Nanex Research

Nanex ~ 14-Dec-2012 ~ Quote Stuffing Bombshell

Update - March 4, 2016 - Vindicated!

Must read: SEC pays $750,000 Whistle-blower award for "high-quality analysis by an industry expert"!

Looks like the people calling us conspiracy theorists may have been lying and libeling Nanex after all.


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. In our first published report on the Flash Crash, we came up with a term to describe this anomaly and coined Quote Stuffing. Two years later, we created the animation Rise of the Machines  to chronicle the growth of this phenomenon.

That summer, Zero Hedge (Durden), USA Today (Krantz), CNBC (Pisani), Reuters (Lash), Barrons (McTague), the Wall Street Journal (Strausberg & Lauricella), the New York Times (Bowley), the Atlantic (Madigral), Risk Magazine (Wood), Bloomberg (Mehta) Bloomberg Magazine (Foroohar) and others investigated Quote Stuffing and asked the regulators (Trading and Markets Division at SEC) and the exchanges about it. The regulators and exchanges vehemently denied that Quote Stuffing existed and that we (Nanex) were conspiracy theorists. We have had many discussions with reporters who told us privately the language used was far from tame. And we are not even listing the reporters or news organizations that passed on writing a story because of what they were told by the regulators.

More recently, in October 2012, at a meeting between the SEC's Trading and Markets Division and major Institutional buy-side firms, an SEC spokesperson besmirched Nanex's reputation with the same party line: that our research and findings were the stuff of conspiracy theory. So it is not surprising that respected and established media reporters who work closely with the street, and talk to them daily as colleagues, may have found our theories and graphics "out there". It is not surprising that quote stuffing and "bad algos" would be hard to believe and buy into unless you worked with market data every day.

Credit Suisse Bombshell

Now comes along this paper (see below) from Credit Suisse, one of the global leaders in electronic trading and research. This paper describes Quote Stuffing as a strategy employed by HFT. Note that the term Quote Stuffing did not exist until we coined it in June 2010. Credit Suisse's paper shows how easy it is to detect. And that is true, it is that simple to spot and it continues to occur. Which is why the last 2 years have been confusing and frustrating to no end.


With abundant evidence to the contrary, why would SEC Regulators deny that Quote Stuffing exists and that our analyses are "the stuff of conspiracy theories"? We are not about to engage in conspiracy theory talk now by saying someone is being paid or compensated to shill for HFT/Wall Street and putting the reputation and authority of the regulators at risk.

Here are a few possibilities:
Of course we do not know the answer. Our hope is to arm the media to get at the truth; we can only examine the data. Perhaps it is time for the media to dig up their notes and follow up with more questions.

This paper at the link below was removed after we published this paper. We found a new link: High Frequency Trading Measurement, Detection and Response

This link no longer works: Credit Suisse: HFT DETECTION

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