Here at Floating Path we’re hoping to aid in bringing to light market manipulation by high frequency traders. The topic is one that, for the most part, goes under-reported by mainstream financial media outlets. Aside from Zerohedge, its mob of bloggers, and Nanex, there are few folks looking to consistently highlight these unfair practices. We hope to do just that, with no spin and no opinions, just data.
This past week brought many more instances of high speed machines taking advantage of regular investors and traders. 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.
A little different from previous weeks, this time around we saw two instances where a stock’s price was subject to a bit of a “flash-rise-then-crash” (a term I’m coining) rather than the usual, simple flash crash. On Friday, a Morningstar ETN with the ticker symbol WMW, traded from roughly $16 to $80 per share in 17 seconds. The instrument then quickly reversed right back down to where it started in another 8 seconds.
Also on Friday, the stock of Amazon saw quote spamming activity that reached 100,000 quotes per second. This barrage of spam coincided with another flash-rise-then-crash as the stock went from $274 to over $280 and right back in less than two seconds. The video below shows the quote spamming while the chart illustrates the actual change in price.
Friday morning we also witnessed gigantic trading activity right before the 8:30 release of the highly anticipated non-farm payroll numbers. According to Nanex, huge spikes in a wide array of futures contracts occurred milliseconds before the official data release causing circuit breakers to kick in on some trading venues. The chart below is a compilation of all futures contracts trading that morning, and as you can see, some folks clearly had a bit of a head start.
On June 7, 2013, someone aggressively sold T-Bond and T-Note futures 482 milliseconds before the official release of the Jobs Report. Aggressive selling of gold futures contracts began 62 milliseconds before the official release. This sort of thing is becoming all too common. It also appears the T-Bond, T-Note and eMini futures entered a circuit breaker – trades halted for 5 seconds, but quotes did not.
On a related note, this week the Wall Street Journal published an interview with former NYSE chief John Thain where he pledged his support for HFT.
Slowing down electronic trading isn’t the answer, says Thain, an electrical-engineering major at MIT that has long been known as one of Wall Street’s more prominent technophiles.
“To mandate you can’t do high-frequency trading is kind of trying to mandate that you should go back to horses and carriages,” says Thain. “That doesn’t make any sense.”
Readers should keep in mind that Thain’s opinion is anything but unbiased. He was President and Co-Chief Operating Officer at Goldman Sachs while it invested heavily in electronic trading systems including Archipelago Holdings. When Thain took over as CEO of the NYSE, an acquisition of Archipelago and its Arca trading platform was top on his to-do list. He’s long been a proponent of and a caterer to high frequency trading outfits.
Thankfully, we did see some more mainstream coverage as Bloomberg Businessweek showed robots at Goldman Sachs doing their best to manipulate prices. Even CNBC got in on the shenanigans coverage with the video below explaining how 1 second in time can be worth 2 billion in dollars.
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?