well the story of the day clearly belongs to the UK based futures trader who’s e-mini spoofing algo placed added pressure on an already fragile market on May the 6th 2010. The algo, developed largely by a coder working for Navinder Sarao’s EMS provider was designed to place large orders 4 to 8 ticks away from the NBBO and profit off market moves resulting from the sudden stack imbalance, while auto cancelling the quotes if the market moved closer in order to avoid actually executing and warehousing real economic risk.
Here’s the thing folks. Our markets are designed to facilitate the transfer of risk between investors, hedgers and risk warehouses. IT IS NOT A FUCKING GAME!!! You want to play, go buy an Xbox and play Doom or Car Theif Thug until mommy calls you upstairs for dinner. Just don’t play games with our God damn markets. Futures markets are used by real corporate entities to smooth out revenue and liability streams to more confidently forecast earnings, and invest in future opportunities. Those investments create real jobs for your less slack ass inclined peers, and economic growth which helps us all. Don’t fuck it up.
And what of the developer at unnamed tech firm 1 who unquestionably created an algo that placed over sized orders away from the market and then cancelled them if there was any risk they might actually execute. Hey spunk wad what were you thinking? In order to code this you would require an IQ large enough to understand what it was being used for. And what of the QA and management staff that tested and approved Grand Spoof Algo? What were they thinking?
Or the folks at the CME? One entity places more size in your market than all others combined, in chunks dozens of times the average trade size and you guys head out to Kitty O’Sheas to discuss the Blackhawks cup run?
See kids, if the New England Patriots decide to implement a new wrinkle that takes advantage of a poorly written eligible receiver rule (and a brain dead Colts coaching staff) well my weekend football game is less satisfying. If Buffalo tanks for McDavid, or the Cavs for Wiggins (2 Canadian boys) well their fans watch a crap product. But here is the important part, the economy isn’t damaged, market integrity isn’t destroyed, the fundamentals of our very country aren’t treated like a joke. These are just games.
And then of course we have the regulators. WTF? Hello, do you guys have something you would like to say? What’s that, you’re sorry for spending more time watching porn than watching markets? I am often frustrated by the gross misinterpretation of world class data by Eric and crew at Nanex, but give the man credit. He offered you all his data and you said no thanks. Greg Bermann interviewed a bunch of HFTs about latency arb, and they told him it didn’t exist….so Greg concluded it didn’t exist. Which is like believing a frocked septuagenarian in a pointy hat when he tells you paedolphillia isn’t real. Hey regulators anything you would like to say at this point?
But of course this happened in 2010, things are better now. Except they aren’t. Just today Canadian regulators announced the approval of a market mechanism by the TMX that gives HFT liquidity providers the ability to systemically fade over sized orders. Spoofing facilitated by exchanges based on the request of risk adverse HFT firms looking to skim the easy money and advance to level 2 before snarling down a hash brownie and watching John Stewart.
exchanges need to start building markets for sustainable investors, hedgers and real risk holders rather than jockey to make this quarters number by pandering to pale skinned techno geeks who think the whole exercise will impress the girl they are stalking on facebook.
Regulators need to take a fresh look at data and analytics to find these kind of glaring abnormalities in less than 5 years.
And the kids playing games in our markets needs to get a haircut, meet a girl, move out of your parents Basement and do something useful for society.
Let the lawsuits begin. My guess is once tech provider number one is named, they move to the front of the line. And they will deserve it. I hope Waddell and Reed sue you back to grade school.