This post 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.
On Friday, the stock of AutoZone was subjected to what Nanex is calling diabolical manipulation. The charts below first show trades then quotes, note the spike in activity at 3:30.
Zooming in to a 4 minute period, you can see the choppy behavior much clearer, which is apparently fooling many into buying high and selling low. The chart below alternates between trades, NBBO, then all bids and asks.
This video was just published by Nanex, which takes us back to January of 2008 and an unbelievable trip the eMini S&P futures contracts went on. The move was equivalent to the Dow swinging 700 points and it happened in only 7 seconds. Beginning at 2:01:11 the contracts were trading at 1411, then quickly rose to 1430, before being smashed down to 1370 by 2:01:18.
FINRA Getting Tough On HFT?
Any proposed HFT regulation in the U.S. should be taken with a grain of salt as the industry typically has their way with cutting the teeth from most legislation. Despite this, it is still good to see FINRA highlight abusive high frequency trading practices in its Business Conduct Priorities for 2014.
The use of HFT strategies has grown substantially over the past years and drives a significant portion of activity on the U.S. markets. Although many HFT strategies are legitimate, some are not and may be used for manipulative purposes. Given the scale of the potential impact these practices may have, the surveillance of abusive algorithms remains a high priority for FINRA.
They go on to mention specific strategies such as momentum ignition, layering, andspoofing. As for FINRA’s tenacity in curtailing any or all of these practices, we’ll just have to wait and see what 2014 brings.