Tuesday, August 2, 2011

The Blatant Market Rigging Continues

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The Market Ticker
VERBATIM POST
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How would you like to be able to set up a perfect trade where you could make an instant 2% over and over, every time, virtually guaranteed?

Who wouldn't like such a "market", right?

Well you can have it - if and only if you run an HFT program.

As Nanex said:

It's wack-a-mole, if you can hit the bid and offer fast enough, it's instant money!

On August 2nd, right after regular trading closed at 16:00, ELNK perfectly illustrates the illusion of modern trading. Gone are luddite meanings of bids and offers, where a bid really meant someone wanted to buy and an offer was a legitimate offer of stock. Today's bids and offers are beautiful to behold. And boythey are fast! How fast? Faster than you could ever hope to hit them. So shut up, sit back, and leave it to the professionals.

Nanex has been documenting these things for quite a while. This is a particularly ridiculous example, where bids and offers are entered and immediately yanked, 100 or 200ms (that's milliseconds) later. You, as a human, have a reaction time of more than 200ms, which means it's impossible for a human to ever hit those bids or offers.

But the HFT guys don't care, because someone does, and when they do, they make money. You, on the other hand, don't get what you're promised - that is, "National Best Bid or Offer", because as fast as a bid is "best" it suddenly is not before you can execute on it.

Incidentally, under the law any scheme intended not to execute an actual order but to play such a game appears to be illegal. Nanex has been documenting these in graphic and specific detail since the flash crash.

Can someone point to even one prosecution or shutdown of the HFT folks for doing this?

Nope.

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