That is spelled out in regulations against enticing others to trade using quote manipulation. And what is and what is not is not easy to establish but should not be abused. Then they can trade what results from it. Letting favorite customers to "play" or "test" during market hours is being abused. You have your technical data posted by the exchange, agreed for that and if they are below standards then complain with them or change for better or adjust your algo. Since the market is so fragmented it is virtually risk free for locals to play the quote game in their sand box. That quote is controlled locally and there is no central place registering it and releasing. People do not understand what HFT is and you come with more exotic scary technical terms to make it more difficult to understand. It does not make it easier to sell HFT as legitimate part of today's markets. Just to simplify - this way of playing market is like showing that you have a chip without actually putting it on the table, you only put it when the number and color comes up.
So an algo was keeping the ADR spreads in line by posting depth on the domestic side and leaning on the European legs. Hardly seems nefarious. +1
Not a chance, if what Nanex said was correct. 4% of total quotes for the week with no trades? ADR's actually do trade from time to time.
Perhaps the quotes were wider than best? :eek: Like .. providing deep book liquidity?? Surely not. Clearly highly illegal and entirely manipulative.
To need to spam the market for a whole week with worthless orders that constitute 4% of total market quote volume for "testing" purposes would be both reprehensible and technologically pathetic. Equally pathetic would be exchanges allowing this. If that's what's really happened, then the SEC needs to put a "kill switch" on the exchange status of any exchange that allows this type of behaviour (no matter how much is being paid them by such a "good customer"), which in turn would force the exchange to put a "kill switch" on such aberrant customers. And I am not criticizing liquidity adders/market makers who have execution ratios of 100:1, or even 1000:1, as part of a normal course of their business. But when it gets to 1000000:1 or even 1e10:0, someone is probably misbehaving, at least when it comes to equities. The live markets are not someone's personal test bed for networking technology. I agree that Nanex is pushing it with assuming that many of these types of actions are intented to manipulate, but in fact these actions can manipulate, even if only a little. But if you can manipulate a little at no cost, why not do it? That said, I doubt it's intended to manipulate -- my guess is that it's just buggy software. But it's still ugly and affects people adversely -- just ask a retail trader who has to see this garbage on their Level II. If the allegations are correct (4% of the market's quotes with no intent to execute), then the algorithm's author is essentially a spammer of the US equity markets. Such behavior demonstrates wanton and harmful disrespect for orderly capital markets, and should be penalized. Not to mention the fact that it makes the whole equity trading world look bad.
lol, I liked their research from the other day: http://www.nanex.net/aqck2/3620.html. On October 9, 2012 in PSCE, a buy program appeared in the stock of PSCE that consistently bought 100 shares every 45 seconds over the course of many hours. Quotes were not so consistent. One second, for no apparent reason at all, had over 1000 quotes (canceled orders) that didn't impact trading one bit. See chart 3. Shoot. Somebody was, like, buying shares. Could be pretty nasty.
Here is the problem: headline says Mysterious Algo + 4% daily volume. Even if you are 100% right and the media is 100% wrong the argument that it is dynamic latency profiling or some other tech stuff does nothing other than anger the reader/viewer. Besides the same profiling can be done with 0.99% volume and there would not be a headline. HFT crowd have to have Jimmy moment "I have sinned" (off air: " I will sin again and again") and do something that headlines do not pop out every other week and maybe fix the market place a little bit in the process. Otherwise amateurs will come up with some retarded regulations or taxation and then it will be to late.