HFT Shenanigans: Crashes, Hardware, And Lobbying

Every week Floating Path looks to highlight some of the crazier examples of HFT running amok in the markets while bringing to light developments relating to the high frequency trading industry.

Crashes

On Monday morning Engility Holdings (EGL) dropped 12% on 90,000 shares in 470 trades in just over a second according to Nanex. Shares quickly rebounded after coming within one penny of their LULD band lower limit. Just as we’ve seen before, LULD bands have seemingly become targets for HFT more so than protection for other participants.

HFT Shenanigans EGL 600x400 HFT Shenanigans: Crashes, Hardware, And Lobbying

Zooming in, the curious closeness to the LULD band is obvious..

HFT Shenanigans EGL zoom 600x400 HFT Shenanigans: Crashes, Hardware, And Lobbying

On Tuesday afternoon COH, the symbol for Coach, Inc experienced a mini flash crash as it dropped 2.5% in about 250 milliseconds.

HFT Shenanigans COH 600x400 HFT Shenanigans: Crashes, Hardware, And Lobbying

And zooming in we can see the stock whipsawed a bit before recovering..

HFT Shenanigans COH zoom 600x400 HFT Shenanigans: Crashes, Hardware, And Lobbying

Hardware

The quest for zero latency and the spending associated with that endeavor brings to light the question of whether high frequency trading truly is a zero sum game. To that end, a recent answer from Quora that was posted by Forbes details the “technology stack” behind a successful HFT outfit. Below is a short excerpt, but reading the whole breakdown makes one realize how disconnected this industry has become from actual trading. In fact, outside of a singular use of “exchange” and “trading” nothing else would lead you to believe the author was talking about entities responsible for 50%-70% of U.S. trading volumes.

Both of these cards provide kernel bypass drivers that allow you to send/receive data via TCP and UDP in userspace. Context switching is an expensive (high-latency) operation that is to be avoided, so you will want all critical processing to happen in user space (or kernel-space if so inclined).

Lobbying

The pro-HFT crowd has been taking to twitter of late with @obrienedge and @RemcoLenterman leading the charge. Four top firms (Allston Trading, Tower Research Capital LLC, Hudson River Trading LLC, and Quantlab Financial LLC) have now formed a powerful lobby group named the Modern Markets Initiative. The HFT lobby has just hired political strategists from both Romney and Obama’s 2012 campaign. In his typical doucheness, Kevin O’Leary’s “Lang & O’Leary Exchange” recently interviewed MMI’s senior advisor to tell his group’s side of the high frequency story.

 

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