Latest HFT Shenanigans: Consumer Confidence and Chicago PMI

SPY Consumer Confidence 5.28.13 600x400 Latest HFT Shenanigans: Consumer Confidence and Chicago PMI

SPY trading via nanex.net

A holiday-shortened trading week didn’t stop us from witnessing plenty more examples of high frequency trading manipulation. With the help of the folks over at Nanex, we’ve again compiled the instances in which HFT computers have caused obscene gyrations in either a stock or ETF’s price, its quotes, or sometimes both and have highlighted a few that are the most interesting.

On Tuesday, markets awaited the release of the Consumer Confidence data at 10:00. However, some super fast computers seemed to have the inside track on the data release. Or possibly they were just very lucky? Approximately 1/4 of a second before the release, trading exploded in major ETF’s like IWM and SPY. The chart above shows only one second of time in SPY trading, with exactly 10:00 approximately in the middle. Another chart of interest below shows activity in all National Market System stocks, totalling about 8000 different names. Again we see the explosion of activity slightly before the data release. Some folks certainly had an unfair advantage.

NMS stocks 5.28.13 600x400 Latest HFT Shenanigans: Consumer Confidence and Chicago PMI

All NMS stock trades via nanex.net

The video below from Nanex shows SPY trading and again details the absolute explosion of trading 1/4 of a second earlier than most people knew what the Consumer Confidence data showed.

On Friday, another crucial piece of data was set for release at 9:45, the monthly Chicago Purchasing Managers Index. Possibly unknown to a lot of people, this important piece of data is openly made available 3 minutes early to HFT firms willing to pay for “premium service.” According to Nanex there were gigantic volumes following the 9:42 early release.

During just 1 second of time at 9:42:00, the following high trade counts popped up on our monitors (approximately):
550,000 SPY shares
10,000 June 2013 eMini futures contracts
1,400 Nasdaq 100 futures contracts
800 Dow Jones futures contracts
350 Russell 2000 futures contracts
125 S&P 400 Midcap futures contracts
300 Crude Oil futures contracts
900 Dollar Index futures contracts
800 Gold futures contracts
10,000 10yr T-Note futures contracts
2,500 5yr T-Note futures contracts
3,500 T-Bond futures contracts
5,000 Eurodollar futures contracts
750 Japanese Yen futures contracts
600 Euro futures contracts

The chart below shows all trades in the roughly 8000 NMS stocks for a period of 13 seconds before and 14 seconds after the early release of the Chicago PMI data.

NMS stocks 5.31.13 600x400 Latest HFT Shenanigans: Consumer Confidence and Chicago PMI

All NMS stock trades via nanex.net

With computing power clearly superior to most market participants, and data providers catering to them with early releases of market-sensitive economic data, how can anyone think the U.S. stock market is a level playing field? The built-in advantages of HFT are large enough, but the extra preferential treatment they receive from exchanges and data providers stacks the deck in their favor to an even larger degree. How can anyone compete with this level of speed and time advantage? The video below details activity in SPY trading for 100 milliseconds after the PMI number was available to HFT algos.

As we know, speed is the name of the game and latency arbitrage is the road to risk-less profits, albeit littered with unethical and illegal decisions. What will the world of high frequency trading bring next week?

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