In some very surprising news out Norway (thanks to all our Norwegian readers who alerted us about this), which once again condemns our own SEC for being a criminally negligent regulator, we learn that two Norwegians, Svend Egil Larsen and Peder Veiby, have been charged with market manipulation (a charge which carries up to 6 years of prison time if convicted), after succeeding to reverse engineer a stock trading algorithm used by broker Timber Hill, which is Interactive Brokers' key market maker. Allegedly, the two daytraders found a weakness in the Timber Hill algo on the Oslo Stock Exchange back in 2007 and 2008, and used it to outsmart the market maker and make a few hundred thousand NOKs in the process. The punchline is that the charge against the two is market manipulation with an intent of "using buy- and sell-orders that were not intended to be traded on, but to move the prices." The irony is that as we have demonstrated repeatedly by showing prima-facie evidence from Nanex, quote stuffing patterns by thousands of HFT algos running amok across various US exchanges, ATS and other trading venues, is precisely what happens every single day in the US - namely, algos which merely seek to push the bid or the offer in a given direction, with no intent of ever crossing a trade, all for the sole purpose of sending false indications of bulk orders coming. So when humans do it (and make peanuts compared to the billions the HFTs collect domestically), they end up going to jail; when our own system, which is geared to push stocks ever higher, does it - it is perfectly ok, and possibly even encouraged. After all, the HFTs provide liquidity, remember? Just ask Mary Schapiro. The sad conclusion is that those who wish to trade in markets that have not yet been overrun by SkyNet, or where regulation actually works, may be best served by trading on the Oslo stock exchange, and as far away from the US as possible.
As for those who wish to remain in the US, here is what you can look forward for: one of Nanex' most recent crop circles, appropriately called "Robot Hunting" and "The Awakening."
"Robot Hunting". Searching for Bots.
BATS "The Awakening". CancelBot is learning.
The article first appeared Norwegian paper DN, and can be read googletranslated here.
For those who are curious about the prestory, we present another google translated version, courtesy of Norwegian site NA24.com
Oslo Stock Exchange halted trading after share purchases made by this man.
Wednesday flashed warning lights to market surveillance on the Oslo Stock Exchange after a series of trades that took place in the stock Wilh. Wilhelmsen. Wilhelmsen.
Several records of 50 shares were traded through Nordnet and provoked trade from the foreign brokerage Timber Hill. This is done by pre-programmed machines provided on trade in certain stocks to capture the movements.
The machines may be instructed to buy shares in companies that are subject to high trading activity.
This form of programmed trading is done by algorithm based machines that are among customers of brokerage houses. Sometimes, this strange effect on share prices.
Wilhelmsen made the share price rose around 6.4 percent before the trades to the Timber Hill got the price to fall back again. The next few minutes swung the price in the unusual pace.
This is done by machines misinterprets trade picture and conducts abnormal trading.
Oslo Stock Exchange reacted to the trade patterns and imposed a temporary halt in trading for a closer look at the trades. After conducting a preliminary investigation for suspected violation of applicable rules, elected not to delete the exchange trades.
- Trade pattern will be the subject of a thorough investigation. Based on the findings will be sent to the Financial Supervisory Authority, according to an announcement from the Oslo Stock Exchange.
After an hour open the trade again.
Do not do anything illegal
The man who claims he is behind these trades is not concerned about what the surveys will tell.
- Oslo Stock Exchange investigates the trades you are behind in the Wilh. Wilhelmsen. How do you react to that?
- It's good that they take hold of the important issues, "says Svend Egil Larsen NA24.
He says to NA24 that he is behind some of the trades, but not all.
- Have you done anything illegal trade in shares?
- No, the answer Larsen.
He fears not what comes out of the surveys that the exchange is now complete.
Know the rules
- Tipper exchange examines if I know the other Nordnet-customer who intervened in my game with the robot from Timber Hill, said Larsen.
- Have you planned this with someone you know?
- No one knows when the rules of the game, "said Larsen.
He is an experienced trading of shares and other securities, and now works full time as a trader. He follows a day on the stock exchange and is a known figure in the small daytradermiljøet in Norway.
- I hope I do not feel competent to speak, "says Larsen, referring to the other Nordnet-customer who" interfered ".
Low turnover on the Stock Exchange by financial crisis and brokerages programmed trading makes it possible to implement this type of trading. That he chose Wilh. Wilhelmsen, is not arbitrary.
- It's sad to see such a solid stock that WWI attracts so few players, "said Larsen.
Oslo Stock Exchange announces that they might send the case to the Financial Supervisory Authority, and that they should make some further investigations.
- What kind of research do you want to implement?
- We have responded to things in trade patterns, but we do not discuss the specific what it is, "said press spokesman Tor Arne Olsen at Oslo Stock Exchange to NA24.
Olsen says that they normally go in to see who has acted, and whether there is anything unusual about the trades and whether those involved are more aggressive than normal. He points out that they have already conducted some surveys and that they considered that they would not clear the trades.
Challenge for brokerages
Oslo Stock Exchange will not go into how it is possible to manipulate such trades, but points out that brokerage houses bear a great responsibility.
- It's a great challenge for brokerages that this works properly. Brokerages are solely responsible for what goes into the trading system to the stock exchange is correct, "says Olsen to NA24.
Yet it is a challenge for both the Oslo Stock Exchange and brokerage houses in the event of such abnormal movements that happened to Wilh. Wilhelmsen Wilhelmsen said.
-Mechanical Trade is not entirely new, but relatively new in Norway, "says Olsen, showing that it may be that the machines are not set up well enough.
Olsen says that they have already reacted when brokerages do not have right on their trades.
As a result a programmed machine belonging to one of SEB Enskilda customers unusual movements in the Aker Yards share. In total, purchased 69,900 shares during the four minutes and that the price rose 1.6 billion.
Oslo Stock Exchange reacted when giving SEB Enskilda criticism in connection with the transaction.
Larsen NA24 that he has previously been involved in trades that have led to the Oslo Stock Exchange has had to impose a temporary pause in the trade to examine the exchange rate movements.