Home Business HFT Shenanigans: FMI, Quote Spam, E-minis, VRX

HFT Shenanigans: FMI, Quote Spam, E-minis, VRX

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Every week Floating Path looks to highlight some of the crazier examples of HFT running amok in the markets. We typically do so with the help of Nanex which monitors, analyzes, and visualizes high-frequency trading market data.


On Monday afternoon, about five minutes before the close of U.S. equity markets the stock of Foundation Medicine Inc (NASDAQ:FMI), Inc saw wild quoting activity which resulted in some errant trades very far away from the NBBO and last sales. The stock was trading right around $40 when suddenly the offers rose dramatically all the way to $75. Unfortunately, some people bought FMI from $55 all the way to over $70. Fortunately for someone, they were able to sell a stock for nearly twice its value.

HFT Shenanigans: FMI, Quote Spam, E-minis, VRX

Quote Spam

Quote spamming and DDoS attacks are some of the simplest ways for HFT to “gum up the works” of the stock markets, thereby creating risk-less arbitrage opportunities. The chart below shows quotes for UTStarcom Holdings in a window slightly over 3 minutes long on Tuesday. In that time, UTSI saw 1.1 million quotes and zero trades. The second chart is zoomed in to 26 seconds in which 138,000 quotes were placed.

This video shows quote spamming in Valeant Pharmaceuticals Intl Inc (NYSE:VRX). In about 38 seconds, VRX sees thousands of quotes and only eight trades, most of which originate from Nasdaq BX (the old Boston Stock Exchange).



E-mini Liquidity

Time and again we see that high frequency trading does not provide liquidity as its proponents claim. Whether it be in crude futuresnatural gas futures, or the E-mini S&P 500 (.INX) contracts, HFT withdraws liquidity (and sometimes is a net user) when the market needs it the most. The following charts of the E-mini contracts all show how large orders (red bars) are placed but cancelled just before the price reaches them. This practice can be part of spoofing which we’ve noted before in this contract as well as crude oil that resulted in Panther Energy / Hologic, Inc. (NASDAQ:HOLX)’s discipline from the CFTC.

The following chart shows the total number of contracts in all 10 depth of book levels averaged over each minute of the day (9:30 to 16:00 ET) between March 2010 (dark purple) and October 1, 2013 (bright thick red). Older days colored towards the violet end of the spectrum, while more recent days colored towards the red end. Liquidity has never recovered to former levels, probably due to increased asymmetry in the trading speed of participants: for example, faster communication (fiber to microwave) between Chicago and New York.

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