HFT

A few minutes ago, all hell broke loose in Intel stock when a Reuters fat finger did a JPM deja vu (as a reminder, JPM earnings were released just after 4 am, some three hours before their scheduled release due to a Nasdaq news release error) and released what the robots thought was INTC's Q3 earnings. Moments later, it was uncovered that while it was a fat finger, the finger hit the wrong button and had erroneously leaked Q2 earnings once again. Nonetheless, what happened in the interim was your typical algo idiocy, which as Nanex' Eric Hunsader summarized best, as follows: "This is crazy - note the wide swings in $INTC - some lasting less than 1 second. #HFT madness"

With S&P futures liquidity at near record lows (but what about the HFT liquidity-providers?), it seems the major stock indices are extremely sensitive to any and every headline or JPY twitch. For the 4th time today (and Nth time this week), stocks have decoupled higher from a less exuberant bond market... every other time, stocks have recooupled lower... Fool me once, shame on you... Fool me 4 times, I am Gartman...

It is very common to find examples of stock quotes changing rapidly - hundreds and sometimes thousands of times per second in a single stock. At the extreme, we've seen in excess of 25,000 quote changes in a single stock in one second of time or less. Sometimes a simple pattern evolves from the quote price changes, such as in the case of a certain High Frequency Trading (HFT) algorithm that we've recently seen run every day in Google stock. The algo starts with an order to buy 100 shares, then replaces a millisecond (ms) later with an order to buy a penny higher.. and repeats hundreds of times. "So what? HFT needs to be able to cancel quotes fast so they can tighten spreads, add liquidity and lower costs." The problem is that when HFT cancels a quote after just 1 ms, then anyone located more than 93 miles (150 km) away will see a stale quote. Worse, they won't know it's stale unless and until they try to act on it and wait for a response.

There is a saying that you don’t ring bells at the top. It’s not really true. Every time the market forms a major peak, at least in the last 15 years, there are usually a preponderance of signs of excessive speculation and leverage.

"The Markets Group at the Federal Reserve Bank of New York manages the size and composition of the Federal Reserve System’s balance sheet consistent with the directives and the authorization of the Federal Open Market Committee (FOMC), supports debt issuance and debt management on behalf of the U.S. Treasury, provides foreign exchange services to the U.S. Treasury and provides account services to foreign central banks, international agencies and U.S. government agencies. Markets Group is establishing a presence at the Federal Reserve Bank of Chicago and has openings for both experienced professionals and recent graduates.

It has been several years since the disjointed, confused, and extremely disorganized Occupy Wall Street movement made any headlines. Alas, in the interim, the career prospects of those who comprise its up prime age demographic have gone nowhere but down while inversely impacting the nominal free time of said cohort, which is why we were somewhat surprised it took as long as it did for the same individuals, best known for camping out in Zucotti Park (until it started snowing of course), to stage a daring comeback. Which they did today, following a weekend in which New York City was overrun with "The People's Climate March", protesting against climate change by... leaving behind them tons of non-biodegradable garbage. It is this same group that has once again made its way all the way down into the Financial district, and specifically in front of the TV studio formerly known as the NYSE.

Did someone finally inform the SEC that Bernie Madoff's business model has been adopted by every central bank in the "developed world?" Whatever the reason for today's record SEC award, which almost certainly has to do with HFT, a topic which this blog first brought to light back in 2009 when nobody had a clue what algo/high frequency trading is, congratulations to the lucky winner (unless of course it has to do with someone spilling the beans on US tax evaders in Swiss banks), and our condolences to the banks, because now that one can comfortably retire by informing the regulators of the pervasive crime that takes place within the US financial system on a daily basis, suddenly every disgruntled person laid off by the US banking sector is the next potential $30 million aware recipient.

The image below is a screen capture of the Google Earth map file which will be released officially tomorrow on his blog, with public documents linking each tower to its owner. The creator of the map thinks that it "should make some noise," although considering the vast financial resources and power over politicians the HFT lobby has, we wouldn't be surprised if, quite quickly, this latest story is promptly disappeared. After all, the last thing retail investors need to be reminder of every day, is that there is a rigged market for frontrunning, predator HFTs, and then a market for everyone else, i.e., the prey.

As business media pats itself on the back for the BABA IPO, proclaiming how it's the most important, and biggest IPO of all-time and on "the most efficient and transparent" exchange, perhaps it was just oversight that they forgot to mention BABA's 7-second halt "glitch" this afternoon as BABA trading exceeded 25% of all volume at some points. But that was minor compared to the utter clusterfuck that occurred as AAPL shares started to tumble and, as Nanex points out, 100s of individual stocks instantly flash-crashed and dashed by over 1% at 1550ET as the Russell rebalanced. These are your unrigged, transparent, efficient markets...

"The HFT Act will add the following clarification to the rules specifying the prohibition of market abuse: The placing of purchase or sale orders to a market by means of a computer algorithm which automatically determines the parameters of the order could be considered market abuse provided the placing of orders occurs without a trading intention, but (a) to disrupt or delay the functioning of the trading system, (b) to make it more difficult for a third party to identify genuine purchase or sale orders in the trading system, or (c) to create a false or misleading signal about the supply of or demand for a financial instrument."

Those 4 C’s are: Confirmation, Crisis, Contagion, Catastrophe.

While overnight US equity futures have done nothing notable, what everyone's attention has been fixed on, in addition to the GBP and the read-through to all things UK-ish ahead of the Scotland independence referendum, is the sudden flare up in USDJPY trading and volatility, which exploded by some 100 pips in the past 24 hours hitting fresh post-2008 highs, on what appears to be a major capital reallocation move (it surely is not driven by any news) and/or forced squeeze. What is more perplexing is the change in correlations signals, because while until recently the USDJPY was synonymous with the E-Mini, and thus the S&P, as of late the USDJPY pair has moved tick for tick with the 10Year yield: almost as if the NY Fed's favorite HFT trading shop was instructed to change its vast array of signal inputs away from the S&P and to force a gentle levitation in the 10Y.

Today the entry-level position has morphed into something far different when you talk to anyone who's never owned or run a business. It's no longer thought of as "entry-level," as  - faced with a government-mandated 50% minimum wage pay rise in some cases - businesses may decide their choice is to either leave – or eliminate the need for - those positions all together? And the technology, along with the acceptance of it, might be farther along the development curve than many believe to foster such dramatic changes.

Back in 2009 we first warned that the market is now just a "market" where between the direct manipulation of all asset-prices by the firehose Fed and its peers, and the explicit rigging of stock prices by the HFTs, there is no such thing as a market left. Back then, we were called tinfoil something or another. Now that everyone admits the Fed's only purpose is to push asset prices higher, and the topic of HFT's rigging of markets is now a blockbuster book, those accusations have grown silent. In fact, the only thing that remains are the very loud screams as increasingly more often, some unknown or well-known trader and/or investor, with a several year delay, stumbles on our conclusion and realizes that the game (i.e., market) is so rigged, manipulated and broken, that the only winning move was not to play in the first place. Today's case in point Andrew Cunagin, the founder of Rinehart Capital Partners LLC, a hedge fund backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, and who as the Wall Street Journal reported earlier, is closing. The closure is not news: what Cunagin blames the closure on, however, is.