"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

Friday, August 31, 2012

The SPY 03:59:4000 Index Arbitrage Squeeze

Talk about a weird end of the month.  August has by far been the slowest (S&P 500 daily price change >1% only once) and volume is at a record low in the past ten years.  With Jackson Hole on the radar, we got exactly what we expected for the day before a closed Monday due to Labor Day, next no human volume and serious manipulation of our computerized for-profit exchanges.  The cherry on top today was the Direct Edge CEO claiming on CNBC to not knowing what HFT is, in an effort to skew the conversation away from the soul-selling, for-profit exchanges behavior toward technology risks.

Today we had the Bernanke Fantasecond and the HFT induced SPY Volatility

At the end of the day today there was a major SPY arbitrage event.  The top chart in green shows the number of stocks with HFT algorithmic order sequences.  You can see at the end of the day there were more than 500 stocks being hit, above 225 is big.  The second chart in yellow shows the number of stocks with HFT algorithmic quotes, which you can see registered nearly 600 twice and broke the 600 threshold twice in the AM, usually 500 is big:

Zooming in on the end-of-day blast you can see the behavior separated by exchange:

We can see the activity began at 15:59:40 and using HFT Alert Pro we can identify exactly what sequences were being send.  Notice the highlighted sequence in IWM at 15:59:40 that started it off:  
[for an explanation on this table, read this]

Running into the close and a few seconds past it you can see two large SPY sequences with various types of smaller SPY sequences along with many other index related ETFs:

The following from Nanex highlights the SPY nonsense and each chart is titled with a word from a phrase being sent to the SEC "Dear SEC Please do your job so we don't have to".

To see bigger images, right click and select view image then left click to enlarge

Charts below show the bid/ask spread (shaded) and trades (dots) color coded by exchange. Not all exchanges are shown for clarity.
1. Dear 

2. SEC

3. Please

4. do

5. your

6. job 

7. so 

8. we

9. don't

10. have to