tomato, what does vixx vxx tvix ovix shitvix fuckvix have to do with it?

a derivative of a derivative of a derivative of a tomato is a what?---a psychotic break and a straight jacket.

Tue, 07/01/2014 - 17:07 | 4915169 ziggy59
ziggy59's picture

A derivative of a tomato is sauce, ketchup, salsa, paste..

Tue, 07/01/2014 - 19:13 | 4915633 barre-de-rire
barre-de-rire's picture

derivative of derivative tomato sauce is liquid crap.

Wed, 07/02/2014 - 01:03 | 4916756 Thorny Xi
Thorny Xi's picture

More accurately, it's the lable contract, or the bottle made for the ketchup ... or is it catsup ...

Mon, 07/07/2014 - 13:55 | 4932187 MeelionDollerBogus
MeelionDollerBogus's picture

Derivatives so opaque they can only be discussed under the Kohn of Silence!

Tue, 07/01/2014 - 16:51 | 4915113 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Busted motherfuckers!

Tue, 07/01/2014 - 16:53 | 4915120 Greenskeeper_Carl
Greenskeeper_Carl's picture


Tue, 07/01/2014 - 16:58 | 4915130 buzzsaw99
buzzsaw99's picture

selling vxx has been a massively killer trade for years. it's the buyers i'd like to know about. those are some stupid mother fuckkers.

Tue, 07/01/2014 - 17:11 | 4915184 headhunt
headhunt's picture

drink through the nose - HA

Mon, 07/07/2014 - 13:53 | 4932181 MeelionDollerBogus
MeelionDollerBogus's picture

That depends entirely on how low the indexes go on the next crash. One can be too heavy or in at too high a price but when the drop comes the payoffs for vxx, hvu & uvxy will be massive, least of which for vxx.
These pics need updating but regardless, I'm that buyer & will continue to be. Not at every price & every opportunity but when I feel the price is right I'll scoop a bit here & there getting ready for the slam-down.

Tue, 07/01/2014 - 17:01 | 4915134 Racer
Racer's picture

Now if they were charged $5 commission for each one of those 1 share trades..... let alone quotes

Tue, 07/01/2014 - 17:06 | 4915137 Chuck Knoblauch
Chuck Knoblauch's picture

If the Fed does it, that means it's not illegal.

Didn't Nixon say something like that to David Frost.

Tue, 07/01/2014 - 18:52 | 4915524 armageddon addahere
armageddon addahere's picture

Executive privilege AKA the divine right of kings. Nixon dreamed it, Obama lives it.

Tue, 07/01/2014 - 17:06 | 4915164 Luckhasit
Luckhasit's picture

"Makes us wonder if this is the fingerprints of the NY Fed's Kevin Henry hard at work managing perceptions via dark pools with as much leverage as possible via the vol markets."

Ha, business all out in the street.

Tue, 07/01/2014 - 17:25 | 4915230 Chuck Knoblauch
Chuck Knoblauch's picture

Impeach the Fed!

Tue, 07/01/2014 - 17:12 | 4915189 Argos
Argos's picture

Ah yes, the old water balloon of fraud.  You squeeze on one side, and all the fraud just pops out the other side.

Tue, 07/01/2014 - 17:39 | 4915238 withglee
withglee's picture
The solution is simple.

Start with requiring the SIP to be the standard reference price.


Actually, the solution is even simpler and more effective. Just add a random number of seconds to the timestamp at order entry. Then process in timestamp order. This is a marketplace ... not a ping pong game.



Tue, 07/01/2014 - 17:32 | 4915247 nsurf9
nsurf9's picture

Silver and gold hammering, demo bank savings interest, lowballed inflation, fudged/later revised economic data, stolen buying power, wagging tails in dark pools of a trillion 1 share trades - but, don't worry your wages will eventually double, so you can pay those quadrupled taxes, fines, gallons of gas, milk, loafs of bread, house - and good luck would that education.

Tue, 07/01/2014 - 17:39 | 4915283 intric8
intric8's picture

If you give a monkey a hammer, everything looks like a nail

Tue, 07/01/2014 - 17:44 | 4915308 luna_man
luna_man's picture



Thanks, MY MAIN MAN!!


it's only you, i can rely on to report on CRIMINAL behavior

Tue, 07/01/2014 - 17:46 | 4915315 SillyWabbits
SillyWabbits's picture

Mr. Capone …. it’s Wall Street on the phone.

They want to know when the new algo’s will be ready.

Wed, 07/02/2014 - 00:10 | 4916647 Colonel Klink
Colonel Klink's picture

Mr. Caponeberg....it's Wall street on the phone.



Tue, 07/01/2014 - 18:18 | 4915425 I Write Code
I Write Code's picture

In one set are these all buys, or all sells?

How do 1 share orders get filled? 

Who's on the other side?

Tue, 07/01/2014 - 18:37 | 4915482 WTFUD
WTFUD's picture

. . . and i'm floating in the most peculiar way

it's time to move that Dark Pool if you dare. . .


Tue, 07/01/2014 - 19:11 | 4915623 order66
order66's picture

Just providing liquidity, that's all.

Tue, 07/01/2014 - 22:38 | 4916358 El Hosel
El Hosel's picture

"will anyone see it as front-running of 'riggedness' and do something about it?"


Change the name to dix, in honor of those in charge of "market" prices.

Tue, 07/01/2014 - 22:55 | 4916418 SkySavage
SkySavage's picture

Watch level II orders for IWM, SPY, etc. and you'll see 1 share trades going through all day long. Drives me crazy...

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