HFTs Eat World, or at Least Dell

Still strikes me as likely an algo run amok, but worth reading:

On August 25, 2011 at 15:45:48, in a one second period of time, there were more than 10,000 quotes and exactly zero trades in DELL. Close inspection of these quotes reveals something very disturbing. This cannot be dismissed as a computer problem or glitch. This can’t be explained as stupidity or some oversight. It is not pinging for hidden liquidity. And it’s certainly not price discovery. As far as we can tell, it’s not adding liquidity or narrowing the bid/ask spread.

What caused this blast of 10,000 quotes in DELL appears deliberate. Of the 10,000 quotes, the bid and ask prices remain the same. The bid size also remains constant except for one change after the first 7,000 or so quotes. The only real variation is the ask size. Not a simple 2 step variation, but one that repeats in a mathematical pattern with a long cycle. This makes it difficult to detect, but it also confirms that it must be emanating from a single source.

There are approximately 4,000 stocks that quote during active trading. Which means 40 million quotes/second if just one of the 9 exchanges allow this nonsense to spread to all 4,000 symbols. You would need 40 gigabits per second of bandwidth to receive data at that rate. Unfortunately, we think it’s just a matter of time, because events like this one in Dell are no longer isolated or rare. And it doesn’t look like there are any grown-ups in charge.

Nanex – Dear HFT, Please Explain This.

Related posts:

  1. Mr. Market’s Dell Mood Swing Thing
  2. Dell on Playing the Analyst Game
  3. Dell and the Other Google Desktop
  4. Ding, Dong, is Dell Back from the Dead?
  5. What’s Really Wrong with Dell?

Comments

  1. Joseph says:

    Can someone explain what this means to a layperson?

  2. Xiphos says:

    This article is interesting but fails to explain what the purpose of these quotes is. Bid ask remained the same.

  3. kiers says:

    Hmm. at least (from the hint in the write-up itself) on a b/w alone basis, it looks like some kind of DoS (denial of service) attack. The normal "service" being getting other market quotes through to users screens; here it is to possibly crowd out other quotes from coming through; or to test bandwidth.

    Really, hacking and trading and "finance" are all blending into one field in our dystopian present. Regulators are at sea as always. No math No Computer skills. Compounded by high pay and importance. Just what a lobbyist would order.