Nanex ~ 27-Jun-2012 ~ Freaking out in Alleghany Corp.(Y)
#HFT caught manipulating the NBBO for profit.
On June 27, 2012 between 9:46 and 9:54 Eastern time, it took a whopping 141,213 quotes
to get 200 shares traded in Alleghany Corp common stock (symbol Y). In contrast, 5 years
ago, it took 35,000 quotes to get 4.5 million shares traded in IBM, and that took place
over the course of an entire trading session.
It wasn't that long ago that a trader was
fined by the SEC because they:
" interfered with the free forces of supply and demand and undermined the
integrity of the NBBO."
"repeatedly engaged in a precise pattern of conduct meant to affect the NBBO"
SEC case, another trader was fined for using limit orders to move the
public bid or offer quote.
The SEC lectures:
The investing public and other market participants, including broker-dealers
who rely on the integrity of the NBBO, were unaware that the NBBO quotes altered
as result of [traders] orders, reflected not genuine market activity, but the [traders]
In both cases, the guilty trader manipulated the NBBO a few times. This borders on comedy,
because this sort of thing happens
all the time, like in Alleghany. And it's not like you could miss this event. There were over 100,000 unnecessary and manipulative quotes during
over a span of 8 minutes (or in exchange-speak, 480,000,000 microseconds).
Guess it depends on who you
are or who you know.
One beneficiary of having so many multiple NBBO prices, are internalizers that internally
match customer orders. They fill these orders based on the NBBO during a 1 second interval.
Having many NBBO prices to choose from can be handy.
A link showing an example of this.
Let's look at some charts showing NBBO manipulation in Alleghany.
First, the trade.
1 second interval chart showing NBBO and trades color coded by exchange (both overlap
and show up as the red dot).
Now let's look at just the NBBO quotes. Pretty, isn't it?
Now we'll add in the other exchange quotes (the ones that don't set the NBBO,
but are top of book for each exchange).
Let's zoom into this disaster.
Let's zoom even closer.
And finally, a tick chart.