On July 13, 2015, the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission released a joint report analyzing the significant volatility in the U.S. Treasury market on October 15, 2014 (press release, paper [pdf]). We'll simply call it the "Fed paper".
Usually, exchange disciplinary actions are identical to FINRA's except for name changes, however in this case, there was one paragraph in the Nasdaq action missing from FINRA's. And not just any paragraph, but the most stunning revelation about Quote Stuffing to date: Citadel was sending excessive orders (Quote Stuffing) as a trading strategy!
On July 29, 2014, Representative Scott Garrett (R-NJ), Chair of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, held an equity market structure round-table at the Library of Congress in Washington, D.C.
While internalizers matching retail trades claim they use direct feeds for pricing, there is overwhelming evidence that retail customers, in fact, are getting prices based on the SIP (Securities Information Processor also known as the consolidated quote).
During regular market trading hours on February 13, 2014, we found 633 extreme high frequency trading (HFT) quote spamming events. We define an event when 1 symbol has 6,000 or more quotes and less than 300 trades in 1 second of time. Events like these are rare, usually only a few appear in a trading day. There were 633 such events on February 13.
Ask them to define what liquidity means. Here's the Chairman of the FIA Europe who completely gets it wrong. Here's an email exchange with an academic who helped write the SEC flash crash report who also, completely gets it wrong! Yes, HFT provides liquidity, but only if we are using the term liquidity to mean something else.
For the first time, the SEC's new multi-million dollar market data analysis tool, "Midas", allows the regulator to measure a stock exchange's compliance with a core rule that lies at the heart of regulations governing how our stock markets work. We are referring to rule 603(a)(2), which basically states that exchanges cannot send stock quotes faster to special groups than to the public quote.
The SEC actually rubber-stamped Nasdaq's proposal (below) which, for all practical purposes, destroys the core concept that holds Reg NMS together - but only for the Nasdaq exchange. It's interesting that other exchanges have not made this proposal (that we can find). We strongly recommend the New York Attorney General or Congress investigate.
Links and commentary on an explosive paper that changed everyone's view of HFT. On November 14, 2012, Adam D. Clark-Joseph published Exploratory Trading, which analyzes CFTC audit level trading data in the eMini S&P 500 futures market. This is a special, "regulators-only" data-set that contains all orders and trades, and each order and trade has a trader identifier. What this paper exposes is astounding.
In June 2010, while analyzing the Flash Crash, we noticed that many stocks had extremely high rates of canceled orders (1000+ per stock, per second). We then looked at data back to 2004 and found hundreds of thousands of examples: the first beginning in July 2007, which not coincidentally is when High Frequency Trading (HFT) began exploiting the flaws of Reg. NMS.
On January 14, 2008, in the early hours of trading, prices of the March 2008 eMini (ES) futures contract began oscillating rapidly. After about 4 seconds and 100 oscillations, the price swings widened to the equivalent of about 400 points on the Dow Jones Industrial Average. The oscillations then abruptly stopped and in less than 2 seconds, the price collapsed 5.3% from its peak: the equivalent of a 760 point drop in the Dow. After reaching bottom, the market was halted for 10 seconds.
The March 23, 2012 IPO of BATS was brief. Apple (AAPL) stock began trading at 11:14:18.436 with an initial price of $15.25. Within 900 milliseconds from opening the stock price had fallen to $0.2848. Within 1.5 seconds the price bottomed at $0.0002. 567 trades were executed before the stock was halted (532 are shown below).
On June 25, 2014, the Attorney General for the State of New York announced a lawsuit filed against Barclays, alleging fraud. Reading the lawsuit, it quickly becomes clear, that not only was Michael Lewis right in Flash Boys, but Wall Street has become a cesspool of corruption and criminal activity.
In the course of researching another issue, we reread transcripts of SEC/CFTC meetings that took place in the months after the flash crash. But this time, we read those transcripts with the gift of hindsight, having gained considerable knowledge from extensive analysis of market data
We had to remove the data from this page to comply with FINRA's outrageous fees ($12,000 to $18,000) for publishing derived data from ATS Volume: even a simple calculation of average trade sizes. Please read the KORS comment letter to the SEC which discusses these fees and data.
Another case of Direct Feeds getting data while SIP customers do not. For 20 minutes! The last time there was "information asymmetry" on this scale, Nasdaq shut down for 3 hours. When asked why, Robert Greifeld explained they decided to shut down because of "information asymmetry":
The number of stock halts from the new Limit Up, Limit Down circuit breaker (LULD) is on the rise. Some of this increase is due to multiple halts in the same stock on the same day, and a significant subset of these multi-halt events are triggered, not from actual trading, but from a mere widening of the quote spread.