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[May 6, 2010] The Flash Crash & Quote Stuffing

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"It's Not A Market, It's An HFT 'Crop Circle' Crime Scene" - Further Evidence Of Quote Stuffing Manipulation By HFT. Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months). 07-29-10 "The Crown". 07-28-10 BATS "Batsicles".

H/t Dan. The Visual Beauty of Fraudulent Stock Market Manipulation. The article titled "It's Not A Market, It's An HFT 'Crop Circle' Crime Scene" [] describes some recently discovered but irrefutable evidence of "quote stuffing" on the US stock market, a manipulative technique (similar to DDOS) that High Frequency Trading (HFT) systems use to try to overpower each other.

The Visual Beauty of Fraudulent Stock Market Manipulation

Around the time of the spectacular May 6 Flash Crash, the stock market anomaly during which about $1 trillion market value temporarily evaporated, it seems thousands of cancelled quotes reappeared, about each second and with a definitive periodicity and regularity. For instance, on July 12, over 56,000 quotes appeared in less than 10 seconds, all with same ask price, while the ask size increased or decreased by 1 until almost 40,000. Flash Crash Analysis - May 6'th 2010 - Part 4 - Nanex. While analyzing HFT (High Frequency Trading) quote counts, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second: as high as 5,000 quotes in 1 second!

Flash Crash Analysis - May 6'th 2010 - Part 4 - Nanex

During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn't seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was a manipulative device with destabilizing effect. The fingerprints of these quote stuffing sequences are evident when looking at specific and unusual bursts of quote data..

It is worth emphasizing the following charts represent a mere handful of stocks where this quote stuffing occurred on 5/6/2010. Trading Electronique Professionnel. Articles précédents en rapport avec le flash crash : Accenture crash : sweeping order et stub quote Analyse du Flash Crash du 6 Mai 2010 - Partie I : La journée du 6 mai Poursuivons donc notre études post flash crash du monde du trading haute fréquence (HFT, High Frequency Trading) en nous intéressant cette fois ci au quote stuffing (bourrage de cotations littéralement...).

Trading Electronique Professionnel

Il est possible de plus en plus souvent de trouver des Echanges qui envoient un nombre extrêmement élevé de cotations à la seconde pour une même action, à savoir 5000 cotations en une seule seconde! Durant le 6 mai, des centaines d'actions ont eu plus de 1000 cotations en une seconde. Ces "burst" de cotations sont générés en toute vraissemblance par les automates de trading haute fréquence. Une première solution est de prendre les machines les plus rapides et les cerveaux les plus intelligents pour coder les systèmes, puis de faire tourner les automates directement sur la place de marché (collocation).

Comment? La manipulation du cours des actions. Le site Nanex nous offre ces très belles images de manipulation du cours des actions sur les marchés boursiers américains.

La manipulation du cours des actions

On pourrait imaginer que l’on n’ait pas affaire ici à du High Frequency Trading opéré par des ordinateurs suivant les commandements d’un algorithme, qu’on ait affaire par exemple à des êtres humains très bien synchronisés, comme ceux, par exemple, que l’on a vu à l’ouverture des derniers Jeux Olympiques en Chine, mais quand on lit que 15 000 offres d’achat distinctes ont lieu en 11 secondes, le doute se dissipe : ce sont bien des machines qui font ça. Notez qu’on ne voit pas sur ces images d’offres de vente, uniquement des offres d’achat. Autant pour la légende urbaine qui veut que le High Frequency Trading procurerait à ces marchés de la liquidité. Notez aussi, qu’en proposant ainsi d’acheter pour annuler cette offre aussitôt, on peut faire varier le cours de 10 %.