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SkyNet Wars: How A Nasdaq Algo Destroyed BATS
Following the May 2010 flash crash, the investing public hoped that as part of its "exhaustive report", the SEC would find and hold responsible the various components of a broken market structure, be it HFTs, ETFs, stubbing and sub-pennying algorithms, and all the other knowns and unknowns we have covered over the years. Instead, in what would prove to be a move of cataclysmic stupidity (if sadly understandable - the SEC, like everyone else "in charge" is used to dealing with a gullible and simplistic public, which has no access to the real data and analysis, and whose opinion could be easily manipulated, at least until now), the regulator blamed and scapegoated it all on a Waddell and Reed trade (we wonder just what the quid pro quo was to get the asset manager to roll over and take the blame despite protestations to the contrary, at least in the beginning). The result was that the same investing public realized that market structure is so corrupt, and so robotically mutated, there is no place for the small investor in this broken market. Last week's BATS IPO fiasco merely confirmed this. And as usual, BATS (whose chairman Ratterman has just been demoted even as he stays on as CEO) decided to take the "passive voice" approach and blame it all on a faceless, emotionless, motiveless "software glitch". Just like that perfectly innocuous BSOD we have all grown to love and expect any minute. Only it wasn't. To get to the bottom of what really happened, in a world in which the SEC is far more interested in finding the latest discount internet porn stream than actually protecting the small investor, we relied on our friends from Nanex, who have time and again proven to have a far better grasp of what it is that really happens in the market than virtually anyone else. And if Nanex' interpretation of events is correct (spoiler alert - it was not a "software glitch") it takes SkyNet wars from the silver screen and to a trading terminal near you. What happened is that a malicious, 100% intentional Nasdaq algorithm purposefully brought BATS stock to a price of 0.00 within 900 millisecond of the company's break for trading! This is open SkyNet warfare.
The fact that the BATS exchange itself halted just prior to break only facilitated this (and could potentially be a case of malicious sabotage). But one thing is clear - as the data below shows, there is no doubt that an Intermarket Sweep Order originating on the Nasdaq exchange was unleashed to make a mockery out of BATS. It succeeded, and in doing so may have destroyed not only BATS chances for going public, but ultimately ruined the firm's credibility. Who would stand to gain from this? Why exchanges such as Nasdaq and NYSE of course, which already are scrambling for revenue, and in the aftermath of the failed Deutsche Boerse merger, it means that any dirty trick in the book to extend and pretend is now fair game. Such as the algo that crashed BATS.
We fully expect that in keeping with its galactic stupidity of yore, the SEC will do nothing to address this situation which is nothing short of exchange warfare using rogue and malicious algorithms as agents of war. Further, in doing so, it will once more destroy any latent "credibility" that the stock market may have created with the retail investor following the 4 month ridiculous and centrally planned melt up (we doubt there is much faith to lose - as we pointed out last week, Joe Sixpack no longer wishes to be the big boys' patsy). Oh well - if the market and its regulators wish to make "investing" solely a provenance of central banks, ultra fast algorithms, and Primary Dealers, so be it. They can play in their sandbox all they want. Just don't expect the trillions in "money on the sidelines" but mostly in savings accounts, where it may earn 0% interest, but at least it won't be vaporized courtesy of some vacuum tube, to ever come back to stocks. Ever.
As for the forensic reconstruction of what truly happened to BATS, below we provide a spreadsheet (the excel can be downloaded here), of every single trade post the BATS IPO.
In Nanex' own words:
Start at line 192 -- these weren't stale quotes from Nasdaq by any means. These were highly accurate and precisely updated quotes from a sophisticated algorithm programmed to take BATS's price to 0. You can see the BATS trades just before the algo on Nasdaq starts up. In other words, after the BATS trades print, everything is fine (except of course for BATS' system). Nasdaq's system is just fine. So is CQS (the SIP). That algo did its job with the precision of a master watch maker.
The data and charts make this abundantly clear. The trade(s) that shut down Apple would be considered stale/bad quotes. But not those 500+ trades on Nasdaq.
Nanex' verdict:
It had to be someone who's machines are directly connected to Nasdaq because they used Intermarket Sweep Order orders.
And visually:
Look at the timing! There are many quotes lasting less than 1/10,000 of a second in there! (10 quotes/millisecond). And note the almost perfect 45 degree line in log-scaled blue line below.
Had to be from same algo. Way too perfect. Way. Too. Perfect.
If BATS' system hadn't failed, this algo would have likely been obscured.
Alas, BATS did fail, and the result was last week's epic embarrassment for BATS which already cost the CEO his chairmanship, and the firm hundreds of millions in fresh equity, but also which destroyed any hope that the retail investor may be coming back to what is now a permanently and terminally broken market.
* * *
And For the chart porn addicts, here is a step by step forensic view from Nanex of how a stock exchange is permanently prevented from going public.
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Never had, never will. Two friends of mine died on motobike accidents. I am terrified.
Sorry to hear that.
Once you overcome the fear bikes are a blast. That said, I haven't been on one in 30 years.
Fear isn't a factor anymore just failing vision and slowing reflexes :)
Investigating 'scarcity illusion' regarding oil is not worth the time spent investigating. (Regardless of Peak Oil realities/theories)
Scarcity is a constant in a profit system, its an ALWAYS... No matter the abundance of the product or resource.
Whether Farm subsidies / mandatory crop reduction/destruction, Planned obsolescence of products. Privatization of water. Rare mineral destruction (diamonds). "Peak oil".. a phrase we'd hear regardless of its abundance. Patents alone produce and affect scarcity. The list goes on and on...
Much of the "scarcity" (to include perceived scarcity) we're in competition for within our economic model is manufactured... for profit.
Quite interesting.
It's worth investigating to understand the constant (value) factor and what direction the elites think they can corral the sheeple.
See my link above about the UN's plans for the concept model of Sustainia. It's just re-packaged high tech feudalism and it is scarcity's global endgame.
Your sang froid fatalism appears to be at odds with the necessary vitality of free market resistance...there's no profit in that.
What I'm saying is, SCARCITY! ITS FOR EVERYONE!
"It's a one of a kind. No, really. Really. Everybody wants one."
"That Gucci purse is beautiful! OHHhhhhh, I didn't realize it was LAST years Gucci purse"
Its a constant VIG in everything. Let's call it a tax, but worse yet.... It TOTALLY influences why things are the way they are; what resources we use, the products we use and the materials used to build them, the longevity of the products, the marketing, the politics, the labor.
"If its TRUE there exists an energy - free and abundant, I promise you I'll never find it" - some systems prick, pick a name
Nuclear power has way of locking the plebes out. Expensive too. They REALLY like that one.
And Freuds got nothin' to do with it.
OUR 'profit' is knowing why we will ALWAYS make certain choices in our system. Want to change the choices? Got to change the system.
I agree. Definitely have to change the system. More open source in everything: energy, computers, information, health, food....
The counter to scarcity is the abundance found in the empowerment of sharing knowledge and information to make everyone stronger...because as we know, "On a long enough timeline...."
The greatest profit is preserving freedom and thwarting tyranny...that should be the primary business plan IMO. Every business should start and end with that concern.
Is the tyranny systemic?
Cuz remember, in our system (morals/ethics aside) it remains very profitable to keep you sick... a looong almost alive drawn out death never hurt the bottom line either. The cliche 'there's no money in a cure' has never been more true than now as the Health CARE/Human Services/Zombification Industry nears 20% GDP.
SO, if Big Pharma squashes an early cancer detection device, if even only for a while... sitting on the patent they bought.. as we subsidize them for the losses they incur due to the obsolensce of the last 7 products...
Or even better, they just never really try all that hard to fix anything. Is it tyranny?
It's a mess. total disconnect trading. Bernanke will wake up one day and the sky will be purple. Doomsday. All the print-jobs in the world won't mean anything.
Some warning flashes lighting up eveywhere. TVIX, crude, Greek CDS spike (then settled down), China company profits collapsing, Iran/Israel coming war, Obama acting nuts, Nth Korea acting nuts, EZ is nuts...goes on and on but it all adds up = chaos
I wonder if they've wrote the algo they are going to need to try and impose order from this mess...maybe they don't have an endgame?
good as any place to throw in my own stray thought on the matter.....(after your guys' scarcity/open source ramblings)... what really pisses me off is the loss of 'value' in all of these crimes. prosperity health freedom-poof! vaporized.
actually no. the sky will be black, and the moon blood red, but yeah, you're right.
HFT do not hold stocks. They buy/sell instantly. If they can't sell the end of the day, they just don't close the trade at all, they cancel it.
Yes they create an illusion of support in the markets. Since trades are instant and constant it actually looks like a stock is being held/supported. it then sucks in momos that whack down long posistion/s. What we need is a mass cancellation or short trade or some weird inverse trade (selling on good news) - that would feed back in and momos would sell.
The selling last session was normal for end mth closing of books, but, watching some strange Asian trading now with Shanghai selling, ASX200 went bid (looks like initial HFT trades), AUD tanked, Gld is trailing weak after the sell off.
It looks ill.
Funny you should mention it, they did crush AAPL.
Walk to the exit, dont run.
I hope they crush the whole f*cking market. It needs a flush from hell.
Wow. That's some good forensic analysis.
I hear footsteps, I'm sure it's Eric Holder and the FBI rushing in to back up the SEC. Nope, just muppets being herded into those super "safe" government bonds where there's no need to be frightened, Ben has their back.
little muppet: Gee, these woods are all creepy and dark. I'm scared!
Bernanke: Well, how do you think I feel? I gotta walk outta here by myself....
wow. really? a pedobear joke? green arrow bitch. lol. kiddin.
One day, we'll wake up and see that either one of two things has taken place, and both don't give me warm and fuzzies.
1) The markets are at "no bid", and that terrorists are responsible; or,
2) The markets are frozen at their all-time (or close to) highs, and that the terrorists are responsible.
I'd say 98% of Amerikkkans will believe it. The other two-percent of us will be trying to get on ZeroHedge, only to be timed-out because the server has fatally crashed.
3) The market keeps going up on a sloped line, every single day, without fail. Nobody can tell why, nobody admits to trading it, nobody can make an actual trade that ever results in a gain themselves, while at the same time nobody can tell who is making the gains being observed. The MSM reports the market behavior as if it were important, pundits ramble on about the greatest bull rally ever seen, but they cannot find one person to speak to their investment strategy because when pressed on the matter nobody seems able to actually trade.
take that Batchez!
Everyone! a friend from school is trying to get a lap band surgery.. if you would be so kind as to go vote for her! that would be great!!
Kelly P.
39 years old
I feel like my life is on hold because of my weight, and now is the time for me to take charge of my life. I am a 39-year-old, single mother of two beautiful, energetic boys. Sadly, my weight is stopping me from being the mother I want to be.
Obesity affects my life in many different ways, including my self-esteem, my confidence, my daily activity level, and my health. I am passionate about life and need to be at my best, both physically and mentally, to provide my sons with the best life possible.
At my current weight, I am scared that I will not be around to see my children become adults. I also want to be the best role model possible.
http://www.obesitynomorefl.com/contest.php
she is on the left side.. her name is Kelly P.
Thank You in advance for any of you who would take the time to click the link and then her name to vote..
maybe it helps her change her life?
Good Luck to her and God Bless her! and God Bless you for clicking two (2) buttons!
Hey JW, Kelly P's on my right!
I voted.
Its never too late for coleslaw bitchez.
Thanks for the Vote..
Coleslaw??? damn that! Bar-B-Que!!
I did not trip and fall into a fat puddle! I worked at being fat.. I am 300lbs.. +++ I am 6'6" (5" & 3/4"s, in the interest of full disclosure! LOL) but close enough!
Kelly is tall and she is a GREAT! Girl!! so any of you sinlge guys who thinks she cute..
send me a summary of who you are and I will consider you.
Her Father is a Great Man and one of the Few People I respect.. still.. after all these years.. which is saying something considering I knew him before I had a drivers lic.
God Love Ya and God Bless ya for looking out for the Girl!
I voted for her too.
Nice of you to do this for her.
Thanks Guys for helping the girl out!
This article is my view 100% It's obvious this is not "a glitch" but a cyber attack to break the exchange bid ask mechanism, for the sole purpose of breaking it, and profiting handsomely from the ensuing crash.
I am not a expert in these matters, but it looks to me like a denial of service attack to crash a web site. The exchange servers just can't handle the huge volume of orders.
This is beyond quote stuffing or scalping fractional amounts on trades. This is a crime in progress. No financial instrument is safe SLV APPL are two recent examples.
I trade metals on the London exchange through FXCM. During the Silver 5% 15 min smack down, I could not connect to their servers at all. After the carnage was over their servers came back on line no problem!
This is a serious problem and the SEC is doing fuck all about it.
Funny I was thinking myself last night that a rival exchange was behind the BATS fiasco.
I hear crickets at the SEC, the names probably changed thru the revolving crime door but the same crickets are there rubbing their hind legs together.
You certainly won't see the agitprop fear of Anonymous cyber hacking spoiling this party.
When they start rolling out their next psyop for Internet security (web censorship) campaign, someone please direct them to this crime scene.
Employees at BATS lost a ton of money. If there's retaliation, how would they go about it? What do they target?
Great point.
BAT guano splatter. Can't they make the algo's actually spell something out with up and down ticks like a led zeppelin record played backwards? Something like "Your financial future is programmed in our computers" or something nifty like that?
Yes it will say F*CK YOU and trade at 0.00001 or 10000000 from there
Begun, the Algo Wars have.
Pass the popcorn and bourbon.
Yes brother. I shall join you. popcorn and bourbon for our friends and beer for our horses.
rrrrr robots http://www.youtube.com/watch?v=xmWZseVWxN4&feature=related
...and mmmm muppets... http://www.youtube.com/watch?v=dvu2Q4BsE2U&feature=related
http://www.youtube.com/watch?feature=player_embedded&v=ivh3RDRFffI Max
&
http://www.youtube.com/watch?feature=player_embedded&v=h9ALEoBvMYU Celente
On
hunting the Horny Black Toad
yup... and they think us PM holders are all a bunch of nuts and conspiracy theorists...No one can manipulate a market... uh uh.
This is not capitalism... it is decapitalism. Our world is in a state of crisis.
The US is becoming a nation of crooks. I've worked at a number of Fortune 500 companies and know for a fact that they view the law as something that you break and if you're caught, so what, the company pays the fine. This warped libertine view has helped to create the state of crisis that envelopes the US.
They say that the Noahamic flood in the Bible occurred because the world of that time had grown so hardened, that all of the evil needed to be washed away. You know that the moral fiber of society is in trouble when the weekend movie box office hit is about kids killing kids...
Something is coming.
"The only way to fix it is to flush it all away."
At least it isn't just happening to Bitcoin anymore.
I need to let off some steam, I'm sick to death of the garbage and lies from the MSM.
George Zimmerman is a HERO. We should be hanging his portrait on our walls.
FUCK these violent black youth who have destroyed city after city in America, who rape and murder, who breed like rabbits, who clog the courts and prisons and force the rest of to live like hermits in our homes and keep on fleeing from one place to the next just to avoid them and have some peace and safety.
This country is finished people. You know it, I know it. Put a fork in her.
You sound like a racist.
http://www.marketwatch.com/story/beijing-receives-criticism-for-market-intervention-2012-03-27?link=MW_home_latest_news
This is for a good laugh.
2015 = collapse of amerika????
Shit, all I wanted was my goddamned flying car and hoverboard.
Chaos and destruction will do, I guess.
I do not see an explaination of what this algorithm actually did that and why this brought the bats system down. Not understanding id have to say that a program is to handle what is demanded or fail gracefully.
Damn, we're in a fucked-up world right now.
it's one big game of chicken right now... flinch too soon and miss out on one of the few investments giving positive returns, flinch too late and everything gets wiped out in microseconds
Anyone remember the good old days when subprime was contained?
http://geraldcelentechannel.blogspot.com/2012/03/future-wars-robot-wars....
Future Wars - Robot Wars
Now wait a minute. How's the FED going to steal from someone if they are the only ones in the market to steal from?
If they move the market up what good does it do them?
If they move the market down they can begin taking over global corporations easier.
They are after the corporations now instead of retail investors.
Wow best for compainies not to be listed.
A U.S. Department of Energy official says the U.S. continues to consider a possible release from its Strategic Petroleum Reserve.
http://world.kbs.co.kr/english/news/news_In_detail.htm?No=89205
Wow. How do catch these korean websites?
Is this sarcasm or??
Anyway, I like this twitter feed... covers much of Asian news.
http://twitter.com/#!/markmackinnon/korea
Not at all. Very serious. I put it on favorites.
What I find strange is the choice of the source of the news. Not a western newsplace.
As usual, many thanks to Nanex.
Brilliant visuals and commentary.
So, whats holding any of this racket up?
Civil war is brewing in Libya (what a surprise... not)
http://www.strategypage.com/qnd/libya/articles/20120324.aspx
A year after the rebellion against Kaddafi began, the dictatorship is gone but so is any effective government. The regional, tribal, and city militias that were organized during the months of fighting have not disbanded and many refuse to recognize the authority of the NTC (National Transitional Council). This is supposed to be fixed by the June 23rd national elections but without cooperation from all the militias, the June elections won't work and seem likely to be delayed.
Civil war is brewing and the goal will be to control the oil income. There are over 200,000 armed men in Libya, most of them belonging to a tribal or local militia. Some of these militias have set themselves up as local governments and are demanding "taxes" from businesses.
Wot? ... you mean ... might does not make right?
Welcome to NWO-style decentralised protestation ...and yeah, it's supposed to suck and look miserable and nasty.
Otherwise everyone might want no central Govt authority. So let's give everyone a rocket launcher and fan the fires of total national dysfunction. Must scare those pesky sovereign individuals back into the flock of the tyrannical nanny state.
Ideally we need boat-loads of desperate refugees fleeing the carnage of their failed states, and into the generous caring arms of rich secure democratic Nanny states (where the locals just want them to fuck-off back to where they came from).
And we'll just edit-out the bit where the nanny-states all bombed the living fuck out of their once fully functional failed-state, in the first instance. As people are encouraged not to notice and remember that it was us who actively intervened, for the children, and thus caused their already sanctions-weakened state to completely fail and be consumed by war, disease, economic collapse and ravenous hunger.
And we'll set up a central bank and a new puppet and call it the dawning of freedom and democracy.
While nanny-land politicians nod and say that it was all totally worth it, all the dead children, simply to be rid of the former Western-backed dictator-puppet regime.
Alright ladies we can;
A) Whine and complain
B) Use your brain and develop your own algos
Looks like the slacker commie ZHers choose A.
LMFAO!! You forgot.....C) None of the above...asswipe.
how about those of us on our 5th build.. or is it 8th? whatever.. version.. it doesnt matter..
are you going with the herd or for speed?
lets hear about your plan of action?
processor or custm silicon? or are you gonna push both? WUUUUUUU! WHHHHHHOOOOOOOOOOOOOOOOO!
B) Use your brain and develop your own algos
________________________________________________
Use of brain should give "join a corporation to develop that kind of algos, which would no longer be your own algos"
If you want to develop that sort of algos, you'll have to use your brain, muscles, connections, extended capital and a few other things to get away with it.
shanghai being brutalized down 1.80% hits 2.00%...futures will sink hard.
ASX200 just set a bulltrap. Asia selling and US goes bid. I don't think so. Another attempt at a correction, lets see how it goes...
So, like most around here, I figured a deliberate attack from somewhere - it was just too perfect (though it couldn't have happened to a more fitting IPO - they shoulda' listed with NASDAQ..../s)
So, rehtorical question, when is the MSM gonna pick the NANEX (bless 'em) information up and run with it? I mean, all those smart financial journalists are gonna lust after this story, right?
Big news tomorrow morning. Right?
And here I was thinking stocks were actually about investing in companies that make stuff and employ people who then pay exorbitant taxes to digital bandits and another slice put into superannuation that is then immediately attacked by algos.
No superannuation or retirement funds were harmed in the making of algo-BATS-a-go-go.
Ok, ... there was ... but we don't care, so who gives a fuck about it?
Wanna subscribe to our newsletter?
Now where are those trolls who keep telling us all how good zh USED to be? ...
"...a broken market..."
An oxymoron if ever there were one. Like a broken wheel or hammer, it used to be a tool or device for transport, but no longer. Now, it's just junk. Time and effort must now be expended to dispose of it as repair seems not an option.
So this is what we've come to? Sad.
Follow the bids that hit like bread crumbs, and you'll find who had a vested interest in buying the stock at a heavy discount.
How dare these guys not use the same "11b SunGard Data Systems club deal cronies". http://dealbook.nytimes.com/2011/09/08/judge-widens-antitrust-suit-against-private-equity-firms/
But the powers that be say that algos can't be used to manipulate the market and provide liquidity. this can't be correct (LOL)
Excellent post?
I recommend everyone look at the data too. The data makes you either laugh or cry. Thank you NANEX. Exellent work.
I am rather certain bats is crooked. I trade with vanaguard, but chart with bats. there is often a huge arb spread between them and vanguard on uco, and quotes go blank for long periods when things are moving well so you can't tell direction. I am willing to bet they have their own prop desk and front run, etc. lately I've just had such a bad experience with their stiuff
they just did it again, no trades or data for 5 minutes!!
and once more at a critical resistance level and no trades.
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