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Mysterious Algorithm Was 4% of Trading Activity Last Week 617

Posted by Soulskill
from the robot-overlords-doing-a-test-run dept.
concealment sends this excerpt from CNBC: "A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear. The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday."
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Mysterious Algorithm Was 4% of Trading Activity Last Week

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  • by ccguy (1116865) on Wednesday October 10, 2012 @05:20AM (#41605245) Homepage
    I hear the production IT department of a big trader had been drinking (something about the bonuses, don't know if they were celebrating or trying to forget) and started to play truth or dare.

    The game was interrupted when the boss arrived (what he called "first thing in the morning").
    • Re:Truth or dare... (Score:4, Interesting)

      by Mitreya (579078) <mitreya.gmail@com> on Wednesday October 10, 2012 @05:35AM (#41605299)

      The game was interrupted when the boss arrived (what he called "first thing in the morning").

      So it is possible to create a large volume of "trades" without actually ever buying or selling anything? I am surprised that isn't gamed on regular basis - shaking up the stock market with minimal investment

      Something similar to penny stock spiking by spam...

      • Re:Truth or dare... (Score:5, Interesting)

        by Anonymous Coward on Wednesday October 10, 2012 @05:39AM (#41605319)

        Try the article. This kind of gaming the system _does_ happen all the time. It's just this event seemed particularly large.

        • Re:Truth or dare... (Score:5, Interesting)

          by Mitreya (579078) <mitreya.gmail@com> on Wednesday October 10, 2012 @05:53AM (#41605379)

          Try the article. This kind of gaming the system _does_ happen all the time. It's just this event seemed particularly large.

          Eh, no one reads the TFA -- I come here for the comments :)

          Of all the stock market defenders hyping the vital need for liquidity in the market, not one had ever mentioned that a significant fraction of that liquidity could be phantom trades.

          Does the article mention why the "fake" traders aren't fined and permanently banned from stock market? Stock market is not an anonymous place.

          • by Anonymous Coward on Wednesday October 10, 2012 @06:02AM (#41605415)

            It is allowed. They operate within the rules.

            Considering it's basically a license to print money, nobody is particularly concerned with "fixing" the problem. That's why you see all this astroturfing bullshit about how good HFT is -- it is all they really have to delay public opinion turning against them.

            • Re: (Score:3, Informative)

              by icebraining (1313345)

              If anything, it's a transfer from the other players in the market, not "printing" money, so how are they not concerned about it? Most market players aren't HFTs.

              • by Anonymous Coward on Wednesday October 10, 2012 @06:33AM (#41605527)

                No, HFTs certainly skim off the top of genuine traders and investors. If they were just transferring money from each other, the practice would never have become so pervasive.

                They do it by spending millions on computers, programmers, interconnects, and physical proximity and connectivity to exchanges. This gives them a fundamental and practically (for a small time player) unbeatable advantage over other users of the system, which is utterly against the spirit of a free market.

                What they are doing is consuming the service to the detriment of other users, and extracting a tax with their unfair advantage over other users, while contributing exactly nothing back.

                • by icebraining (1313345) on Wednesday October 10, 2012 @07:02AM (#41605627) Homepage

                  HFTs certainly skim off the top of genuine traders and investors

                  Yes, those are the other players in the market that I mentioned. "Players" is the people involved, not just HFTs.

                  What they are doing is consuming the service to the detriment of other users, and extracting a tax with their unfair advantage over other users, while contributing exactly nothing back.

                  Which is why I said the other players (the non-HT traders) have an incentive to end that behavior, which is why it doesn't make sense that "nobody is particularly concerned with "fixing" the problem". They should be.

                  • "nobody with the power to do anything about it is particularly concerned with "fixing" the problem". They should be.

                    FTFY

                  • Re:Truth or dare... (Score:4, Informative)

                    by Luckyo (1726890) on Wednesday October 10, 2012 @01:26PM (#41609653)

                    Problem is that "players" aren't actually the main deciding factor in how trade rules are made. They are an important one, but not major. Major factors are interests of exchanges themselves who benefit from HFT financially and major traders who run HFTs.

                    This leaves the small and medium traders who are basically exploited.

              • Re: (Score:3, Insightful)

                by DarkOx (621550)

                It is transfer but its really only transfer between Wall Street Entities. There is a great deal of hand ringing about HFT but I don't see much evidence it does anything to your typical retail investor.

                Look if your timescales are weeks,months,years and likely even intra-day its hard for me to see how HFT harms you. In the 2500ms it takes your brain to click the mouse, your online broker to process your web post and execute your transaction the HFT machines may have moved the share price up or down a few pe

                • by Anonymous Coward on Wednesday October 10, 2012 @07:15AM (#41605709)

                  Finally what if you hold positions in a "flash crash" or "melt up" depending on what your position is and if you have any cash on hand it might be an INCREDIBLE opportunity for you. You might have a shot out buying or selling at 1000 times the margin you otherwise hoped to get.

                  And then they roll back the day's trading, because we can't have little old you profiting from the cascading algorithmic panic of big money.

                • by Vaphell (1489021)

                  while the affair between the wall street big boys it's nothing more than a zero-sum game, the ball they play with has to be extracted from the unwashed masses trying to invest or saving for their retirement first. The profits GS et consortes reap in exchange for a bit more liquidity are ridiculous.

                • Re:Truth or dare... (Score:5, Informative)

                  by greg1104 (461138) <gsmith@gregsmith.com> on Wednesday October 10, 2012 @08:32AM (#41606107) Homepage

                  I've had illegal manipulation of a stock I was shorting result in a margin call against my account. There was no opportunity to "wait a day" for the mess to subside; part of my position was closed at the manipulated price by my broker. I've also had a stop loss order triggered by someone pushing the price around with that as its intended effect, a few seconds before the close proceeding a positive earnings announcement.

                  The idea that an individual investor will survive a crash long enough for the volatility to end without damage is a very optimistic one. Position entry isn't the problem; yes, you use a limit orders, etc. The problems are on the exit side. Forced closing before the return to normal conditions and making safety stop loss orders impossible to use that just two of the many ways individual investors can get hammered by temporary price manipulation.

                • Re:Truth or dare... (Score:4, Interesting)

                  by SlippyToad (240532) on Wednesday October 10, 2012 @12:13PM (#41608657)

                  It is transfer but its really only transfer between Wall Street Entities. There is a great deal of hand ringing about HFT but I don't see much evidence it does anything to your typical retail investor.

                  The fact that this horseshit goes on, is one reason I'll never invest in the stock market. I'd just as soon take my paycheck and sign it over to a Las Vegas casino.

                  So, that's an influence.

              • If anything, it's a transfer from the other players in the market, not "printing" money, so how are they not concerned about it? Most market players aren't HFTs.

                As long as it inflates share prices, it's just as effective as printing money. When they push it too hard and the bubble bursts, it's like burning money with H-bombs.

      • Re:Truth or dare... (Score:5, Informative)

        by alphatel (1450715) on Wednesday October 10, 2012 @06:07AM (#41605435)

        Something similar to penny stock spiking by spam...

        Continued unregulated algorithmic trading can have only two effects: 1) someone will get rich at everyone else's expense; 2) the NYSE will become the penny stock market.

        • Re: (Score:3, Insightful)

          by dfghjk (711126)
          The stock market is a zero-sum game. Riches can only be gained at "everyone else's expense".
          • Re:Truth or dare... (Score:4, Interesting)

            by Anonymous Coward on Wednesday October 10, 2012 @07:47AM (#41605869)

            Stock trading is a zero sum game, in which two people exchange goods of notionally identical value.

            The stock market is not a zero sum game, but a proxy for most of the economic activity on the planet. ie: put $100 of capital into a company today, let them add some labor, create real goods and services that didn't exist yesterday, and the company can give you back your capital and a share of that newly created product. The apparent failure to understand that fundamental nature of the stock market is why HFT is so despised by investors.

        • Re:Truth or dare... (Score:5, Interesting)

          by Required Snark (1702878) on Wednesday October 10, 2012 @07:40AM (#41605835)
          These are not mutually exclusive effects. One could argue that the "wealth" extracted from the stock market by algorithmic trading/casino capitalism is effectively draining real wealth from the small investors (suckers). The end point of this process is a investment environment where the insiders have so much capital that the illusion of a functioning investment environment collapses. Anyone else attempting to invest will only have access to the equivalent of penny stocks.

          If you look at the investment career of the plutocratic candidate Romney you can see how far this transformation has already gone. A lot of his $250 Billion (or more) was acquired (i.e. stolen) from Bane investors. The deals were always structured so that Bain insiders would come out ahead, no matter what the outcome: win, loose or draw.

          What is called capitalism in the West is close to the way the Mafia used to work after WWII. You joint a crew associated with an insider and you get a license to steal. You pay for the privilege of stealing by kicking money to the bosses. In the current setup the insiders support outfits like the American Enterprise Institute and the Chamber of Commerce which influence government to legalize theft.

          A current example: Wallmart is in huge scandal right now with bribery in Mexico.

          http://www.forbes.com/sites/adamhartung/2012/04/26/walmarts-mexican-bribery-scandal-will-sink-it-like-the-icerberg-sank-the-titanic/ [forbes.com]

          It came to light that after paying the bribes WalMart’s leadership team did about everything it could to cover them up. Including spending millions on lobbying efforts to hopefully change the laws before anyone was caught, and possibly prosecuted. The goal was to keep the stores open, and open more. If that meant a little bribing went on, then it was best to not let people know. And instead of saying what WalMart did was wrong, change the rules so it doesn’t look like it was wrong.

          The US Chamber of Commerce was the vehicle for their attempt to change the law to make bribery legal.

          http://www.washingtonpost.com/business/economy/wal-mart-took-part-in-lobbying-campaign-to-amend-anti-bribery-law/2012/04/24/gIQAyZcdfT_story.html [washingtonpost.com]

          The push to revisit how federal authorities enforce the statute has been centered at a little-known but well-funded arm of the U.S. Chamber of Commerce where a top executive of Wal-Mart has sat on the board of directors for nearly a decade.

          The effort has intensified in the past two years, drawing on the backing of several large companies and trade groups such as the Retail Industry Leaders Association, where one of Wal-Mart’s top executives serves as a director. It also has involved high-powered lobbyists, including former attorney general Michael B. Mukasey.

          There is no evidence that suggests Wal-Mart participated in the Chamber’s efforts because of its problems in Mexico. (Emphasis added.)

          If you believe that last line you also should believe in the tooth fairy.

      • Re:Truth or dare... (Score:5, Interesting)

        by aurizon (122550) <bill,jackson&gmail,com> on Wednesday October 10, 2012 @07:02AM (#41605631)

        This is market judo, push the opponent, measure the response, feint again, and again until you assess the defense - in this case the various times constants of responses, how the market falls and rises with these assorted feints (false trades) and then you attack, force an arbitrage gap and execute two counter trades and grab the arbitrage difference - repeat many many times.

        I think this is what is going on with this high speed trading

      • Re:Truth or dare... (Score:5, Informative)

        by choprboy (155926) on Wednesday October 10, 2012 @07:13AM (#41605695) Homepage

        So it is possible to create a large volume of "trades" without actually ever buying or selling anything? I am surprised that isn't gamed on regular basis

        It is and this is the basis of high frequency trading... though on Wallstreet they call it "providing liquidity". It works like this:

        Alice wants to sell 1000 shares of Acme Corp. She places an sell order for 1000 shares at $25.00 on the exchange, but she also places a minimum bid of $23.90 on the sell order. This minimum bid what Alice is willing to accept should someone counter-offer but is suppose to be secret, only the sell price will be published.

        Bob is looking for 1000 shares of Acme Corp. He wants to place it in his portfolio for long-term growth, but he thinks it is currently worth less. Bob places a general buy order at $24.40 on the exchange. For the sake of simplicity we will say that is his only price, though he too could have a maximum bid he is will to pay.

        So there is a sell order at $25.00 and a buy order at $24.40 pending on the exchange, nothing trades. Now Bob could make a buy offer to Alice at $24.40 and the trade would go thru, or Alice could make a sell offer to Bob at a lower price and follow thru. In a perfect world the exchange would figure it out and match the orders... but that doesn't happen without further action on the part of Alice or Bob.

        Eve is a high frequency trader... Actually, Eve is a high frequency trading program at MegaTraders LLC. and has spotted that there are buy and sell orders for Acme Corp on the exchange. Eve places a bid at $24.99 for Alice's share, the exchange accepts, and then Eve immediately cancels the bid order. Eve has just learned that Alice is will to sell for less than the sell order posted. Eve then continues placing bids on Alice's stock, $24.98, $24.97, $24.96, etc., each time immediately canceling the buy when the exchange accepts the bid. Eve gets down to $23.89, at which point the exchange does not accept the bid for Alice's stock. Eve has just learned that Alice is willing to sell for as little as $23.90 and all of this has happened within 10s of milliseconds.

        Remember all those articles on Slashdot about high frequency firm X laying their own fiber directly to the exchange to cut milliseconds off transit time? Having custom L2 firmware on their switches and no firewalls on their trading links to cut milliseconds off transit time? This is why they do it, so they can submit hundreds/thousands of buy/sell/cancel orders on a single stock within a fraction of a second to learn pricing differences between orders that otherwise should be secret.

        So Eve now knows that Alice is will to sell for $23.90 and would perform the same procedure against Bob to discover his highest buy price. Once found Eve can now see a price difference advantages to herself. Eve buys the 1000 shares from Alice at $23.90 and then immediately sells the shares to Bob at $24.40, pocketing the $500 difference. On Wallstreet they call this "providing liquidity", anywhere else this would be considered insider trading and illegal. Multiple all this by several hundred firms with special inside access to the market place, each running their own competing Eve programs, and you quickly realize how the market can go into turmoil within seconds....

        • by dargaud (518470) <slashdot2@gd a r g a ud.net> on Wednesday October 10, 2012 @07:35AM (#41605797) Homepage
          A few questions:
          • - Why are you allowed to cancel orders ? At an auction you owe the money once you've raised your hand.
          • - Why isn't there a fine on traders who happen to cancel more than X% of their orders ? X being in the order of 1.
          • - Why aren't transactions or even 'reservations' (which is what a canceled order looks like to me) taxed ?
          • by jonr (1130)

            Because lobbyism.

          • Re:Truth or dare... (Score:5, Informative)

            by choprboy (155926) on Wednesday October 10, 2012 @08:07AM (#41605969) Homepage

            A few questions:


            • - Why are you allowed to cancel orders ? At an auction you owe the money once you've raised your hand.
              - Why isn't there a fine on traders who happen to cancel more than X% of their orders ? X being in the order of 1.
              - Why aren't transactions or even 'reservations' (which is what a canceled order looks like to me) taxed ?

            Just to be clear... The above is a grossly oversimplified example of HFT. Thanks to the new world of online trading, an order isn;t really processed until both sides have confirmed the order. In the old days with a hundred guys in a trading pit, someone offering to buy at $150,000/share would obviously be wrong. Mistyping the same in an electronic order that autocompleted could have disastrous consequences, so there has to be a way to cancel a request. Why aren;t there fines or taxes? Well ask NASDAQ/etc.

            In the real world the above is happening on trades with a difference of a fraction of a cent. In many cases it may be that Bob has a buy order at $25.01 and Alice has a sell order at $25.00. Eve has millisecond timing and can simply enter the orders faster than any human trader could possibly react. Eve is also taking in every market fluctuation and stock move the virtual instant it happens... meaning a well built Eve can anticipate the bounces in a stock price based on buys/sells and just announced news, before a human could recognize that news. But at the end of the trading day, Eve has no position in the market. Eve has only served to suck money out of the market by acting as an (unwanted) intermediary.

            • by jamesh (87723)

              Eve has only served to suck money out of the market by acting as an (unwanted) intermediary.

              Ah. Like a scalper of concert tickets.

              Thanks, btw. It's 11:36pm and I just learned something for today :)

        • by ObsessiveMathsFreak (773371) <obsessivemathsfreakNO@SPAMeircom.net> on Wednesday October 10, 2012 @07:41AM (#41605843) Homepage Journal

          If anyone is having trouble following the details of the above, or more likely having trouble believing what they are reading, just remember this:

          The stock exchange is based on rules. If anyone is making money through exploitation or gaming of the existing rules, then they will spend that money in an effort to ensure that the rules remain in their favour. When history is written, the story of electronic stock exchanges in the 2000s will be one of patronage, lobbying, connections and bribery on a wide scale. Retail investors will be the marks who lose out.

        • What exactly is the semantics of posting a sell order with two lower limits (one public, one secret)? When exactly would the secret lower limit apply? Obviously not immediately, or else the HFT's order would be executed before he could cancel it? And which brokerages allow retail speculators to place such orders?

          Or are you maybe confusing this with a stop-loss order? (where the stop may indeed be secret, but would be the highest of the two bounds?) But in that case, the HFT would need to approach its targe

        • by Tom (822) on Wednesday October 10, 2012 @08:16AM (#41606013) Homepage Journal

          Thanks for the explanation.

          Now for the real question: Anyone got an explanation that does not involve bribery to explain why this kind of crap is a) possible and b) legal?

          I run an online game. There's a very simple trade market in it. If I found this to work on my trade market, I'd consider it a bug, the people abusing it cheaters and react accordingly.

        • by coofercat (719737)

          If you don't like the exchange's rules, don't play there. I know this might sound scary, but look outside your own borders. A lot of International exchanges (the LSE being one of them) take a dim view of order/cancel/order/cancel flows that have no hope of ever being filled. In the US, it seems anything goes, but elsewhere, there are at least codes of conduct, and you get a very stern call from an exchange if you don't play along (and get fined or banned if you don't pick up your game). Very occasionally, t

      • I am surprised that isn't gamed on regular basis - shaking up the stock market with minimal investment

        It's called High Frequency Trading (HFT) and it constitutes over 70% of all trading [washingtonsblog.com].

        Our share based, public limited company investment system has been taken over by numerologists armed with high speed internet connections and blade servers.

        By extension, our entire model of corporate governance, founded on the principals of directors accountable to shareholders, has now completely broken down.

      • There are those who try. One version of this scheme is abusive "naked short selling." Sell a huge volume of stock short which drives down the price, then cover a small fraction (taking a profit), and cancelling the other orders. You cancel most of the orders because otherwise covering them would increase the price in the same way that you drove it down in the first place. Doing this abusively without good faith that the short orders will be filled is supposed to violate SEC rules, but (as per Wiki) enfo
  • Testing (Score:4, Insightful)

    by Fuzzums (250400) on Wednesday October 10, 2012 @05:23AM (#41605247) Homepage

    Perhaps somebody was running some unit test on production here?

    • by Mitreya (579078)

      Perhaps somebody was running some unit test on production here?

      Or Skynet is gradually acquiring conscience
      It could probably do the most damage and take us to the post-apocalyptic future by totally crashing the stock market.

      • Re:Testing (Score:5, Insightful)

        by L4t3r4lu5 (1216702) on Wednesday October 10, 2012 @06:50AM (#41605591)

        Or Skynet is gradually acquiring conscience

        Conscience: an aptitude, faculty, intuition or judgment of the intellect that distinguishes right from wrong
        Consciousness: the quality or state of being aware of an external object or something within oneself.

        If SkyNET developed a conscience, it would cancel third world debt and cut spending from pork-barrel programs, and would also be vegetarian.

        Just FYI; It's an important distinction. No need to mod.

      • Re:Testing (Score:4, Interesting)

        by MachineShedFred (621896) on Wednesday October 10, 2012 @07:13AM (#41605701) Journal

        I was going to post the obligatory Skynet comment, but you beat me to it.

        Instead, I'll expand by theorizing that Skynet wouldn't even need to have launch control of nuclear missiles itself if it just collapsed the economies of the first world - we'd get about blaming China soon enough, China would probably decide that they've had enough of Taiwan's bullshit and fire a missile or two across the water at them, drawing us into a quickly escalating war which sees us firing missiles at them, China firing back, and Russia getting in on the fun as well as NATO.

        All because some dick at Goldman Sachs wanted to make a few basis points more profit by hacking together someone's AI research with a stock trading flavor.

    • Re:Testing (Score:5, Funny)

      by hcs_$reboot (1536101) on Wednesday October 10, 2012 @06:11AM (#41605459)
      Or they were using the new iOS6 trading API, where the "Commit" feature is yet to be implemented
  • my bad lol (Score:5, Funny)

    by Anonymous Coward on Wednesday October 10, 2012 @05:23AM (#41605249)

    forgot to exit my Do While loop :) had to ctrl+al+del

  • Market manipulation (Score:5, Interesting)

    by Anonymous Coward on Wednesday October 10, 2012 @05:24AM (#41605253)

    A single mysterious computer program that placed orders — and then subsequently canceled them
    The algorithm never executed a single trade

    No regulator should accept this.

  • by Chrisq (894406) on Wednesday October 10, 2012 @05:24AM (#41605263)
    I think we are taking significant risks with the stock market and automated trading. It is now a complex system of interracting algorithms that nobody understands or can understand. I have heard it said that the fluctuation patterns we are similar to fluctuations in chaotic systems before a state change. It is entirely possible that the markets could lose most of their value in a matter of minutes, before anyone knows what's happening - and the unforeseen interaction of algorithms could put a whole generation into poverty
  • Slashdot headlines (Score:3, Interesting)

    by ebonum (830686) on Wednesday October 10, 2012 @05:38AM (#41605313)

    How does "4% of Trading Activity Last Week" sync with "the algorithm never executed a single trade"?

  • by udachny (2454394) on Wednesday October 10, 2012 @05:39AM (#41605321) Journal

    The real problem is that there is too much fake money that people do not personally feel attached to, because it's created by the main counterfeiters of the world - the central banks, and because starting a competing exchange is nearly impossible.

    How about this for a story [bloomberg.com]:

    In April, motivated by what I consider pure maliciousness, the SEC initiated a âoecease and desistâ administrative proceeding it deemed âoenecessary for the protection of investors and in the public interestâ against Egan-Jones Ratings Co., a privately owned, 20-person firm based in Haverford, Pennsylvania, and against its principal owner, Sean Egan.

    Do you know what the alleged crimes are?

    Here:

    Now, incredibly, Egan-Jones is the sole rater that the SEC has decided to attack. The trouble for the firm started on July 16, 2011, when Egan-Jones downgraded the U.S.â(TM)s sovereign debt by one notch, to AA+ from AAA. Egan-Jones cited âoethe relatively high level of debt and the difficulty in significantly cutting spending.â Two days later, the SECâ(TM)s Office of Compliance Inspections and Examinations contacted the firm seeking information about its rating decision. (The next month, S&P also downgraded the U.S.â(TM)s sovereign debt, but neither Moodyâ(TM)s nor Fitch did.)

    Then, on Oct. 12, Egan-Jones received a call from the SEC notifying the firm of a Wells Notice, an indication that it was being investigated. On April 5 of this year, Egan-Jones again downgraded the U.S. sovereign debt, to AA from AA+. On April 19, leaks started emanating from the SEC that it had voted to start an âoeadministrative law proceedingâ against the firm. And on April 24, the SEC filed its complaint.

    The crime is that this one agency is not paid by the sellers of the bonds but instead it's paid by the buyers of the bonds, and the buyers have an incentive to have debt rated properly, so that they know their risk.

    Of-course AFAIC US bonds are junk.

    So you think SEC is interested in really dealing with HFT and whatever you think is market manipulation?

    Think again, the only thing it is interested in is protecting the fake rating of the sovereign debt, so that the US gov't can keep piling it on.

  • Unclear? Really? (Score:5, Insightful)

    by bmo (77928) on Wednesday October 10, 2012 @05:39AM (#41605327)

    "The motive of the algorithm is still unclear."

    Oh what a load of bullshit.

    It's obviously an experiment in painting the tape. Make bids, cancel them. Walk stocks up and down with the bid price. Head-fake other HFT corps that track bid prices in their algorithms.

    It went badly because it was detected. It needs tweaking to be not so obvious next time. And yes, there will be a next time.

    It's a casino now. It's been a casino for a while, and if you're not part of the house, you're the mark.

    --
    BMO

  • by Foske (144771) on Wednesday October 10, 2012 @05:50AM (#41605365)

    Guys, think of it. Our stock exchange, i.e. your pension or if you are unlucky also your mortgage is depending on this kind of software these days... And this is not the first time this year that stock trading software is in the news. This has nothing to do anymore with owning a share of an organization in the hope the organization will make a profit and pay you dividend. This is total craziness.

  • by Anonymous Coward on Wednesday October 10, 2012 @06:07AM (#41605437)

    1) If I were to do something like this with amazon.com (add things in my shopping cart and then remove them rapidly) wouldn't the headline be "hacker attempts to take down amazon site" with jail time? Why does this receive such a neutral headline like "mysterious algorithm?"

    2) I pay $25 to execute a trade. How much money does it cost these people to put a bid or ask up and pull it? Shouldn't there be some sort of punitive cost for doing this?

  • Identification? (Score:5, Insightful)

    by DarkDust (239124) <marc@darkdust.net> on Wednesday October 10, 2012 @06:07AM (#41605441) Homepage
    I find it a bit strange that these trading systems don't seem to use some kind of identification (like signed certificates). How is it possible that some system did these things and the stock exchange doesn't immediately know whose system this was? This sounds like a disaster waiting to happen.
    • by MadKeithV (102058) on Wednesday October 10, 2012 @06:20AM (#41605489)

      I find it a bit strange that these trading systems don't seem to use some kind of identification (like signed certificates). How is it possible that some system did these things and the stock exchange doesn't immediately know whose system this was? This sounds like a disaster waiting to happen.

      Regulation BAD. Free market GOOD. RRROOOOOAAARRRR!

    • by DarkOx (621550)

      They know they just have NDA's and similar that don't let them disclose that information. You can't even make a 10K cash withdraw without the FED and Treasury being informed. You bet the exchange knows who did this, and there is a good chance the SEC does too. Unless they are confident that a criminal prosecution is going to happen the names will never be made public, it would only invite a tsunami of lawsuits.

  • by Forget4it (530598) on Wednesday October 10, 2012 @06:14AM (#41605471) Homepage
    Felix Salmon on high-frequency trading and its part in the current financial crisis.
    Listen to this 13 min BBC programme/essay at: http://www.bbc.co.uk/programmes/b01n1thw [bbc.co.uk] available for the next 12 months
  • by sifi (170630) on Wednesday October 10, 2012 @06:33AM (#41605525)
    Of course the exchange knows who they are - you can't just stuff orders into the market anonymously from your PC at home. I'm mean the exchange needs to know who you are so they know who to charge for the trades. The exchanges aren't happy about people placing and cancelling tonnes of orders - after all they only make money when something trades. You can guarantee that they got on the phone to whom ever was doing this and asked them to stop.
  • HFT needs fees (Score:5, Interesting)

    by bradley13 (1118935) on Wednesday October 10, 2012 @07:15AM (#41605711) Homepage

    Much as I dislike adding fees to inhibit the free market, the whole HFT world desperately needs them. Placing any bid or making any transaction should cost some small-but-tangible amount of money.

    Even better, if more complex: add a fee based on how long a particular security is held. Less than a second, the fee is 1000% of the transaction value, more than a year, no fee at all, and scale for all values in the middle. HFT is legalized theft, and needs to be penalized out of existence.

    • Make trades non-cancellable, and move to a gross receipts tax at the federal level (~3% would run the gov't). That way all this fake movement wouldn't exist - when you enter a trade, it executes; when you execute a trade, you log that transaction and the person receiving money for the trade has a taxable event. This shit, along with a lot of other "skimming" operations, would stop overnight.

  • Quote Stuffing (Score:5, Interesting)

    by kill-1 (36256) on Wednesday October 10, 2012 @07:44AM (#41605857)

    Where's the news? This is called quote stuffing and has been going on for ages. The reason is simply to mislead or overwhelm the HFT algos of competitors.

  • cancel (Score:4, Interesting)

    by Tom (822) on Wednesday October 10, 2012 @08:08AM (#41605977) Homepage Journal

    Ok, it's been a few years since I worked at the stock exchange, so someone please update me:

    What is this bullshit with cancelling orders, in bulk? What is the reasoning, how could anyone ever think that would be a good idea to allow?

  • by moeinvt (851793) on Wednesday October 10, 2012 @08:26AM (#41606067)

    The rule of law is dead in the USA. Bankers and financiers have a free pass from Washington DC to break the law with impunity.

    It is a crime to undertake any action (other than buying and selling of course) to profit from deliberately attempting to manipulate prices. Placing orders with no intent to have them executed is no different than a pump and dump scheme, or leaking a fake press release to affect a company's share price.

    There's an easy solution (actually two) to stop this BS. Make a rule requiring that all orders need to be open for at least, say 15 seconds. Long enough for a small day trader to act on them. Alternatively, they could assess a small fee for every canceled order above some threshold in a trading day. Call it 5000. i.e. You get to submit and cancel 5000 orders for free, but every additional canceled order costs you a penny.

    If I could figure out a good way to cash out my 401K without getting ass-raped by the government (Ask Slashdot?) I'd cease participating in this gambling casino where the house always wins.

  • by olau (314197) on Wednesday October 10, 2012 @09:28AM (#41606599) Homepage

    I read the other day that the EU Parliament is considering adding a 0.5 second minimum order duration limit to the relevant directive (MiFID) to ensure that other parties can actually close the orders and prevent this kind of thing from happening.

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