HFT Shenanigans: Dow Soars 200 Points Ahead Of Payrolls Data first appeared on FloatingPath

Every week Floating Path looks to highlight some of the crazier examples of HFT running amok in the markets while bringing to light developments relating to the high frequency trading industry.

November Jobs Data Release

Yesterday morning the Employment Situation was released at 8:30 and with it came the usual high frequency trading bonanza.

Perhaps the move that will resonate with the broadest group is that of the Dow Jones Industrial Average (.DJI) futures contracts. Beginning at 8:29:59, the futures rose to what equates to 193 Dow points and then began falling at 8:30:01, only to see the entire move undone by 8:30:04. In 5 seconds, the Dow gained and then lost nearly 200 points.

HFT Shenanigans Dow futs 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

A full 7 seconds before the data release the price of gold moved drastically. The move was initially in the correct direction though the price moved back higher throughout the day. Many attributed this to normal market digestion of information and a lack of liquidity. The charts below from Nanex show the broader move, then a zoomed-in look at the 8:30 release.

HFT Shenanigans GC 12.7 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

HFT Shenanigans GC 2 12.7 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

In addition to gold, huge moves took place in 5, 10, and 30-year Treasuries. At 8:29:58.5 large moves down in bond prices tripped circuit breakers in all 3 products. Upon the 8:30 data, these markets were literally untradable.

HFT Shenanigans ZF 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

HFT Shenanigans ZN 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

HFT Shenanigans ZB 600x400 HFT Shenanigans: Dow +193 In 2 Seconds And The No Taper News Revisited

“No Taper” News Revisited

When we initially showed the market reaction to the Fed’s “No Taper” decision in September it was obvious that the news data hadn’t originated from Washington like officials claimed. The event sparked a back and forth from both sides of the HFT debate. The original findings were discredited by high frequency traders Virtu, to which Nanex responded.

Now McKay Brothers has weighed in with data and research that seemingly validate the original findings. The interesting aspect is that McKay Brothers builds microwave relay towers used by HFT. When it comes to transmitting data at the speed of light, this group would be a sought-after source.

The FOMC decision not to taper was not released in a lockup mode according to our internal data and to the timestamps of the exchanges. It was most probably released in an embargoed mode simultaneously in many US data centres as suggested by the FIA PTG in its statement.

The blog from Alexandre Laumonier @SniperInMahwah was quick to cover this news and gives excellent background on the situation.

Odd Lot Trades

Previously, only trades of 100 shares or more were reported to the public data feed, and anything less was undetected to anyone not paying for co-location and raw exchange data. Beginning Monday regulators will require all odd lot trades to also be disseminated via public feeds thanks to a recent study that showed an increase in the use of small-sized orders.

4% of the volume of shares traded were done as odd lots in 2009 and that had risen to 4.9% in the summer of 2013. In some cases they found that 60 per cent of a stock’s shares were traded as odd lots and so were hidden from the public transaction feed…the median fraction of missing odd lots was 24%..