"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Monday, December 19, 2011

Stuffed Like A Turkey

Nanex has released another report regarding OPRA (Options Price Reporting Authority) quote flooding.  Quick note: on their page, which is linked just prior to the article below, the final chart has a click through of 7 images, the one we show is image #4.  What the firm noticed was that ISE (or International Securities Exchange) would return to low quote rate levels just after OPRA would peak at 3 million quotes per second.  Then ISE would surge again subsequently followed by total OPRA traffic reaching new highs.  This is just another example of the knock-on problems created by HFT and the inability of human to interfere fast enough.  Often these programs are designed to evolve on their own, taking on new strategies and new tactics over time.  We need to weed out the bad apples and make this behavior avoidable for those seeking refuge from manipulative strategies.  This form of market trading is not within the spirit that financial markets were created under.

On December 16, 2011, at 11:09:51.500 and again at 11:33:46.190, quotes from ISE flooded OPRA for approximately 50 to 100ms. During these events, there were no quotes from any of the other 9 reporting exchanges.

We'd also like to point out an anomaly in quote rates from the ISE exchange that appears whenever the total OPRA quote rate exceedes about 3 million quotes/sec. When OPRA quotes surge to a peak, the quote rate from ISE will suddenly back off and stay low until the total quote rate declines, where upon it will suddenly surge, often sending total OPRA traffic to new highs.

The second ISE flood event at 11:33:46.190.

The 48 OPRA Lines during the first ISE flood event.

Zooming and showing the 48 OPRA Lines during the first ISE flood event. 

The 7 charts below show the ISE quote surge anomaly.
Note the consistent pattern in the red line. This anomaly occurs often: whenever the total OPRA quote nears it's capacity limitation. (C2, BATS, and BOX exchange not show to reduce clutter).