Presenting The "Rise Of The HFT Machine" - Visual Confirmation How SkyNet Broke The Stock Market On US Downgrade Day

Tyler Durden's picture

Zero Hedge has not been focusing much on the topic of our broken equity markets recently because if by now, following over three years of coverage, someone is not aware just how fragmented, manipulated and largely broken the market truly is, they never will. Yet every now and then it worth reminding readers who may have stumbled on this blog recently, just how bad things are in graphic format. Our friends at Nanex, who are by far the best forensic analysts of everything that is busted with the US stock market, have completed a masterpiece analysis showing the churning (packet traffic) in the various fragmented US market venues, from the NYSE to the Nasdaq to BATS and so forth, on a daily basis beginning in January 2007 and continuing through today. While the "rise of the HFT machine" over the past 5 years, following the adoption of Reg NMS, will hardly be a surprise to most, what is stunning is the first animated confirmation of the market terminally breaking on August 5, 2011, the day the US was downgraded, an observation that first was made right here on Zero Hedge. Which begs the question: what really happened in the stock market on August 5, 2011 when the US was downgraded to AA+, when everything literally broke, who is intervening constantly in the stock market, and why are they doing so via various HFT intermediary mechanisms?

Note the insanity that begins on August 5, 2011:

Chart: Nanex

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Motley Fool's picture

What a brilliant .gif :D

Thanks, Tyler.

Rastadamus's picture

If it's fire....... LET IT BURN!!!!!

Zero Govt's picture

Yeah maybe it's the markets turning to Hell

Burn MF'er Burn

..anything and everything does around New York bwankers ..weird

I should be working's picture

You know what else might explain what was broken on downgrade day?

The fact that the announcement was on Friday after trading stopped, when the market went berserk 2 days earlier.  S&P clearly leaked the downgrade in advance (either that or Obama's admins did it once they were served).  The public announcement after trading was stopped for the weekend could not have been better engineered to start a market crash.  Big players knew in advance and profited by going short on the market.  

I forget how many points exactly the DOW was down the following Monday, it was at least 500. What I would like to see is an analysis of the short interest in the market starting the Tuesday before the downgrade until the Monday after the announcement.  How this slipped under the radar is beyond me, the WSJ did a tiny piece about an investigation over insider trading, but the whole thing disappeared.

rosiescenario's picture

Well the guys at the SEC are glued to the Mexican midget wrestling porn and just do not have the time to look at what is happening in the market....

sun tzu's picture

Some people think we need to hire more SEC regulators to watch porn

fnordfnordfnord's picture

Maybe eTrade ran a commercial that day and got everyone to join? Sort of like when AOL unleashed their hoardes upon USENET*


navy62802's picture

My guess ... someone on the inside made a shit load of money in those chaotic days.

Apparently the plan worked beautifully, as we are still here six months or so later trying to figure it out.

zilverreiger's picture

Does anybody have a legend or scale please? 1500 * what?

Everybodys All American's picture

I believe that is the time of the day. Military time.

Cognitive Dissonance's picture

I think he's asking about the vertical scale, not horizontal.

I have no idea.....other than knowing that 1500 is three times greater than 500 and 10 times greater than 150.......the apparent average when the movie (.GIF) started. :>)

hack3434's picture

Quotes/bids per milli/microsecond?

JohnG's picture

Probably in thousands.

falak pema's picture

TD : Some time ago ZH posted a thread where it said that HFT was under regulatory investigation and thus a THING OF THE PAST. I remember clearly that ZH became famous for having being the first blog to denounce these high powered shenanigans on the Net. 

I assumed tht it would end; this legal action would take away this fundamentally flawed technique giving unfair advantage to TBTF parties on both sides of the pond and now international practice. 

Now your current post shows this was just false mirrors and pseudo regulatory procedure, once more, left hand operation by regulators. 

AM I right or have I missed something?

GeneMarchbanks's picture

70% of trading is HFT, how you gonna stop it?

falak pema's picture

rhetorical if left unregulated. Regulating GS on Greek swaps is like swapping punches with world champ in his training get black eye.

Tyler Durden's picture

Alas, we put a modicum of faith that the US regulators may for once do their job. We were fatally wrong to escape our usual cynical mindset.

In other news, remember when the Fed was investigating Goldman for those Greek currency swaps? That was a damn fine investigation...

NotApplicable's picture

That'll teach ya to mainline Hopium!

slewie the pi-rat's picture

boy!  i'll tell ya, tyler! 

brownie did a helluva job there, didn't he?

JW n FL's picture



Eat the Rich!


The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.


They have been eating You! and Yours!! for GENERATIONS!!!

Cognitive Dissonance's picture

Someone should alerts the frogs that the water temperature is near boiling.

Time to exit stage up.......and out.

JW n FL's picture



Eat the Rich!


The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.


They have been eating You! and Yours!! for GENERATIONS!!!

AldoHux_IV's picture

With the retail investor out of the equity market, at least we now have a visual representation of the perceived liquidity in the market.

LouisDega's picture

I just got back from pinching a loaf. Let me check the markets. I will be back

Id fight Gandhi's picture

People still need reminding of this.

Likely nothing will be done until it crashes hard

blu's picture

And nothing will be done after it crashes really hard, either. HFT will then be the only pulse left in the monster. They keep it alive to give CNBC something to blather about is the only reason.

Jason T's picture

I don't even know where to begin trying to understand this.. wtf is going on out there?

Cheesy Bastard's picture

Yup, it looks like someone threw gas on the fire on Aug. 5.  Upon further reflection, that is what actually happened.

_ConanTheLibertarian_'s picture

Looks like an ET invasion picked up by SETI. Mars bailout coming?

ChrisFromMorningside's picture

It's the "Wow!" signal. As in "Wow! Better get the hell out of these markets before they blow!"

LouisDega's picture

Yea, , Its off the lows alright. That analysis is on da house

Conax's picture

This is what I love about ZH- that is a perfect illustration of market swamping HFT and a reminder that the downgrade really was our Waterloo. Big funds have rules about creditworthiness that forced the banking institutions to keep the 'market' alive via millions of tit for tat trades.. is that about it?

Trying to understand here.

I always thought a small transaction fee was a good idea, now I'm pretty sold on it.


slewie the pi-rat's picture

that will be 5 cents, please

Conax's picture



Uhh, I'll have that nickel tuesday,

or would you like a check?



I wonder what sound(s) or song you'd get if you fed these charts into sound generating software.


Sort of the tune of the market...


And don't tell me it's life support machine sounds... LOL

blu's picture

it sounds just like a train wreck

Buttertooth's picture

There is a guy who is "playing" tree rings.  He uses a laser to read the subtle differences in density and color and the information is converted into notes on a piano.  I wish I could remember the name....

Cathartes Aura's picture

here ya go Buttertooth:

Created by German artist Bartholomäus Traubeck, Years takes the annual rings that you find in cross-sections of trees and converts them into piano music.

good vid showing the machine "reading" the rings. . . thanks!

MachoMan's picture

I'm thinking something kind of like bohemian rhapsody...