From Floppy Disk Crash of ’87 to Flash Crash of today w/the Nanex Algo Hunter!
In case you missed the interview with Eric Hunsander of Nanex a few days ago, we suggest reviewing it again.
Mr Hunsander shares his views on crashes, system overloads and killer Algos.
Video below.
Ex-SEC GC: Financial Markets Aren’t Rigged, They’re Broken
Ralph Ferrara, partner at Proskauer Rose LLP, talks with Bloomberg Law’s Lee Pacchia about the problems presented by high frequency trading and potential solutions. Ferrara says that certain policy changes made by Congress in the mid-1970′s had the effect of decentralizing financial markets and diminishing the presence of human controls over trading activity. In his opinion, the resultant market fragmentation combined with high frequency trading has led to a broken, two-tiered system that could force retail investors out of the market and fundamentally change the notion of capitalism in the United States. Ferrara served as General Counsel to the Securities & Exchange Commission from 1978 to 1981.
VIdeo below.
“Dr. Doom” Marc Faber SLAMS Ben Bernanke in this “must hear” clip
This week’s episode features a “must hear” clip from “Dr. Doom” Marc Faber, the outlook for stocks and bonds headed into year-end, the incredible dangers of high frequency trading, the Obama camp’s latest outrageous move, and more!
Full interview click here.
HFT – Declining Species?
The Trader has been covering the HFT space for some time. We are not sure how these charts are constructed, but as the race to zero continues, HFT are making less money, and who wants to be investing billions in technology, in order to make peanuts? Is HFT becoming the next broken dream? Full chart and explanation, click here. Courtesy NYT.
HFT Volume Profits ( max 5 billion)
Maximum estimated annual profit at all H.F.T. firms
Say hi to the new 4 % Algo
New Algos running the show. Welcome the 4% Algo. Courtesy Nanex.
The new quote spamming algo first spotted yesterday continues to grow. It accounts for about 4% of all equity quotes and run almost every second of the trading day – except for several 5 minutes gaps. It’s signature is so large that it was easy to spot when looking at the consolidated quote feed at millisecond resolution. When it runs, it blasts 200, 400 or 1000 quotes per symbol over about 25 milliseconds of time, and often accounts for 80 percent or more of all quotes during that time. It appears oblivious to market conditions – running whether trading is quiet, or full throttle. Which is disturbing, because bandwidth is extremely scarce at peak activity.
The animation below shows 5 minutes worth of CQS quote messages on 2 millisecond intervals. Each line is colored by reporting exchange according to the legend below. Each frame in the animation below shows the first 1/2 second of each second. The bottom panel shows each exchange’s percentage of the total.
Investors Need to Realize The Machines Have Taken Over
As our frequent readers know, The Trader has covered the HFT in depth over the past year. Yes, the market structure is broken, despite what “pundits” tell us. Our friends at Nanex have made it possible examining a second in milliseconds, and provided us with charts over the past years, of which majority of investors never get to see. Machines is the new normal, so either you adapt, or you won’t survive. Below is an excerpt from the latest interview of Nanex’s Eric Hunsander by Chris Martenson.
High Frequency Trading (HFT) deeply concerns Eric Hunsader, founder of Nanex. He worries that today’s investors, our regulators, — heck, even the HFT algorithms themselves — don’t fully understand the risks market prices face in the brave new era of bot-dominated trading.
For instance, Hunsader estimates that HFT algorithms are responsible for 70%(!) of all completed transactions on our exchanges, and for 99.9%(!!!) of all exchange quotes.
The pictures of trading floors you see on TV, where the people in bright jackets appear frantically busy in making their trades, have no bearing — claims Hunsader — on the actual trading action. The real action happens across fiber-optic cables, on racks of servers in cooled rooms; where an arms race defined by cable length and switching speeds is being waged
HFT and Regulatorzzz
We have said it many times before, the gap between regulators and the technological developments in the markets have never been bigger.
Last week the Indian markets collapsed in a flash crash move, although few talk about it. Here is a reminder that the issue needs to be adressed asap, via Bloomberg.
Don’t forget to check out the (K)nightmare video as well.
Another HFT Flash Crash while you were sleeping….
In this new world of technological developments, thing can only get better, or? We have written extensively on the HFT topic. The Algos are unregulated, and will eventually cause the collapse of the system. Despite regulators “assuring” us the technology is providing liquidity, we can not but disagree, as we once again see what happens when a few algos go crazy. Somehow these events are getting more frequent as time passes, or have people already forgotten about the (K)nightmare in August? India collapsed 16% while you were sleeping, but all is back to normal….From Bloomberg.
Trading in the S&P CNX Nifty (NIFTY) Index and some individual companies stopped at 9:49 a.m. in Mumbai for 15 minutes after the 50-stock measure tumbled as much as 16 percent to 4,888.20. Volumes traded on the gauge surged 163 percent compared to the 100-day average at 1:27 p.m., data compiled by Bloomberg show.
Reliance Industries Ltd., owner of the world’s largest refining complex, and Housing Development Finance Corp., the country’s biggest mortgage lender, both tumbled as much as 20 percent.
HFT and SEC
Remember the (good) old days when everybody had the same information about where stock prices trade. Let’s see what happens going forward. We doubt the regulators understand what actually goes on every day, but with the multiple glitches over the past weeks, at least a few regulators are waking up. From Reuters.
The U.S. Securities and Exchange Commission on Friday published a list of computer specialists and scientists mostly tied to big Wall Street firms who will give presentations at the roundtable next week on technology issues in the U.S. stock market.
The SEC scheduled the Tuesday discussion after a wayward trading event on August 1, when a software glitch led stock market maker Knight Capital Group into an erroneous buying frenzy. Knight’s activity moved markets and nearly brought down the firm, ultimately costing it $440 million.
Technological problems have also been blamed for events like the May 6, 2010 flash crash and the botched initial public offerings of Facebook and the BATS Exchange.
Market Disruptions Are “Wake Up Call” On Computerized Trading
Senator Jack Reed, Democrat from Rhode Island, talks to Bloomberg Law’s Lee Pacchia about an upcoming hearing in front of a subcommittee for the U.S. Senate Banking Committee on how high speed computerized trading impacts the broader economy. Senator Reed will chair the hearing which seeks to examine the role high frequency trading systems have played in recent market disruptions such as the so-called ‘flash crash’ from May 2010, the failed BATS Gloabal Markets IPO, problems with the Facebook IPO and recent glitches plaguing trading firm Knight Capital.
Must watch video below.
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