http://www.istockanalyst.com/finance/story/5293293/is-anyone-going-to-stop-the-abuse-by-hfts
drive quote volume for bids and offers you have no intent to execute and by doing so overload the systems so that you can then arb between different venues
Is Anyone Going To Stop The Abuse By Hfts?
Nanex continues to do yeoman's service in chronicling the latest and greatest abuse of the markets which takes place under the general rubric of "quote stuffing" in the exchanges. The latest is on "ASIA":
In this chart we plot trade and quote prices/sizes. Note that during the decline a massive quote-size algo was running on NSDQ. Quote sizes were so large they flatten everything else in the size chart:
The fact of the matter is that this has been going on for more than a year and yet there has been exactly zero in the way of enforcement.
These events still go on each and every day.
The scheme is simple - drive quote volume for bids and offers you have no intent to execute and by doing so overload the systems so that you can then arb between different venues.
This can, and often does, produce "mini flash crashes" and "mini flash rallies" in various issues. And while it has yet to reflect into an all-on market collapse, the fact remains that under long-standing law any pattern of orders intended to manipulate the price of a security, as opposed to actually buy or sell it, is illegal.
So where are the prosecutions? More to the point, how can you possibly buy or sell a stock and have any reasonable expectation that you're getting the best price?
You can't. It makes it entirely impossible for you, as a retail investor, to have any sort of confidence in the markets. You cannot use stop orders on your positions because they are subject to being raped by these mini-moves when in fact there was no actual buy or sell pressure at the price where your stop got triggered.
This has been well-documented now for more than a year and I've been writing on it since the Flash Crash and Nanex's debut of their reports, along with my quickly-infamous report over the July 4th weekend last year (in 2010.)
More than a year on, this raw abuse has not been stopped. Our so-called "regulators" have not demanded that this quote stuffing end nor have they taken a very simple action that would make it unprofitable - charge a small fee - a fraction of a cent - for each quote transmitted, such that attempting to "jam the channel" would cost more than the abusers would hope to profit.
Simply put, nobody cares. Our so-called "central banker" is at this moment "testifying" in The Senate while the SEC does nothing, yet he takes "credit" for the stock market's rally. You, as an individual investor, cannot analyze stocks and then place trades with that information with any sort of protection against ruinous loss not because you were wrong, but because someone has decided to attack the stock with an algorithm designed to distort the market and trip your stop-loss orders.
As I sit here listening to Bernanke talk about "improvement in financial conditions" I am struck by his words - sure, it's "improvement" if you wish to look at criminogenic environmental factors. That is, it's a great time to be a bankster or HFT trader - you can stuff quotes, break into houses and trash them without owning them first and cajole the FDIC into taking all risk on a bank acquisition, leaving you with the profit while taking zero risk, even if you're a housewife who has no business experience.
On the other hand if you're a real businessman or investor this is an extraordinarily dangerous time when it comes to financial conditions. This, of course, factors large when it comes to jobs - you'd have to be out of your mind to hire new employees when you're continually at risk of being ruined by acts that should be crimes but which our so-called "justice system" will permit with a wink, nod and even laugh when used against you by these mega-corporations and their cronies on Wall Street.
And as a saver, such a Senior Citizen, you have flatly-ruinous financial conditions with Bernanke's ZIRP policies.
So yeah, I suppose that Bernanke is right, for a certain class of people.
The problem is that this class of people has no relationship to the average Joe. In fact, it's Joe who's getting the business end of the Wall Street "bull."
