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An Example Of HFT "Liquidity": $10 Bid Ask Spread On A $14 Stock

Tyler Durden's picture




 

There are daily lies by the HFT defenders that all little innocuous HFT does is provide substantial liquidity for capital markets. Then there is reality. Courtesy of this latest catch by Nanex, we have now witnessed a $10 bid/ask spread (!) on a $14 stock. And with that we can cross out the assumption that HFT is i) beneficial for stocks and ii) tightens bid/ask spreads.

 

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Fri, 08/19/2011 - 10:55 | 1577277 Silver Bug
Silver Bug's picture

If you havn't seen the slag piece against ZeroHedge yet, check it out at the Globe and Mail:

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/who-is-zero-hedge-and-why-should-we-care/article2134968/

 

We've got to rally behind and support our independant bloggers. It's the only real news anymore.

 

http://silverliberationarmy.blogspot.com/

Fri, 08/19/2011 - 11:07 | 1577330 MichaelG
MichaelG's picture

Who TF are The Globe & Mail, and why should I care?

Fri, 08/19/2011 - 11:07 | 1577345 JohnFrodo
JohnFrodo's picture

The Globe and Mail is the WSJ of Canada, that is if the WSJ was in touch with reality.

Fri, 08/19/2011 - 11:50 | 1577585 SilverRhino
SilverRhino's picture

"First they ignore you, then they ridicule you, then they fight you, then you win." - Gandhi

We're now moving to stage two.  :)

 

Fri, 08/19/2011 - 11:09 | 1577350 JohnFrodo
JohnFrodo's picture

I did not interpert the article as a slag, more H/T. My summary is the TD was wrong because Canadian banks liabities are mostly mortages.

Fri, 08/19/2011 - 11:11 | 1577369 ZeroPower
ZeroPower's picture

Yes, whoever wrote that post on ZH was way off, wasnt in the real Tyler writing style anyway, besides some flat out wrong info being spewed (CDS on sov Canada? lol. CDS on any big Canadian bank? lol)... as well as the whole thing choosing a single metric and attemtping to hammer an idea of insolvency home.

Fri, 08/19/2011 - 11:13 | 1577376 Tyler Durden
Tyler Durden's picture

The "whole thing" is spot on (assuming of course you agree that facts are "spot on"), and apologies if it skews your cognitive dissonance. Would you like to sell some Canada CDS? We have some buyers. Alternatively, would you like about 5 different Canadian CDS markets? How about 10?

Fri, 08/19/2011 - 11:45 | 1577568 firstdivision
firstdivision's picture

Any articles about Australian bank holdings? Search is not turning anything up, but then again I found the search on this site to be spotty at best.

Fri, 08/19/2011 - 12:17 | 1577698 ZeroPower
ZeroPower's picture

I dont doubt the bloomberg screen cap - my issue, and no apologies are required, is with how the facts involve a single metric which  (especially the TCE for banks) is not sufficient in explaining anything relevant w/r/t a stock much less declaring "Canada is the next domino to fall".

Most important metrics for banks are Tier 1, total cap, and leverage. End of story - any analyst who covers banks will tell you this. Noone can agree what the precise definition of capital is (hence easy to skew..) and the TCE also typically includes intangibles, further making it a flawed metric.

TCE is only popular now as banks are scrambling to pass ridiculous stress tests (which are rigged anyway, right?) and are supposed to show their shareholders: "look! we have capital lying around, not in use. just sitting there.. but we are being risk averse!"

TCE is a fad, just how aapl is a fad.

As for being able to make a market in Canada CDS - sure, how about we call it a 50bp (!) spread amongst e-friends? But id hate to see you stuck short Canada risk unable to close out the illiquid position on this falling domino.

Fri, 08/19/2011 - 11:36 | 1577515 badameli
badameli's picture

I agree with you. I haven't found much traction wrt the canadian market commentary zerohedge has reported anyways.

 

The fact that you can currently get 80/20 mortgages in canada, and that you must declare bankruptcy in order to clear the debts off your record will stop most jingle mail.

We are also a smaller market + are in a more enviable position for propping up ourselves through immigration. Our scale is smaller so it is more easily managed. I think there's more risk to canadian banks through their foreign assets rather than issues with canadian mortgages going belly up.

 

 

Fri, 08/19/2011 - 11:12 | 1577372 Tyler Durden
Tyler Durden's picture

You mean assets. Just like in America. Just like in Europe.

Fri, 08/19/2011 - 12:31 | 1577799 JohnFrodo
JohnFrodo's picture

In accounting terms yes, I was trying to be clever. As I am sure you are aware most think the Canadian Housing price is ready for a 30% fall.  The Globe's point in what I thought was a mostly positive assesment of ZH was that Canada is differant. What more proof do you need?

Fri, 08/19/2011 - 21:43 | 1579845 StychoKiller
StychoKiller's picture

My only problem with the article is that most of these "dominoes" are still standing (shivering in their footprints, but still standing).  When is one REALLY gonna fall/fail?

Fri, 08/19/2011 - 11:41 | 1577547 SheepDog-One
SheepDog-One's picture

Silverbug yes first they ignore you, then they mock you, then they fight you, then you win.

Or something like that.

Fri, 08/19/2011 - 11:09 | 1577352 SheepDog-One
SheepDog-One's picture

HFT...just a blatant stock manipulation tool.

Fri, 08/19/2011 - 11:17 | 1577383 MillionDollarBonus_
MillionDollarBonus_'s picture

Agreed, but don't stop there. The solution to these violent swings in stock and commodity prices is to ban ALL trading by speculators. Obama correctly identified the speculators as the main driving force for this volatility. It simply isn't fair that greedy traders should make so much money.

Fri, 08/19/2011 - 21:45 | 1579857 StychoKiller
StychoKiller's picture

So, how do you propose to separate the speculators from the investors?  Number tattooed on their arm(s) perchance?

Fri, 08/19/2011 - 11:10 | 1577356 baby_BLYTHE
baby_BLYTHE's picture

Silver is coming back! Glad I bought yesterday

Fri, 08/19/2011 - 11:26 | 1577444 LongBalls
LongBalls's picture

I spoke to a large internet dealer yesterday on the phone for about 20 mins. The bulk of his insane order quantity is coming from Europe. The shelves are bare in Europe hence the backwardation article ZH posted. Buyers are going abroad to seek the phyz. Gold is going to get to expensive for the retail investor as institutions pile in. Not to mention it will be hard to come buy. Next up SILVER baby! 

Keep in mind that the silver market is smaller than the gold market. The physical squeeze is on and premiums are going to start to show it.

Que CME Margin increases in 5,4,3,2,1.........

Fri, 08/19/2011 - 12:02 | 1577640 WonderDawg
WonderDawg's picture

Good luck with that.

Fri, 08/19/2011 - 11:11 | 1577360 SheepDog-One
SheepDog-One's picture

Manic/depressive markets... 1 minute sobbing hopelessly in the corner, the next minute running around the room in joy throwing handfulls of glitter confetti about.

Fri, 08/19/2011 - 11:27 | 1577464 adr
adr's picture

I really am waiting for Cramer to lose it and blow his brains out on national TV.

It is just incredible to watch these talking heads spew diarhea from thier mouths about buying into equities and a bright future a couple years out. You can see it in the eyes that they don't believe a single word of it, but if they don't say it there will be a pink slip in the mail.

Fri, 08/19/2011 - 11:34 | 1577505 SheepDog-One
SheepDog-One's picture

No different than $20 whores....in fact whores have more integrity, theyre not lying about their true profession.

Fri, 08/19/2011 - 11:11 | 1577364 firstdivision
firstdivision's picture

Broken trades as usual. Wish I could ask for a do over when I lose on a trade.

Fri, 08/19/2011 - 11:22 | 1577429 adr
adr's picture

I wonder what the blood pressure reading of a pit trader over the last two weeks is? I ca't execute any trades. It used to be that buy and hold for a year is dead, then a month, week, and day. Now buy and hold for a minute is dead.

What's up is down. I mean isn't HP just a screaming buy right now. It goes against all conventional thinking but if you think in reality you'll get killed so the conventional wosdom is do the opposite of conventonal wisdom.

I mean I would buy some gold but I'm scared to hell that when I do some central planner will do something drastic and Ill lose my pants. Howeve I do have two little gold nuggets a guy I did business for let me have back in 2002. I have no idea what they are worth now. 

Fri, 08/19/2011 - 11:35 | 1577514 SheepDog-One
SheepDog-One's picture

I generously sent free hockey helmets and mouth guards to all floor traders, I dont see them wearing them yet but theyll soon wish they had.

Fri, 08/19/2011 - 11:36 | 1577519 slaughterer
slaughterer's picture

Your nuggets?  Weight them.  They are worth $1850 an ounce. 

Fri, 08/19/2011 - 11:38 | 1577528 SheepDog-One
SheepDog-One's picture

Youre right ADR, if gold wins and bobs up to the surface in the banksters faces, theyll just change the rules and ham fist rule that it is illegal felony for you to own it.

Thats what I keep asking of gold and silver bugs...are you REALLY prepared to ride it out, no matter what?

I bet most of em will fold like a card table and turn it over to the local JPM of BofA branch when ordered to do so.

Fri, 08/19/2011 - 12:44 | 1577888 Fred Hayek
Fred Hayek's picture

The thing is, the general public doesn't own any precious metals.  One can get a skewed impression reading here or at sympathetic sites that ownership of precious metals is common place.  It's not.  The powers that be own it and are probably desperately acquiring more right now.  Do you think they're going to let a law pass that will disproportionately hit themselves?  Not likely. 

There was confiscation in 1933 because the general public had gold.  There doesn't need to be confiscation now because 4 generations later the general public has no conception that the pieces of paper in their hands are just that, pieces of paper.  They're not accustomed to any competing concepts of what money is as people were 80 years ago.

So, no, I don't see the rules changing the way that you suggest. 

Fri, 08/19/2011 - 11:39 | 1577537 TruthInSunshine
TruthInSunshine's picture

Globe & Mail = Lame Ass Stream Media.

When was the last time the Globe & Mail (or Anchor & Noose) provided one actionable, factual heads up to its 'beloved & valued' readers?

Piece of shit rag, it is. Part of the Tokyo Rose Propaganda Machine.

Fri, 08/19/2011 - 17:07 | 1579013 hamster wheel
hamster wheel's picture

A paper that exists principally to reassure the bulk of its readership of the justice of their place in the universe. Secondarily, to lay out the rules of the game to those who aspire to join the former.

Fri, 08/19/2011 - 12:24 | 1577747 JohnFrodo
JohnFrodo's picture

The game is revealed, but of course it will mean nothing changes.

http://www.nytimes.com/reuters/2011/08/19/business/business-us-cftc-dataleak.html?

Fri, 08/19/2011 - 12:48 | 1577901 Fred Hayek
Fred Hayek's picture

Only the new york times could be so dense as to breathlessly repeat over and over that a shocking list of names was leaked without ever telling readers who the hell was on the list.  Way to go Sulzbergerites.  Why does anyone think you're a dying medium?

Fri, 08/19/2011 - 13:31 | 1578042 t0mmyBerg
t0mmyBerg's picture

Ummm.   Fallacy of false induction?  Anyone?   Buehler?

Btw, IB just flashed that they will be adjusting margins imminently.

Fri, 08/19/2011 - 14:16 | 1578240 Kat
Kat's picture

Tyler,

Your beef isn't with HFT in this case.   Your beef is with the SEC. 

The SEC's idiotic rules have succefully impeded trading and run off market makers (a position it created after destroying liquidity).  

This particular problem is not an HFT but a liquidity problem creatd by the SEC's draconian regulations. 

Also, of course, a $14 stock is probably relatively illiquid anyway, under normal conditions.

The SEC has destroyed the market and Nanex is complaining that the SEC isn't holding a gun to more people's heads because that's worked so well in the past.

 

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