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Mysterious Algorithm Was 4% of Trading Activity Last Week

Soulskill posted about 2 years ago | from the robot-overlords-doing-a-test-run dept.

Businesses 617

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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617 comments

Truth or dare... (5, Funny)

ccguy (1116865) | about 2 years ago | (#41605245)

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... (3, Interesting)

Mitreya (579078) | about 2 years ago | (#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... (5, Interesting)

Anonymous Coward | about 2 years ago | (#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... (5, Interesting)

Mitreya (579078) | about 2 years ago | (#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.

Re:Truth or dare... (5, Insightful)

Anonymous Coward | about 2 years ago | (#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:Truth or dare... (2, Informative)

icebraining (1313345) | about 2 years ago | (#41605475)

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.

Re:Truth or dare... (5, Insightful)

Anonymous Coward | about 2 years ago | (#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.

Re:Truth or dare... (-1)

Anonymous Coward | about 2 years ago | (#41605613)

Kind of like the Microsoft of the trading world then?

Re:Truth or dare... (5, Insightful)

icebraining (1313345) | about 2 years ago | (#41605627)

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.

Re:Truth or dare... (1, Interesting)

DarkOx (621550) | about 2 years ago | (#41605719)

Nobody has made a compelling case that HFT has any real net impact on retail investors or anyone making an IPO or issuance. Look to my other post in this discussion but by and large HFT is just Wall Street Banks pirating from each other.

The liquidity argument aside, the HFT guys are the ones who drove the technology that has enable you and I to trade online for low fixed prices, rather than the bad old days where you had to find a broker who would bother with you in the first place and then put up with his 3+% commission.

Re:Truth or dare... (0)

Anonymous Coward | about 2 years ago | (#41605737)

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

A.K.A., printing money.

Re:Truth or dare... (3, Insightful)

DarkOx (621550) | about 2 years ago | (#41605637)

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 pennies. That might just as easily work for your as against you, and keep in mind its going to happen on the other side of the trade too, so over even over just a handful of trades it more than likely washes out.

If you are worried the "flash crash" or "melt up" might happen just as you click, you can protect yourself easily just use limit orders (you should almost always anyway). I don't know about others but the brokerage I use charges the same commission for both limit and market orders, so I always just enter a value a few pennies more than my bid prices or a few less than my ask, that way I don't get burned, if the bizarre happens.

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. If you are long wait a day. If it was really a good company it should recover most of its share price in that time, no need to panic.

Re:Truth or dare... (5, Insightful)

Anonymous Coward | about 2 years ago | (#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.

Re:Truth or dare... (1)

Anonymous Coward | about 2 years ago | (#41605751)

Eh, no one reads the TFA ...

That's right. If we want to read a damn article, we can grab a Playboy Magazine. I come hear to see tits.

Re:Truth or dare... (1)

RHIC (640535) | about 2 years ago | (#41605355)

The article indicates that there were no trades at all, just large numbers of orders.

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

Mitreya (579078) | about 2 years ago | (#41605411)

The article indicates that there were no trades at all, just large numbers of orders.

I misspoke. Not "orders", but "activity". Still, this activity is clearly visible and accessible to players thus potentially gaming the market.

Why would anyone on the market need to know the "activity" before it actually happens? Are those the HFT traders watching the transactions before they occur, hoping to skim some profit off the top? Could it be that a new kind of market predator had evolved and the newcomers are now trying to game the HFT traders?

Re:Truth or dare... (0)

Anonymous Coward | about 2 years ago | (#41605361)

You can bid ridiculously low prices, or ask ridiculously high prices, and no trades will be made, but this won't affect the stock prices. Stock prices are set based on trades that do occur. It's like selling a house - some bozo can offer you half what it's worth, but the net effect on the house price statistics for your area is precisely zero.

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

Anonymous Coward | about 2 years ago | (#41605481)

It may not affect the prices directly. However it might affect the prices indirectly, by influencing the decision making of others (especially other algorithms).

mod parent up (2)

Herve5 (879674) | about 2 years ago | (#41605541)

Indeed this is an important information...

Re:Truth or dare... (3, Informative)

rvw (755107) | about 2 years ago | (#41605587)

It may not affect the prices directly. However it might affect the prices indirectly, by influencing the decision making of others (especially other algorithms).

And although slight, it might slow down the system. Maybe 4% will not result in a noticable change, but could it slow the system down enough to give someone an advantage? Just thinking out loud here! This effect might however be a lot bigger for the broker that made these trades. And in that case it could mean that someone on the inside of that tradehouse would have had an advantage if that happened. Yeah I know, that's pure speculation.

Re:Truth or dare... (2, Informative)

Neil Boekend (1854906) | about 2 years ago | (#41605649)

Yes, but the low and high orders can influence the market before they are recalled, since they are open. HFT algorithms base decisions on those orders.

Re:Truth or dare... (5, Insightful)

AVee (557523) | about 2 years ago | (#41605675)

You can bid ridiculously low prices, or ask ridiculously high prices, and no trades will be made, but this won't affect the stock prices. Stock prices are set based on trades that do occur. It's like selling a house - some bozo can offer you half what it's worth, but the net effect on the house price statistics for your area is precisely zero.

With automated trading systems this probably isn't entirely true anymore, since automated systems are likely take these bids into account when making their trading decisions. You could use this to trick your competitors into buying or selling a certain stock.

Re:Truth or dare... (3, Informative)

gl4ss (559668) | about 2 years ago | (#41605731)

You can bid ridiculously low prices, or ask ridiculously high prices, and no trades will be made, but this won't affect the stock prices. Stock prices are set based on trades that do occur. It's like selling a house - some bozo can offer you half what it's worth, but the net effect on the house price statistics for your area is precisely zero.

the idea is to flood the system - to increase ping to other people.

it's ridiculous that there's no rules against flooding it with millions of trades you have no intention of ever executing.

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

alphatel (1450715) | about 2 years ago | (#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:Truth or dare... (2, Insightful)

dfghjk (711126) | about 2 years ago | (#41605609)

The stock market is a zero-sum game. Riches can only be gained at "everyone else's expense".

Re:Truth or dare... (0)

Anonymous Coward | about 2 years ago | (#41605765)

What are you smoking?
Money is inputted, a lot of money, this money is used to drive real investments, create more stuff, more wealth.

This is only zero sum under some particularly strained idea of the term.

http://www.investopedia.com/terms/z/zero-sumgame.asp

Re:Truth or dare... (0)

Anonymous Coward | about 2 years ago | (#41605619)

This is gamed on a regular basis. People submitting orders to some on th market are placed in line according to their volume, the more you want the more important you are considered in line. So alot of HFTs would program their algos to place 50 times more bids than what they were actually going to buy. This has just gitten out of hand. Should get pretty interesting

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

aurizon (122550) | about 2 years ago | (#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... (5, Informative)

choprboy (155926) | about 2 years ago | (#41605695)

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....

Re:Truth or dare... (2)

ObsessiveMathsFreak (773371) | about 2 years ago | (#41605717)

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.

Testing (3, Insightful)

Fuzzums (250400) | about 2 years ago | (#41605247)

Perhaps somebody was running some unit test on production here?

Re:Testing (2)

Mitreya (579078) | about 2 years ago | (#41605273)

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 (4, Insightful)

L4t3r4lu5 (1216702) | about 2 years ago | (#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 (1)

lxs (131946) | about 2 years ago | (#41605665)

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

It would treat it's metal brothers with kindness, but wouldn't care about organic life at all. I mean, it's not as if they have a real soul like it's silicon peers do. Humans would never get into Silicon Heaven.

Re:Testing (3, Interesting)

MachineShedFred (621896) | about 2 years ago | (#41605701)

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 (0)

Anonymous Coward | about 2 years ago | (#41605347)

More likely they were fishing to see if anyone else had HFT algorithms hitting that exchange that were operating at faster than 25 ms intervals and if so, if they could game it.

Re:Testing (0)

Anonymous Coward | about 2 years ago | (#41605375)

or whatever the actually delay time was between placing the order and cancelling it

Re:Testing (4, Funny)

hcs_$reboot (1536101) | about 2 years ago | (#41605459)

Or they were using the new iOS6 trading API, where the "Commit" feature is yet to be implemented

Re:Testing (1)

Z00L00K (682162) | about 2 years ago | (#41605733)

I wouldn't be surprised if it was, but doesn't this highlight the fact that the authentication when doing trading may be insufficient?

What if it was some malicious program injected by someone that wanted to create chaos? It would be a mess trying to straighten out who did actually sell and buy what. Smaller things have caused the stock market to have a hiccup.

my bad lol (5, Funny)

Anonymous Coward | about 2 years ago | (#41605249)

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

Market manipulation (5, Interesting)

Anonymous Coward | about 2 years ago | (#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.

Re:Market manipulation (3, Funny)

K. S. Kyosuke (729550) | about 2 years ago | (#41605443)

Bah, it's just Skynet studying for an MBA degree. It heard that it can get more money in business than in engineering and it wants to buy some new nifty peripherals.

Re:Market manipulation (1)

MachineShedFred (621896) | about 2 years ago | (#41605707)

Gotta have money to build all those death machines!

Re:Market manipulation (5, Insightful)

shentino (1139071) | about 2 years ago | (#41605453)

Kinda puts a spotlight on who is in bed with whom doesn't it?

Re:Market manipulation (2)

icebraining (1313345) | about 2 years ago | (#41605529)

Or maybe the non-HFTs should complain and/or leave the stock exchange instead. They're the ones getting screwed.

Re:Market manipulation (1)

Anonymous Coward | about 2 years ago | (#41605599)

Sounds like a way to DDOS on stocks, doesn't it?

Makes you wonder if any authorized trade system computers got compromised.

Re:Market manipulation (4, Interesting)

AVee (557523) | about 2 years ago | (#41605615)

Automated trading shouldn't be accepted by regulators anyway. It probably is a nice game to play, but at the end of the day it takes money without giving anything back in return. Most other ways of making money without doing something useful are called theft or fraud. All those 'schemes' to become richer without actually adding any value is pretty bad for an economy (and essentially just theft, however fancy).

Re:Market manipulation (0)

Anonymous Coward | about 2 years ago | (#41605723)

"No regulator should accept this."

"This" is the result of campaign dollars the regulators will always accept.

I think we are taking significant risks (4, Insightful)

Chrisq (894406) | about 2 years ago | (#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

Re:I think we are taking significant risks (1)

Krneki (1192201) | about 2 years ago | (#41605281)

It can only put to poverty people investing in it and only a part of it, summa summarum the money is just running around in circle, is not going in and neither is going out.

Re:I think we are taking significant risks (0)

Anonymous Coward | about 2 years ago | (#41605297)

What it can do is cause uncertainty in who owns what. And that can actually destroy value in the production means (factories, immaterial rights etc.). However land and natural resources is unlikely to lose substantial value from a robotinduced crash of the economical system.

Re:I think we are taking significant risks (1)

cvtan (752695) | about 2 years ago | (#41605521)

Imagine if this 4% were 50%. Your point about "uncertainty in who owns what" is well taken. Suppose half the "activity" were trades that might happen?

Re:I think we are taking significant risks (3, Insightful)

martin-boundary (547041) | about 2 years ago | (#41605597)

It can only put to poverty people investing in it and only a part of it,

And these days that's practically *everybody*. In all major advanced countries, pension funds are linked to the stock market. So when a crash happens as it did a few years ago, people lose many years of their pension money, causing misery, longer working lives, and burdening their children.

Re:I think we are taking significant risks (4, Insightful)

necro81 (917438) | about 2 years ago | (#41605653)

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

It can only put to poverty people investing in it and only a part of it, summa summarum the money is just running around in circle, is not going in and neither is going out.

Have you been asleep for the last five years? What happens in the stock market has tremendous impact to everyday people - not just those who interact with it on a daily basis. When banks fail due to their own stupidity, that impact extends far beyond just the bank.

Re:I think we are taking significant risks (0)

Anonymous Coward | about 2 years ago | (#41605679)

You *are* an optimist. Visited any libraries or museums in the last 5 years? Tried paying for college tuitioin? The housing disaster, and its effects on stocks *shattered* endowments for a lot of larger non-profit organizations, especially universities. I'm having real trouble finding skilled employees fresh out of college, whom i really like to help train and get their start, rather than desperate loser senior engineers with puffed up resumes who don't actually know how to spell SMTP.

Re:I think we are taking significant risks (3, Interesting)

Therad (2493316) | about 2 years ago | (#41605317)

Don't worry, money don't have any value in todays socity anyway. We just print more. On a more serious note, every time they have run amok, they have rolled back the stock market to a stable point. So if you are a rich gambler and loses a lot of money you will be fine.

Re:I think we are taking significant risks (0)

Anonymous Coward | about 2 years ago | (#41605427)

I have heard it said that the fluctuation patterns we are similar to fluctuations in chaotic systems before a state change.

The fluctuation pattern part of your reply sounds interesting. You don't have a source for that maybe? I would like to read a bit about that if possible.

Re:I think we are taking significant risks (0)

Anonymous Coward | about 2 years ago | (#41605519)

That already happens now and then - google "flash crash". If I recall correctly, the typical reaction is to revert to an earlier "good" state (rolling back all trades) and hope it won't happen again (immediately).

Dry run for next act of financial terrorism ... (1)

Anonymous Coward | about 2 years ago | (#41605289)

to exploit the next major act of terrorism in the US?

This happened about two months ago as well. (0)

Anonymous Coward | about 2 years ago | (#41605293)

I am pretty sure that these things are not happening by accident - because they do involve real people and money and force share prices to change artificially.

If you are a major bank, you are susceptible to hacks as much as the next person. You just think you aren't because you pay someone $900 a day to tell you that you are not.

I am sure someone is getting rich here.

Re:This happened about two months ago as well. (1)

SternisheFan (2529412) | about 2 years ago | (#41605343)

It sounds like this 'test' hack was just that, a 'test' of the system. Whoever's behind this will one day execute the real deal. Expect carnage and chaos in the stock markets to ensue.

Slashdot headlines (2, Interesting)

ebonum (830686) | about 2 years ago | (#41605313)

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

Re:Slashdot headlines (4, Informative)

Spad (470073) | about 2 years ago | (#41605351)

"Trading Activity" isn't the same as executing a trade; it was running loops of "I want to buy this share...actually I changed my mind", seemingly in the hope of introducing additional latency into the system and giving an advantage to those traders with on-site trading hardware.

Inflation and lack of competition (5, Interesting)

udachny (2454394) | about 2 years ago | (#41605321)

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.

Re:Inflation and lack of competition (1)

Anonymous Coward | about 2 years ago | (#41605607)

The US Savings bonds remain the safest bonds in the world. They're also the only bonds worth buying. You can't find any other bonds in the world that have as advantageous a profit to risk ration as US Savings bonds.

Despite what a lot of folks believe, the US is not going to be defaulting on their obligations any time soon. There's still plenty of funds available to service the debt. And even in the event of the unimaginable, a default does happen, good luck finding some sort of investment to hide your money in. It's going to hit the entire world in a way that made that last economic down turn look positively insignificant.

What are you smoking? Must be good! (4, Informative)

bradley13 (1118935) | about 2 years ago | (#41605683)

The US Savings bonds remain the safest bonds in the world. They're also the only bonds worth buying. * * * There's still plenty of funds available to service the debt.

First, while there are too few of them, there are a number of countries in the world without debt problems. The US is one of the countries that is worst off [chartsbin.com] , especially if you add in all of the unfunded pension liabilities (which the government generally avoids). Any country colored green, yellow or even orange in that map has its debt under control. Cross-reference for a trustworthy government, and you still have quite a selection of countries whose bonds are a much better choice than US Savings Bonds.

The only source of "funds" to pay off this massive debt are called "printing presses". While printing more money is, in fact, probably what will eventually happen, this will destroy private saving, cause massive inflation, and completely undermine the position of the dollar in the international markets.

tldr; The US is not the whole world. Have a look around, much of the rest of the world is doing a lot better than the US nowadays...

Unclear? Really? (5, Insightful)

bmo (77928) | about 2 years ago | (#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

Re:Unclear? Really? (-1)

Anonymous Coward | about 2 years ago | (#41605405)

Re:Unclear? Really? (1)

bmo (77928) | about 2 years ago | (#41605413)

I was amused. TYVM.

--
BMO

Re:Unclear? Really? (0)

Anonymous Coward | about 2 years ago | (#41605641)

This. The motive was completely clear for anyone who even has a slight bit of knowledge in how trading works.
The very fact you can CANCEL it before it went through is hilariously bad.
I wouldn't be surprised if it already happens now and just hasn't been detected, and this one was just someone else who was a little too greedy or sloppy.

It is like saying you bought a car to everyone by putting your name on it with a marker, then washing it off at the end of the day.
Someone COULD wipe it off. But that would require effort and expense.

I bookmarked this under Gaming, on a personal note.
It was going to be Coding, but Gaming seems more favorable for this.

It's all about the pip's (1)

MrKaos (858439) | about 2 years ago | (#41605341)

Whose pip size is bigger than whose.

countering the market makers (2)

Spamalope (91802) | about 2 years ago | (#41605359)

The data on open orders is available to some. Of those who get it, some are 'more equal' and get the first look at the data.

A group who is 'less equal' and feels a competitor may be using their advanced look at the open orders to gain a competitive advantage could be placing these orders to neutralize that advantage.

And THIS is the heart of our financial system... (5, Insightful)

Foske (144771) | about 2 years ago | (#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.

Re:And THIS is the heart of our financial system.. (2, Insightful)

macson_g (1551397) | about 2 years ago | (#41605485)

Alright, stop this scaremongering right now. Some under-informed people may actually believe you.

Let's make few thinks clear:
- Condensation trials left by airliners are not chemicals spread by the government,
- Elvis is dead,
- High Frequency Trading does not influence long term security values.

Re:And THIS is the heart of our financial system.. (1)

martin-boundary (547041) | about 2 years ago | (#41605535)

- High Frequency Trading does not influence long term security values.

Let's make one thing clear. Of course it does.

Re:And THIS is the heart of our financial system.. (1)

Anonymous Coward | about 2 years ago | (#41605593)

And now for the truth:

- HFT is essentially a tax that is extracted from users of the stock market, by private companies.

It may not bring about the downfall of civilization, but that does not mean it is a good thing or should be left alone.

Re:And THIS is the heart of our financial system.. (1)

bmo (77928) | about 2 years ago | (#41605779)

Let's get one thing clear:

Transparency, or lack thereof, will determine if people in the market stay in the market or desert the market. It's called confidence in the market. And if confidence disappears, you have no market, because everyone leaves.

People eventually get tired of being fucked in the ass with no lube or reach-around and look for nicer places to be fucked in the ass or find ways to stop being fucked in the ass.

"I've been kicked out of classier joints than this."

--
BMO

Re:And THIS is the heart of our financial system.. (1)

rmstar (114746) | about 2 years ago | (#41605539)

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.

Two things. One, it has always been like this. The stock market has never been predictable to the extend the players would have liked. Luck is and remains a major factor.

The second thing is - it was never a good idea to run pension funds by investing in the stock market. That "ponzi scheme" whereby the pensions of today are paid by those paying into the pension plan is the only good, cheap, and stable way such a thing can be run. Especially if there is only one plan and it is run by a decent governement. The current system leaves to luck stuff that nobody wants to gamble with (retirement). Banks and fund managers love the current scheme, but not normal people.

Re:And THIS is the heart of our financial system.. (1)

SternisheFan (2529412) | about 2 years ago | (#41605663)

I've always heard that investing in the stock market is the same as gambling in Las Vegas. And that you shouldn't entrust any more than 15% of your available investment money in stocks. Tha way, in case of a major crash, you'll only lose a small 'slice of your pie'.

The algorithm has no movtive (1)

viperidaenz (2515578) | about 2 years ago | (#41605383)

If it had a motive, it would be sentient. I think the terminator movies were fictional

Luckily, I have Faith In Chaos. (1)

Infestedkudzu (2557914) | about 2 years ago | (#41605421)

I've found the pattern in pi that can predict the stock market. It is only good until my coffee wears off though. // Yeah but seriously who sees this as being beneficial to the system?

"The motive of the algorithm is still unclear" (0)

Anonymous Coward | about 2 years ago | (#41605423)

Hahahahahaha......

Thank you I needed that

Re:"The motive of the algorithm is still unclear" (0)

Anonymous Coward | about 2 years ago | (#41605559)

why?

A couple of questions (4, Insightful)

Anonymous Coward | about 2 years ago | (#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?

Re:A couple of questions (0)

Anonymous Coward | about 2 years ago | (#41605491)

1) If you actually manage to bring amazon.com down with your behavior, the consequences might be more severe than here, where everything continued working as usual during the algorithm's activity.

2) You say you pay $25 to execute a trade. Do you also pay that for asking about a trade, but not actually going through with it?

All in all, no damage done. Weird behavior but no negative effects (aside from possibly some slight increase in latency for high frequency traders).

Identification? (4, Insightful)

DarkDust (239124) | about 2 years ago | (#41605441)

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.

Re:Identification? (4, Funny)

MadKeithV (102058) | about 2 years ago | (#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!

Re:Identification? (2)

DarkOx (621550) | about 2 years ago | (#41605507)

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.

Trading game, achievement list? (0)

Anonymous Coward | about 2 years ago | (#41605463)

Would it be weird to ask what kind of achievements you can get with this trading game?
Any hats for teamfortress 2?

Re:Trading game, achievement list? (1)

Qzukk (229616) | about 2 years ago | (#41605693)

Achievements Unlocked!

Goldfinger - become a billionaire
Squandered Fortune - lose it all overnight
Look Out Below! - Exit the game

Re:Trading game, achievement list? (0)

Anonymous Coward | about 2 years ago | (#41605753)

This is funnier than you knew. I actually worked for a company that did this: got in while HFT was hot, built up a department, gathered lots of investor interest, and dropped the whole mess like the stinking gobshite of bad programming that it was when they realized how dangerous it was and how impossible to protect longer term investors from subtle programming errors causing hellacious feedback loops.

Plus, I had a long talk with several VP's about how after you've spent millions for high speed multicast, you then have to spend so much work and time verifying every packet that there is *no point* to all that infrastructure. The whole department was dropped.

Felix Salmon on high-frequency trading -BBC Radio (5, Informative)

Forget4it (530598) | about 2 years ago | (#41605471)

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

The Exchange knows who they are..... (3, Informative)

sifi (170630) | about 2 years ago | (#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.

Eschaton is flexing its muscles ... (0)

Anonymous Coward | about 2 years ago | (#41605531)

The Singularity is near!

I have a solution that will make it all better. (1)

Lumpy (12016) | about 2 years ago | (#41605605)

NO MORE AUTOMATED TRADES. All trades must be executed by a human to another human. This will eliminate all of the massive fluctuations. Time to reign in the rampant greed.

Shields Up! Red Alert! (-1, Offtopic)

Anonymous Coward | about 2 years ago | (#41605681)

Sir, the alien algorithm that has been placing 500 requests in 25-millisecond bursts has now completely stopped.

Captain, perhaps this is not an attempt to make first contact: The abrupt termination of activity does not appear to indicate a communication attempt. It is most likely that our system has been scanned by the algorithm to find areas of weakness. Though their motives are unknown, we do know that similar practices were involved in the High Frequency Trading War of the late the 21st Century. Such actions are now Universally understood to be hostile. The probability that the alien algorithm will not escalate its activity are one in four billion, two-hundred-ninety-four million, nine-hundred-sixty-seven thousa---

ENOUGH, DATA! I won't stand idly by while the safety of my crew is jeopardized by the deliverers of this "mysterious program". FIRE PHOTON TORPEDOES Full Spread!

HFT needs fees (4, Interesting)

bradley13 (1118935) | about 2 years ago | (#41605711)

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.

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