Slashdot Mirror
Mysterious Algorithm Was 4% of Trading Activity Last Week
concealment sends this excerpt from CNBC:
"A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear. The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday."
I hear the production IT department of a big trader had been drinking (something about the bonuses, don't know if they were celebrating or trying to forget) and started to play truth or dare.
The game was interrupted when the boss arrived (what he called "first thing in the morning").
Perhaps somebody was running some unit test on production here?
Privacy is terrorism.
forgot to exit my Do While loop :) had to ctrl+al+del
A single mysterious computer program that placed orders — and then subsequently canceled them
The algorithm never executed a single trade
No regulator should accept this.
I think we are taking significant risks with the stock market and automated trading. It is now a complex system of interracting algorithms that nobody understands or can understand. I have heard it said that the fluctuation patterns we are similar to fluctuations in chaotic systems before a state change. It is entirely possible that the markets could lose most of their value in a matter of minutes, before anyone knows what's happening - and the unforeseen interaction of algorithms could put a whole generation into poverty
How does "4% of Trading Activity Last Week" sync with "the algorithm never executed a single trade"?
The real problem is that there is too much fake money that people do not personally feel attached to, because it's created by the main counterfeiters of the world - the central banks, and because starting a competing exchange is nearly impossible.
How about this for a story:
In April, motivated by what I consider pure maliciousness, the SEC initiated a âoecease and desistâ administrative proceeding it deemed âoenecessary for the protection of investors and in the public interestâ against Egan-Jones Ratings Co., a privately owned, 20-person firm based in Haverford, Pennsylvania, and against its principal owner, Sean Egan.
Do you know what the alleged crimes are?
Here:
Now, incredibly, Egan-Jones is the sole rater that the SEC has decided to attack. The trouble for the firm started on July 16, 2011, when Egan-Jones downgraded the U.S.â(TM)s sovereign debt by one notch, to AA+ from AAA. Egan-Jones cited âoethe relatively high level of debt and the difficulty in significantly cutting spending.â Two days later, the SECâ(TM)s Office of Compliance Inspections and Examinations contacted the firm seeking information about its rating decision. (The next month, S&P also downgraded the U.S.â(TM)s sovereign debt, but neither Moodyâ(TM)s nor Fitch did.)
Then, on Oct. 12, Egan-Jones received a call from the SEC notifying the firm of a Wells Notice, an indication that it was being investigated. On April 5 of this year, Egan-Jones again downgraded the U.S. sovereign debt, to AA from AA+. On April 19, leaks started emanating from the SEC that it had voted to start an âoeadministrative law proceedingâ against the firm. And on April 24, the SEC filed its complaint.
The crime is that this one agency is not paid by the sellers of the bonds but instead it's paid by the buyers of the bonds, and the buyers have an incentive to have debt rated properly, so that they know their risk.
Of-course AFAIC US bonds are junk.
So you think SEC is interested in really dealing with HFT and whatever you think is market manipulation?
Think again, the only thing it is interested in is protecting the fake rating of the sovereign debt, so that the US gov't can keep piling it on.
MY OTHER COMMENTS
"The motive of the algorithm is still unclear."
Oh what a load of bullshit.
It's obviously an experiment in painting the tape. Make bids, cancel them. Walk stocks up and down with the bid price. Head-fake other HFT corps that track bid prices in their algorithms.
It went badly because it was detected. It needs tweaking to be not so obvious next time. And yes, there will be a next time.
It's a casino now. It's been a casino for a while, and if you're not part of the house, you're the mark.
--
BMO
The data on open orders is available to some. Of those who get it, some are 'more equal' and get the first look at the data.
A group who is 'less equal' and feels a competitor may be using their advanced look at the open orders to gain a competitive advantage could be placing these orders to neutralize that advantage.
Guys, think of it. Our stock exchange, i.e. your pension or if you are unlucky also your mortgage is depending on this kind of software these days... And this is not the first time this year that stock trading software is in the news. This has nothing to do anymore with owning a share of an organization in the hope the organization will make a profit and pay you dividend. This is total craziness.
1) If I were to do something like this with amazon.com (add things in my shopping cart and then remove them rapidly) wouldn't the headline be "hacker attempts to take down amazon site" with jail time? Why does this receive such a neutral headline like "mysterious algorithm?"
2) I pay $25 to execute a trade. How much money does it cost these people to put a bid or ask up and pull it? Shouldn't there be some sort of punitive cost for doing this?
I find it a bit strange that these trading systems don't seem to use some kind of identification (like signed certificates). How is it possible that some system did these things and the stock exchange doesn't immediately know whose system this was? This sounds like a disaster waiting to happen.
Felix Salmon on high-frequency trading and its part in the current financial crisis.
Listen to this 13 min BBC programme/essay at: http://www.bbc.co.uk/programmes/b01n1thw available for the next 12 months
Artificial intelligence is the study of how to make real computers act like the ones in the movies.
Alright, stop this scaremongering right now. Some under-informed people may actually believe you.
Let's make few thinks clear:
- Condensation trials left by airliners are not chemicals spread by the government,
- Elvis is dead,
- High Frequency Trading does not influence long term security values.
Of course the exchange knows who they are - you can't just stuff orders into the market anonymously from your PC at home. I'm mean the exchange needs to know who you are so they know who to charge for the trades. The exchanges aren't happy about people placing and cancelling tonnes of orders - after all they only make money when something trades. You can guarantee that they got on the phone to whom ever was doing this and asked them to stop.
Sig (appended to the end of comments you post, 120 chars)
Indeed this is an important information...
Herve S.
The US Savings bonds remain the safest bonds in the world. They're also the only bonds worth buying. * * * There's still plenty of funds available to service the debt.
First, while there are too few of them, there are a number of countries in the world without debt problems. The US is one of the countries that is worst off, especially if you add in all of the unfunded pension liabilities (which the government generally avoids). Any country colored green, yellow or even orange in that map has its debt under control. Cross-reference for a trustworthy government, and you still have quite a selection of countries whose bonds are a much better choice than US Savings Bonds.
The only source of "funds" to pay off this massive debt are called "printing presses". While printing more money is, in fact, probably what will eventually happen, this will destroy private saving, cause massive inflation, and completely undermine the position of the dollar in the international markets.
tldr; The US is not the whole world. Have a look around, much of the rest of the world is doing a lot better than the US nowadays...
Enjoy life! This is not a dress rehearsal.
Much as I dislike adding fees to inhibit the free market, the whole HFT world desperately needs them. Placing any bid or making any transaction should cost some small-but-tangible amount of money.
Even better, if more complex: add a fee based on how long a particular security is held. Less than a second, the fee is 1000% of the transaction value, more than a year, no fee at all, and scale for all values in the middle. HFT is legalized theft, and needs to be penalized out of existence.
Enjoy life! This is not a dress rehearsal.
Where's the news? This is called quote stuffing and has been going on for ages. The reason is simply to mislead or overwhelm the HFT algos of competitors.
[pro-hft trolling]
Ok, it's been a few years since I worked at the stock exchange, so someone please update me:
What is this bullshit with cancelling orders, in bulk? What is the reasoning, how could anyone ever think that would be a good idea to allow?
Assorted stuff I do sometimes: Lemuria.org
The rule of law is dead in the USA. Bankers and financiers have a free pass from Washington DC to break the law with impunity.
It is a crime to undertake any action (other than buying and selling of course) to profit from deliberately attempting to manipulate prices. Placing orders with no intent to have them executed is no different than a pump and dump scheme, or leaking a fake press release to affect a company's share price.
There's an easy solution (actually two) to stop this BS. Make a rule requiring that all orders need to be open for at least, say 15 seconds. Long enough for a small day trader to act on them. Alternatively, they could assess a small fee for every canceled order above some threshold in a trading day. Call it 5000. i.e. You get to submit and cancel 5000 orders for free, but every additional canceled order costs you a penny.
If I could figure out a good way to cash out my 401K without getting ass-raped by the government (Ask Slashdot?) I'd cease participating in this gambling casino where the house always wins.
If it's advantageous to sell, you sell and make money, there's your liquidity
That is most definitely not liquidity. Just because you want to sell something doesn't mean there is a buyer. Or it might mean there is a buyer but they want a big premium to do the deal. Liquidity is a measure of the ease with which buyers and sellers can find each other and agree to a price. Our recent financial crisis was in large part a crisis of liquidity. Big banks needed to be able to borrow money and everyone was afraid of lending to someone who might be insolvent so there was literally nowhere to borrow from. It's not just an all or nothing proposition either. If a stock is thinly traded, the spreads are going to be huge and it will be really expensive to buy that stock. If it is difficult to find sellers it likely will be difficult to find future buyers as well. The more trading that occurs in a stock, the narrower the bid/ask spreads because it is easier (and less expensive) for buyers and sellers to find each other. More trading = more liquitity = lower transaction costs.
4% of quote traffic is not the same as "4% of trading activity"
That "ponzi scheme" whereby the pensions of today are paid by those paying into the pension plan is the only good, cheap, and stable way such a thing can be run.
Please explain how you manage to maintain adequate levels of pension when the ratio of workers (ie those paying) to pensioners (those receiving) has shifted from around 10:1 in the 1960s to around 4:1 now and heading towards 2:1? Pay-as-you-go pensions work when your population pyramid is a pyramid, just like a ponzi scheme apparently works when it is growing -- it's when the growth stops and more and more people want their money that the shit hits the fan.
Wall street hates Obama.
Not a partisan jab, just an observation. (I am actually one of the 'undecideds' they keep talking about)
Remember what happened to the stock market 2 weeks before the last election (October 24th, 2008) The election was Nov. 4th.
this year it is Nov 6th. You'll see.
-badford
1: They get to skim off the differences. Making up for thin profit margins by huge unit time trade volumes.
2: The speed of light insists that you have a limited space to get the same latency as another HFT. Since this limited space has demand, that demand raises prices. And therefore unless you have a huge amount of money AND connections, you won't be able to bid, let alone win, a lease that close to the exchange.
3: study wrong. Fast trades make the stock market INHERENTLY unstable.
And what bad effect does it have? It makes markets crash. Since there isn't any INFORMATION passing that fast, all you work on are the motions of the trade. Since you're looking at small changes, you will not be able to tell the difference between an insider dumping shares before a bad report or an executive cashing out to put their child through Harvard. And so you will sell before it drops any more. Other machines see the bigger drop and will call an out on the product and dump even more rather than be left with the options at a low (hoping to buy when the other suckers who held on find they have to sell at low prices).
but don't let facts get in the way of your rant.
Uh no please. I'm a small investor and automated trading is a great boon to me. Low transaction prices and quick execution are very helpful.
HFT? Who knows? What I do know is that nobody knows if it's good or bad for fairness in the market . That in itself is scary.
I read the other day that the EU Parliament is considering adding a 0.5 second minimum order duration limit to the relevant directive (MiFID) to ensure that other parties can actually close the orders and prevent this kind of thing from happening.
Some interesting problems with this article: It overlooks the issue of HFT trading that is designed to "gum up" the system. It also overlooks the problem of canceled trades and incomplete transactions. The proposed solution, a Tobin Tax on each trade would have little impact, as a significant amount of the HFT activity involves submitting trades with no intention of completing them. Hence, not subject to the tax. But then this is a solution I'd expect from a quant, who is in the business of generating this kind of activity.
A smart person once told me: If you want to stop progress on something (in this case, trading reform), don't fight it. Instead, volunteer to help. And then offer useless suggestions and advice.
Have gnu, will travel.
Doesn't the Securities Act of 1933 make it illegal to place an order on the stock market when there is no intention of that order being fulfilled?
Quoting the act:
"(2) To effect, alone or with 1 or more other persons, a series of transactions in any security registered on a national securities exchange, any security not so registered, or in connection with any security-based swap or security-based swap agreement with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others."
Why don't we just start prosecuting these jokers with already existing laws?
-- Give me ambiguity or give me something else!