Until we get a regulator that can actually look at market data, stock price stability
will continue to deteriorate, a casualty of manipulative high frequency trading. Sure,
the SEC spins a lovely story about their new market monitoring tool they call Midas
(built by a high frequency trading firm!), but we are pretty sure they don't know how
to use it, or perhaps it doesn't show them problems created by high frequency firms.
Because if it did work, then the behavior captured by the images below (from June 21,
2013) would be fined into oblivion.
The charts below highlight a recent trend: stocks with a lower per second
but much higher sub-second rates (same impact on networks, but harder to detect). Also,
there is a significant increase in the number of exchanges participating, and rotating
into and out of the National Best Bid/Offer (NBBO). Which means far more confusion for
humans, order routers, other algorithms, and anyone trying to piece together what happened
(like perhaps the SEC).
The first chart shows about 4 minutes of time in the NYSE stock of Brookfield Property
Partners (symbol BPY). The gray shading is the NBBO (national best bid/offer). Each
colored triangle at the bottom of the gray shading indicates the price of the best bid.
and each triangle at the top of the shading indicates the price of the best ask. Triangles
are color coded by exchange. The first thing to note, is how much best bid and ask prices
change. Also note how often the best bid or offer switches from one exchange to another.
This is the result of a new wave of high frequency trading algorithms designed to expose
institutional orders (the folks that buy and sell stock for your 401K or mutual
fund). Once these orders are exposed , the algorithms work to trick the institutional
trader (or the institutional trader's own algorithms) into paying more or accepting
less for their (and ultimately your) stock.
During the time shown in the chart below, there were 176,177 quotes and exactly ZERO
trade executions. 99.9% of these quotes are from high frequency trading algorithms placing
and instantly canceling orders in an attempt to sniff out institutional orders. The
lack of trading is probably from traders giving up: thinking something must be seriously
wrong with the quotes in this stock.
More charts of quotes and trades in BPY during the same time.
We made a video that shows a sliver of time in BPY - see how a 1000 quotes impact the system.(Or
watch it on youtube)