This page has been archived and commenting is disabled.

Oslo Stock Exchange Fights Back Against HFT And Quote Stuffing

Tyler Durden's picture




 

As High-Frequency-Trading rapes and pillages its way across global capital markets, perhaps it is no surprise that the country that gave the world 'Vikings' would be the first to stand up to the computerized hordes. In a breakthrough moment of clarity, The Financial Times reports, the Oslo Stock Exchange will issue punitive changes to traders if they send too many orders into the exchange that do not result in deals being done.

This first-of-its-kind crackdown on 'Quote Stuffing' comes after the exchange has seen a surge in the number of orders flooding its systems and while the bourse does not quite go so far as to say HFT is "in itself necessarily negative for the market", it says the placement and cancellation frequency of trades has reduced the efficiency of its market. Bente Landsnes, chief executive of Oslo Bors, said: "A market participant does not incur any costs by inputting a disproportionately high number of orders to the order book, but this type of activity does cause indirect costs that the whole market has to bear. The measure we are announcing will help to reduce unnecessary order activity that does not contribute to improving market quality. This will make the market more efficient, to the benefit of all its participants." From September 1st the exchange will limit each trader to 70 orders for every trade executed and any excess of that ratio will be charged $0.0008 per order. We are sure the NASDAQ, wanting to make up for its SNAFBU, will be next in line to punish the pernicious penny-pinchers.

Naturally, we fully expect those very much irrelevant, and lately totally tarnished US trading venues such as the now 'butt of all jokes' Nasdaq, to attempt to poach even more lowest common denominator HFT traffic from Europe, and provide even more "liquidity" rebates to Algo-Matic, in the process pushing electronic trading as a % of total nearly to triple digits.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 05/24/2012 - 10:35 | 2458766 Debtless
Debtless's picture

Fuckin' robots.

Thu, 05/24/2012 - 10:40 | 2458776 SilverTree
SilverTree's picture

Couldn't they solve it with a one second delay?

Thu, 05/24/2012 - 10:43 | 2458783 Deo vindice
Deo vindice's picture

  "perhaps it is no surprise that the country that gave the world 'Vikings' would be the first to stand up to the computerized hordes."

Or by sending more vikings to the bank offices that do the trades.

Thu, 05/24/2012 - 11:31 | 2458986 Hopeless for Change
Hopeless for Change's picture

Pretty soon with the S&P below its 200 day MA and Eurocalypse and Chuck Schumer and Mark Suckerturd and JPM and the algos fishing for sell stops, all signs are going to point to sell.  Unlike The Terminator, when the robots take (took?) over the world, they will not be shooting 4,000 bullets per second but 4,000 sell orders.   

Thu, 05/24/2012 - 10:43 | 2458791 ITrustMyGut
ITrustMyGut's picture

^ this

END the bots~

( its a start )

Thu, 05/24/2012 - 11:07 | 2458881 DeadFred
DeadFred's picture

My guess is that this ends the Olso exchange.

Regulators get caught in hotel rooms with under-age girl scouts

or the exchange comes under sudden pressure and valuations drop mysteriously until the rules change back.

Still, hope for the good guys

Thu, 05/24/2012 - 11:24 | 2458959 Xkwisetly Paneful
Xkwisetly Paneful's picture

We really don't want free markets.

We want free markets except.............

Joke times ten million plus one.

Thu, 05/24/2012 - 14:42 | 2459709 Bansters-in-my-...
Bansters-in-my- feces's picture

Xk P....

You really are a loser ,ain't you.!

Thu, 05/24/2012 - 14:46 | 2459718 Xkwisetly Paneful
Xkwisetly Paneful's picture

THe biggest on the entire planet! Plus, I am a total moronic imbecile on top of it.

The weird thing is I get this shit, so how can anyone else possibly not get it?

Thu, 05/24/2012 - 12:13 | 2459147 xtop23
xtop23's picture

Exactly. Does anyone really believe the PPT will allow HFT trading to get hamstrung?

That's ridiculous. It's the only thing keeping this farce together.

Thu, 05/24/2012 - 10:48 | 2458814 spanish inquisition
spanish inquisition's picture

I was thinking about that, it would help if it was randomized between .3 and 1 sec. (i.e 10,000 trades come in over 3 nano seconds, they are randomized .35,.99,.57,.36,.43,.42. It shouldn't affect real orders)

Thu, 05/24/2012 - 12:26 | 2459188 Tidewater
Tidewater's picture

A randomized time-delay would be effective. And/or a miniscule per-share charge for every order or cancelled order.

The high-freaks of algo thrive by technology, but can be put down -- and easily -- by very minor tweaks to microstructure. Watch the dead red eye burn out.

...

Not surprised that a peripheral market like Oslo has moved first. Everyone looks to the U.S. and U.K. for leadership here, and lead we have and do -- in the wrong direction. Full-spectrum capture.

Ropespinner, bitches.

Thu, 05/24/2012 - 15:02 | 2459792 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Daisy, Daisy....giiiive mmmeeee yooouuur aannnsweerrrr doooooooooo........................................................................................

Thu, 05/24/2012 - 14:32 | 2459669 Umh
Umh's picture

The randomization would change the sequence of orders executed.

Thu, 05/24/2012 - 14:25 | 2459647 Umh
Umh's picture

It looks like they are trying to discourage fake trades, but still let the computers do the trading.

Thu, 05/24/2012 - 10:38 | 2458774 SheepDog-One
SheepDog-One's picture

I was long ago saying to do this kind of thing...charge each unexecuted trade from quote stuffers .1 cent. That alone would shut down HFT's. 

And why not require every trade be executed only after a CAPTCHA is answered...hell everything else requires it why not a stock transaction?

Thu, 05/24/2012 - 10:42 | 2458788 Chaffinch
Chaffinch's picture

I like that CAPTCHA idea a lot!

Death to the damned robots!

Thu, 05/24/2012 - 11:01 | 2458865 SWCroaker
SWCroaker's picture

Bullish for the robo-captcha crack hackers!

Thu, 05/24/2012 - 10:40 | 2458778 GeneMarchbanks
GeneMarchbanks's picture

Norwegians are way smart.

+1 for SNAFBU

Thu, 05/24/2012 - 14:26 | 2459653 Umh
Umh's picture

What does the "B" stand for?

Thu, 05/24/2012 - 10:40 | 2458779 Chaffinch
Chaffinch's picture

Nearly 1/1000 of a cent per excess order.

Well, I suppose that is a start!

A thin end of a much-needed wedge!

Thu, 05/24/2012 - 10:41 | 2458785 I should be working
I should be working's picture

70 orders per fill?  Hardly punative for us humans...

Thu, 05/24/2012 - 10:56 | 2458842 Greyzone
Greyzone's picture

Exactly. It's not supposed to be punitive for humans, just for bots.

Thu, 05/24/2012 - 11:02 | 2458867 SWCroaker
SWCroaker's picture

Uberly disgusting that 70 *is* actually punative.   Egads.

Thu, 05/24/2012 - 10:45 | 2458786 John Law Lives
John Law Lives's picture

"SNAFBU"

I love it!

Thu, 05/24/2012 - 10:43 | 2458790 Sudden Debt
Sudden Debt's picture

$0.0008 per order....

Thu, 05/24/2012 - 11:53 | 2459077 Whatta
Whatta's picture

limit each trader to 70 orders for every trade executed and any excess of that ratio will be charged $0.0008 per order

 

Yeah, big whoop. and 70 orders for every trade? sheesh.

That ought to make a huuuuuuuge difference. Sarcasm, of course.

Thu, 05/24/2012 - 12:01 | 2459102 Fanatic
Fanatic's picture

Actually that number is wrong. It's 10 times that. Its 5 Norwegian øre, which is 0.05NOK, which is 0.00833 USD.

Thu, 05/24/2012 - 10:44 | 2458797 Confundido
Confundido's picture

It's a fucking fallacy to say that HFT brings in liquidity. It assumes that prices are rigid, that trading doesn't take place, unless there is liquidity. It's just like the fucking central banks want us to believe about asset prices. 

The underlying issue here is that perhaps the public equity market is not for everyone, that it is overextended and that a lot of public securities should have actually been funded in the private equity market!

Well done, Norway!

Thu, 05/24/2012 - 10:49 | 2458818 neidermeyer
neidermeyer's picture

Well said ,,, HFT killed the floor traders and people that bought seats ,, ... the people that actually created liquidity when needed and acted upon real news and earnings rather than just milking order queues. I like the tax ... it can be adjusted (upward) until we get rid of the vermin.

Thu, 05/24/2012 - 11:28 | 2458973 Xkwisetly Paneful
Xkwisetly Paneful's picture

Good strawman because before HFT front running never took place.

Same dead people did not largely engage in same activity as HFT which is basically what  caused their death, getting beat at their own game.

 

 

Thu, 05/24/2012 - 12:09 | 2459122 Assetman
Assetman's picture

Lets start with the first sentence:

Good strawman because before HFT front running never took place.

Before HFT, there were a myriad of methods to front run... in fact, very creative ways.  What HFT allows, though, is a method of skimming in massive volumes, and taking advantage of information in picoseconds.  It does nothing to increase the effeciency of the markets, because the liquidity it provides is done for the purpose of manipulation-- not true price discovery.  HFT is very efficient at setting up and executing front running scenarios, though.

Now, if you were trying to be sarcastic in that first missive, however, you might need more practice.

Lets go to the second sentence:

Same dead people did not largely engage in same activity as HFT which is basically what  caused their death, getting beat at their own game.

WTF????  Dead people don't trade.  It's because they're dead that makes it so challenging.

Now THAT was sarcasm.

 

Thu, 05/24/2012 - 14:34 | 2459673 Xkwisetly Paneful
Xkwisetly Paneful's picture

The great thing is then-I used to be able to log onto a PC and see the front running clear as day,

now I just pretend it doesn't exist because I can't see it given the PC hasn't been invented yet.

 

 

 

Thu, 05/24/2012 - 14:40 | 2459694 Xkwisetly Paneful
Xkwisetly Paneful's picture

BTW the notion that the floor traders purposefully provided negative expectation for the purpose of supplying liquidity may be the single funniest post on the site this month.

Try going with have no clue how much they were stealing from you before and preferred to be ignorant rather than informed.

Thu, 05/24/2012 - 17:13 | 2460247 Assetman
Assetman's picture

Obviously, I'm am glad I am able to provide you with a most glorious laugh of the month based on your own preconceived notions of U.S. equity market trading operations.  Because most of the time, comedy really isn't my strongest suit.

I don't care how much I'm being skimmed as a retail investor.  I care than I'm being skimmed and front run in ways that are blatantly unfair-- and I see the evidence every single day as an institutional investor.  That alone is enough to keep me-- and thousands of other retail participants-- out of these manipulated markets entirely.

I hope that made you laugh even more, sweetheart.

Thu, 05/24/2012 - 18:25 | 2460529 Xkwisetly Paneful
Xkwisetly Paneful's picture

Take your head out of your ass.

You did not post that. The other guy won post of the month for standing up for the former saints of Wall St, the floor trader.

You've been skimmed and scammed since the notion of a market became reality,

it is super laughable given how cheap it is to trade that folks such as yourself are so blinded with a need to be the victim, that the obvious is so elusive.

I could go on further regarding the delusion that somewhere that money found a less corrrupt market but seems pointless.

Fri, 05/25/2012 - 04:11 | 2461531 Assetman
Assetman's picture

Oh stop it, Mr. Ferocious... now you're making me laugh.

I did not post what I just posted?  WTF?  More than half of what you say makes no sense whatsoever.  And the other half just isn't accurate.

Being a victim is YOUR term, not mine.  You plop your money down in an increasingly corrupt market as a retail investor and you lose that money, there is no one else to blame but yourself.  Your other alternative is not to participate.  I choose not to. Thousands of others have done the same.  The only trading that has increased to a significant degree over the past 3 years in the U.S. equity markets are those related to your self-endorsed HFT activities.  

I don't see anyone crying and claming vicitimization in these markets, save the investors involved in MF Global... and they were truly victims in every sense of the word.  

What I do see is people leaving these markets and not returning, because they see HFT for what it is-- a massive skimming operation that destroys true price discovery though the guise of providing liquidity and lower realized bid/ask spreads.  This is anything but 'cheap trading'... it's more like a wolf in sheep's clothing.

If it were not such a complicated issue, and listings could be placed on competitive exchanges worldwide, I'd place my money in Oslo well before I plumped down another USD in New York.  At least the NASDAQ is beginning to move in the right direction, though.

 

Thu, 05/24/2012 - 10:48 | 2458801 JustObserving
JustObserving's picture

Norway has the highest quality of life in the world.  That is the result of honesty and integrity in their government and markets.   In the US, we have regulatory capture.

Bring back the uptick rule to fix US markets.  But that will never happen.

Thu, 05/24/2012 - 10:51 | 2458824 SheepDog-One
SheepDog-One's picture

Yep, the uptick rule would certainly inhibit 1.5% 30 minute market-wide swings like we were unfortunate enough to witness yesterday.

Thu, 05/24/2012 - 14:51 | 2459734 Xkwisetly Paneful
Xkwisetly Paneful's picture

I am going to start living like a Norwegian!

Going to put my 950sq ft house up for sale and move into a 450sq ft one,

going to sell one and half cars, so I will be left with half of one,

going to buy a bike and go get some mass transit schedules,

going to take all of those leftover proceeds and fund a healthcare account.

Then I am going to pretend I am in Norway and that is the highest quality of life on earth.

 

Thu, 05/24/2012 - 10:46 | 2458804 Lost Wages
Lost Wages's picture

Norway is great at making meaningless moralistic gestures.

Thu, 05/24/2012 - 10:55 | 2458840 Greyzone
Greyzone's picture

It's not meaningless. This stops the machines otherwise the cost of quote stuffing becomes prohibitive. I'd go even further and make it 1 in 20 or 1 in 10. And I'd slap a much higher fee for unexecuted trades once you cross the threshold.

Just kill the HFT bots entirely by making their actions un-economic.

Thu, 05/24/2012 - 10:48 | 2458816 NEOSERF
NEOSERF's picture

At least it is a start at pulling the curtain back from the the 1%ers.  Something has to be done.

Thu, 05/24/2012 - 10:53 | 2458834 fuu
fuu's picture

I think lining them up against a wall and shooting them would work too.

Thu, 05/24/2012 - 10:59 | 2458854 rehypothecator
rehypothecator's picture

While I like that idea, another is to expand the idea of "short term" captial gains.  We peasants have to distinguish between assets held more than a year from those held less than a year.  Taxes could be raised again for assets held less than a minute, less than a second, or less than a millisecond. 

Thu, 05/24/2012 - 11:01 | 2458866 fuu
fuu's picture

I was thinking the Pols could join them along the wall but ok.

Thu, 05/24/2012 - 11:20 | 2458937 JustObserving
JustObserving's picture

A 50% additional tax on assets held under 1 second, 30% extra tax for assets held less than 20 seconds and a 20% one for assets held under a minute will fix everything nicely.

Will help reduce the budget defict and bring integrity to markets.

Thu, 05/24/2012 - 13:04 | 2459299 overbet
overbet's picture

The truth is they would find another way to make money which is what all you haters should focus your energy on rather than crying that they found an edge. Go find your own edge. No thats too difficult just sit around on you pc and whine about the injustices of capitalism. Tax them more......why so you can sit on your ass and whine all day?

Thu, 05/24/2012 - 14:12 | 2459578 Waffen
Waffen's picture

cheating the system and or gaming a system that you are able to write your own rules to, is not capitalism

 

it's also what leads to leftist revolutions, which I am sure even you do not want to see

Thu, 05/24/2012 - 15:03 | 2459787 Xkwisetly Paneful
Xkwisetly Paneful's picture

Uh yea it actually is the textbook definition of free market capitalism.

The regulatory response is typical of liberal socialism.  The notion that somehow they are going to level some playing field all the while they are wholly responsible for all of the unlevel fields in the world.

and NO, all forms of government move from less to more and end with none. There is nothing new or novel or special in this current existence.

at some point I am hopeful that even the biggest dolt recognizes this massive growth of governance the last centuries was brought to you by the rich and powerful for the sake of the rich and powerful and stop being so naive to believe more governance is going to benefit you in any way shape or form.

the endgame here? any higher costs to trade will filter to the bottom just like some ridiculous percent of taxation  and regulation is usually paid for by us at the bottom.

 

 

Thu, 05/24/2012 - 15:34 | 2459930 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Old philosophies and labels like "capitalism" and "socialism" etc no longer apply. Mankind has created a new actor on the stage: computerized intelligence. Whether it's computerized drones that can kill us, robots that spy on us, robots that take our jobs, or quote-stuffing algos, we have not drawn the line between what's OK for a robot and what's OK for a person. We should acknowledge that we have created a superior species, able to think and act faster than humans ever will be able to. The question is what we do to control them before they control us any more than they already do.

Thu, 05/24/2012 - 15:23 | 2459893 neidermeyer
neidermeyer's picture

I like the concept but they will simply match orders more than a minute apart rather than strictly follow a FIFO or LIFO order.

Thu, 05/24/2012 - 11:30 | 2458980 Xkwisetly Paneful
Xkwisetly Paneful's picture

Good plan and then when next things comes along to beat your pea brain in, shoot them too.

Is FUU portuguese for whining biatch or something?

Thu, 05/24/2012 - 12:08 | 2459024 fuu
fuu's picture

Aww someone's angry toady is trying to be insulting. How cute.

Thu, 05/24/2012 - 10:59 | 2458850 casino capitalism
casino capitalism's picture

How untterly sad is it that Norway has to lead the way on bringing more respectability to the broken and manipulated financial markets.  The U.S. better be careful - it is very quickly losing credibility because the market insiders won't allow any changes that could impact their profits.  Meaniwhile, Joe Public continues to stay away.  It's clearly heading in the wrong direction.

 

Thu, 05/24/2012 - 11:03 | 2458870 SWCroaker
SWCroaker's picture

Is there some way to send a country a "Thank You!" card...?

Thu, 05/24/2012 - 11:07 | 2458879 PicassoInActions
PicassoInActions's picture

it's about time.

President Obama just send Shapiro to Oslo to learn how to deal with criminals.

When Shapiro will come back from trainning, she will be replaced by Dimon by executive order.

Thu, 05/24/2012 - 11:08 | 2458889 KandiRaverHipster
KandiRaverHipster's picture

yeah and goldman's direct fiber connection to the server room of the NYSE is soooooo legit and market efficiency maximizing

Thu, 05/24/2012 - 11:08 | 2458892 GMadScientist
GMadScientist's picture

About effin' time.

Thu, 05/24/2012 - 11:10 | 2458903 CreativeDestructor
CreativeDestructor's picture

Fuck robots. Who will volunteer? It may sting little bit

Thu, 05/24/2012 - 11:12 | 2458909 midgetrannyporn
midgetrannyporn's picture

charge a tenth of a penny for all bids/offers. Real people would not be hurt by this.

Thu, 05/24/2012 - 11:43 | 2458995 Obnoxio
Obnoxio's picture

This reminds me of the Norwegian day traders convicted of outsmarting the banker's algorithms.

 

http://www.ft.com/cms/s/0/f9d1a74a-d6f3-11df-aaab-00144feabdc0.html 

 

Thu, 05/24/2012 - 11:37 | 2459010 capitalkid
capitalkid's picture

Hate to break it to people, but NASDAQ has been planning something similar since early April.  Here's their latest implemenation plan:

 

 

Why are NASDAQ, BX and PSX instituting an Excessive Messaging Policy?

Robust liquidity provision, including depth of liquidity, is vital to modern equity markets and frequently updated displayed quotes generally promote efficient price discovery and provide essential liquidity. However, excessive quoting at prices away from the National Best Bid and Offer (NBBO) can result in a significant market data burden for participants and does little to improve the quality of the lit marketplace.

NASDAQ, BX and PSX are proposing an Excessive Messaging Policy that encourages active quoting near the NBBO while discouraging excessive order activity away from the inside. In this way, the exchanges seek to reduce non-marketable quote activity while protecting legitimate market making activity from incremental complexity and cost.

What is the Excessive Messaging Policy?

UPDATE 5/21/12:EffectiveJuly 2nd, NASDAQ, BX and PSX will introduce a policy intended to reduce excessive submission of non-marketable displayed orders to the exchange.

MPIDs that exceed a "Weighted Order-to-Trade Ratio" of 100:1 will pay a fee on the orders that cause them to exceed the threshold.

Order and trade activity by Registered Market Makers in their registered securities will be excluded from the ratio calculation.

What is the Weighted Order-to-Trade Ratio?

The Weighted Order-to-Trade Ratio is a measure of how often an MPID sends displayed, non-marketable liquidity-providing orders to the exchange that fail to execute.

It is similar to the "Orders to Orders Executed" ratio used by NASDAQ's ISP program, but also applies a Weighting Factor to each order based on its proximity to the NBBO at the time of entry.

UPDATE 5/21/12:The proposed weighting factors are:

 

Order's Price vs NBBO upon entry Weighting factor 0 - %0.20 away 0x %0.20 - 0.99% away 1x 1% to 1.99% away 2x 2.00% or more away 3x

 

Which order types are included in the Weighted Order-to-Trade Ratio calculation?

Only displayed, liquidity-providing orders received during regular market hours will be included in the Weighted Order-to-Trade Ratio calculation.

Non-displayed orders, Immediate-or-Cancel (IOC) orders and Auction orders will not be included in the calculation.

Orders sent by Registered Market Makers in their registered securities will not be included in the calculation.

UPDATE 5/21/12: MPIDs sending less than 100,000 Weighted orders daily will not incur penalties. Previously, MPIDs submitting fewer than 1,000,000unweightedorders were not subject to the penalty.

What will the penalty be for sending excessive messages?

UPDATE 5/21/12:MPIDs that exceed the Weighted Order-to-Trade Ratio threshold of 1,000:1 will pay a $0.01 per order penalty for their "Excessive Orders." MPIDs that exceed the Weighted Order-to-Trade Ratio threshold of 100:1 but less than 1,000:1 will pay a $0.005 per order penalty for their "Excessive Orders". Excessive Orders are orders that cause an MPID’s ratio to exceed 100:1. For example:

  • ABCD sends the following displayed, liquidity-providing orders:
    • 1,000,000 orders at the NBBO (weighting factor: 0x), of which 7,000 trade
    • 500,000 orders 1.5% away from the NBBO (weighting factor: 2x), of which 1,000 trade
  • ABCD's Weighted Order-to-Trade Ratio is 125:1
    • Weighted Order Count: 1,000,000 (1,000,000 x 0 + 500,000 x 2)
    • Orders executed (i.e., Trades): 8,000
    • Therefore, the ratio is 125 = (1,000,000 weighted orders / 8,000 orders executed)
  • Based on 8,000 orders executed, ABCD needed a weighted order count of 800,000 orders to meet the 100:1 threshold
    • Therefore, the Excessive Order quantity is: 200,000 = (1,000,000 - 800,000)
    • ABCD will incur a penalty of $0.005 on their 200,000 excessive orders.

UPDATE 5/21/12:Pending SEC review, theExcessive Messaging Policy will become effective July 2, 2012. This delay will allow members additional time to upgrade their systems to OUCH version 4.2 or 3.3. These versions of OUCH provide the "weighting factor" for each order entered, allowing firms to manage their weighted order count in real-time. Please refer to the postedOUCH specifications.

Where can I find more information?

 

Thu, 05/24/2012 - 12:34 | 2459214 Assetman
Assetman's picture

Great post.

My impression is that these are tiny steps, and it still leaves some room for blatant manuipulation.  The scaled penalties on orders well beyond NBBO is a feature I really like.

What I don't like is the weighted order to trade ratio (100 to 1, really?) still allows the opportunity to skim on a flooded book of orders, but does at least place some ceiling on the abuse.

The provision that MPIDs with less than 100,000 weighted orders daily will not incur a penalty still leaves the wind open for some abuses.  That being said, in the realm of HFT, that daily threshold level can be really really small in the scheme of the crappy quotes they actually throw out there.

What I don't quite understand... is this $0.005 fee a penalty per order?  If you charge a fee only a half a cent on 200,000 orders-- that won't change behaviors very muchat all.   If the penalty is a half a cent per order (200,000 * $0.005 per order = $1,000), that level might eventually make a dent, but the profits captured on the quote stuffing may greatly exceed the penalties.

Thu, 05/24/2012 - 15:27 | 2459904 WTF_247
WTF_247's picture

yep exactly.

 

This would likely only affect the most eggregious offenders who put in 10000 orders per second.  For most others it would be a cost of doing business or they can just rewrite the algos to force a fill every 69 orders on 100 shares.  These guys trade millions of shares a day.  

The one and only way I see to stop this bullshit is to enact a minimum live time of a few seconds.  If you put an order in, it has to be live for at least 3 seconds for example.  

The other thing that can and should be done is to force them to actually have money for all the orders they have out there.  Since the algos are trying to manipulate price by quote stuffing, I would bet they never have the capital to pay for all those orders should they be filled.  Since they are placed and cancelled so quickly there is next to no chance they do get filled on 99% of them.  Force them to abide by Reg T rules when they place an ordder.  If you put in 10,000 orders you have to have sufficient buying power in the first place.

If I open an account at IB, they will not let me put in orders for 1,000,000 shares of MSFT unless I have money to pay for the orders.  This would include bidding 20 bucks below the market - it does not matter.  Hold these HFT to pay to play rules and it would additionally stop a lot of the games.

Thu, 05/24/2012 - 13:13 | 2459323 malek
malek's picture

The cynic says:
Great, and it only took you how many years to implement something against this abuse?

The seasoned cynic says:
If they're implementing something now, it only means another new way to game the system has recently been discovered and successfully run.

Thu, 05/24/2012 - 13:41 | 2459442 fuu
fuu's picture

"Order and trade activity by Registered Market Makers in their registered securities will be excluded from the ratio calculation."

"Only displayed, liquidity-providing orders received during regular market hours will be included in the Weighted Order-to-Trade Ratio calculation."

"Non-displayed orders, Immediate-or-Cancel (IOC) orders and Auction orders will not be included in the calculation."

Thu, 05/24/2012 - 14:43 | 2459711 capitalkid
capitalkid's picture

Exactly.

In other words, orders that would never be published to the public (displayed) book and disseminated via ITCH are not included.  These are orders that are currently invisible to everyone but the exchange (aside from Auction orders), and thus could not cause any overload issues usually associated with 'quote stuffing' (except for the potential to overload the exchange's servers).

Thu, 05/24/2012 - 11:38 | 2459016 I_Rowboat
I_Rowboat's picture

(Psst -- the Norwegians are socialists.  Pass it on.)

Thu, 05/24/2012 - 15:27 | 2459907 silverserfer
silverserfer's picture

more people would be on board with socialism if they lived in smaller culturaly homogenous countries. Shared belief systems make it work. If you live in a big melting pot country then its capatalism and every man for himself.  

Thu, 05/24/2012 - 12:44 | 2459240 NoTTD
NoTTD's picture

Every thousand bids will only cost $8, if they are caught and fined at all.  too little, too late.

Thu, 05/24/2012 - 14:16 | 2459605 MeelionDollerBogus
MeelionDollerBogus's picture

Nice idea but not fluid enough. As there's an incentive from market-maker trading to pay for trades even if they are losing trades, there should be a cut-off on that, or a penalty-fee per-trade exceeding the bonus given by the market-makers' friends. Do that & whatever the prices each are, the balance will limit back out. Either one drops the incentive or another increases the penalty to match & exceed the incentive.

Thu, 05/24/2012 - 14:17 | 2459616 MeelionDollerBogus
MeelionDollerBogus's picture

"Orders sent by Registered Market Makers in their registered securities will not be included in the calculation."

DUH.

That pretty much says it all.

Thu, 05/24/2012 - 15:18 | 2459868 WTF_247
WTF_247's picture

It took me about 20 seconds to figure out how to circumvent this.

HFT launches 69 buy limit orders with intent to cancel.

HFT buys 100 shares @ market filled

HFT sends another 69 orders with intent to cancel.

HFT sells 100 sharse @ market.

 

You could do this all day long.  HFT trades millions of shares per day.  This would only hit the most extreme HFT bots that put in 10000 orders per second or some other garbage.  All you have to do is change the algorithm to make sure you are filled on 100 shares every 69 orders.  

Do NOT follow this link or you will be banned from the site!