Nanex ~ 08-Jan-2013 ~ Artificial Stub Quotes
A new test appeared on January 8, 2013. Some of the more nefarious algos run tests by
rapidly placing and canceling
orders in a way to fool other algorithms into showing themselves, to freak humans out, or in this case to artificially create stub quotes.
Stub quotes, a significant cause of bad fills during the Flash Crash, were banned by
the SEC. Well, here's one way an algo can appear to meet Stub Quote requirements, but
back-off the market in a way that all the benefits of stub quotes remain intact. Here's
an example of prices
changing by 10% in another stock on the same day.
Here's a few charts showing symbol EEMA: the bid oscillates from about $6 to $50
and the ask from $500 to $55 (that's right, the bid and ask change by a factor of about
10). Of course this is not legal. It's called manipulation, and FINRA/SEC have fined some folks
for this abominable behavior.
1. EEMA showing bids and asks color coded by exchange. Each of thee 26,906 dots represent an order that was placed and canceled. There are no trades.
2. Zoom 1, showing about 5 minutes of time.
3. Zoom 2, showing about 3 minutes of time.
4. Zoom 3, showing about 27 seconds of time.
5. Zoom 4, showing about 10 seconds of time.
6. Zoom 5, showing about 5 seconds of time.
7. Zoom 6. Tick chart