A recently revealed lawsuit by Chicago high frequency trading firm Jump Algorithms to identify an anonymous Twitter Inc (NYSE:TWTR) follower exposes an issue at the heart of what is considered the questionable side of the business.
Lawsuit seeks to learn the identity of the person tweeting anti-HFT messages
In a lawsuit filed in the Circuit Court of Cook County, Illinois on April 24, the HFT firm, more commonly known as Jump Trading, seeks to learn the identity of a person tweeting apparently anti-HFT messages and “posing as Jump Trading and infringing on Jump’s trademarks,” the complaint reads.
Jump Trading finds itself in the center of the DoJ investigation into HFT, it was revealed last March. The firm is also said to have meet with CFTC Chairman Gary Gensler when the initial flash crash report was being drafted, another bone of contention. Jump did not respond for comment before press time.
The posts from the rogue Twitter account appear sophisticated based on topic selection and indicate the person writing the tweets has an insider knowledge of the market making and HFT process. For instance, the complaint noted that on April 19 [email protected] tweeted “The securities exchanges’ practice of selling early access to their trading data is a bigger issue than HFT.” This topic hasn’t received mainstream attention but a hot topic of behind the scenes deliberations. The April 19 tweet touches on market moving government information being sold to a small group of HFT elites before it gets to the general public, a topic rarely addressed in public but considered questionable at best.
Secret tweeter might be a traditional market maker
One theory on the secret tweeter’s identity is the he might be a traditional market maker – a group of people critical to the functioning of any market place who have been increasingly squeezed out of the business by a small club of large HFT firms. The fact that market making and HFT have not been properly identified and treated differently rankles market makers and some reformers.
“I am not an HFT trader I am a provider of LIQUIDITY,” one tweet read, then went on to say the exchange must pay for it, an oblique reference to little disclosed payments for order flow, an issue considered illegal bribes in some quarters and structurally unsound in other quarters. Those who support HFT argue that such payments are necessary to keep liquidity in the markets at all time.
The tweets also have an aggressive edge towards the current system, which were also cited in the complaint. “I love the three card monty trade!” reads one noted tweet. Another tweet addresses the real issue with HFT that, like the other serious issues, fail to receive attention.
“Pissed off with the market doing nothing,” reads the tweet. “Going to give it one more chance before I release the Godzillo #hft.” This tweet is important because it relates to HFT participants moving markets, a key insider charge largely ignored in the public HFT debate. As reported in ValueWalk, the initial regulatory report on high frequency trading failed to properly assess HFT’s responsibility in the event, which has led to a documented rise in HFT flash crash and market manipulation activity since the flash crash.