Denial of Service

Remember the crazy quote tables I showed you yesterday which accompanied a detailed report from Nanex?  Well they have released some more information on an algorithm dubbed The Denial Of Service Algo.  Apparently this algorithm enjoyed free range as it transitioned from off to on in a Brownian motion.  The periods when the robot was on Power Saver low quote traffic was accompanied with relatively large trade numbers compared to the moments it ran full power, presumably with the help of Barclays and rerouted energy from California.  

Furthermore, since StateCounter provides clients with comprehensive visitor reports, CC is aware of the SEC's presence on the site.  At this time we wish to address your behavior.  You, the Securities and Exchange Commission have been given the mission to:  

to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. 

Where the hell are you?  Resources have been burned bringing down Raj but you all ignore Congress. There have been numerous instances where the SEC has failed in its effort to carry out its mission not the least of which has been the culture within the organization and the outside influences pushed upon it by the money powers that be.  For a market with participants moving in milliseconds, the SEC is certainly the slowest entity in the room when it comes to identifying and notifying the public of any instances where investors are not protected or able to participate in a fair (AAPL Stub Quotes), orderly, and efficient market (BATS IPO), capable of capital formation (Facebook, Zynga).

So why is it that you pull shit like this and think people won't find out?  It's about time to go through the in-house personnel and weed out the non-producing lawyers and use the money for a system from someone other than an HFT house building a microwave schematic for doing trades faster.  Are you all idiots or just 99% of you?  Stop parading around like kings, we see you for the flaccid, farcical institution you have become and we would like you to recognize this and change your ways.  You have the choice to stop causing damage with your ignorance and bureaucratic ways.

From Nanex:

While working on identifying and cataloguing the high quote traffic generated by Denial Of Service algo from 01-Nov-2012, we here at Nanex stumbled upon something interesting. Below is an image that shows the trades per second and quotes per second in Bank Of America (BAC) from 9:30-13:45 ET. Each data point represents any second that contained 1000 or more quotes or more per second in BAC

The blue represents the number of quotes in a second, the orange represents the number of trades for that same second. When you graph them together using multiple axis, a distinct pattern emerges. For those seconds that contain abnormally high quote traffic, the number of trades drops dramatically.

And conversely, the seconds that contained a higher amount of trades appear when the quote traffic is less.

There might be a few reasons for this:

1. Other HFT algos were smart enough to pick up on this behavior and pulled out during that time period.
2. The various computational and network systems in place that route, analyze and do computations on this data can do nothing but handle raw quote traffic, so not as many trades can be processed during that time.

Below are similar graphs for the other securities that were affected:

• Ford Motor Company (F)
• Intel Corporation (INTC)
• KeyCorp (KEY)
• Morgan Stanley (MS)
• Sirius XM Radio Inc (SIRI)
• Yahoo (YHOO)

Note The data below was taken where the security had 100 or more quotes per second.

1. F - 333 seconds had 1,000 quotes or more. 40 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Ford showing every second that had 100 or more quotes per second.

2. INTC - 242 seconds had 1,000 quotes or more. 61 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Intel showing every second that had 100 or more quotes per second. 

3. KEY - 386 seconds had 1,000 quotes or more. 347 of those seconds had 10,000 or more quotes per second.

Here is the entire day in KeyCorp showing every second that had 100 or more quotes per second. 

4. MS - 140 seconds had 1,000 quotes or more. 89 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Morgan Stanley showing every second that had 100 or more quotes per second. 

5. SIRI - 110 seconds had 1,000 quotes or more. 62 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Sirius XM Radio showing every second that had 100 or more quotes per second. 

6. YHOO - 157 seconds had 1,000 quotes or more. 51 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Yahoo showing every second that had 100 or more quotes per second.

The official word on the street is that this abnormally high traffic had a "modest impact", I think the data speaks otherwise. During those seconds where there were abnormally high amounts of quote traffic (10,000+ quotes/sec), the number of trades that were occurring simultaneously dropped significantly. In total there were 651 seconds (almost 11 minutes) of market time today that were affected. That's 11 min of potential future economic growth. These seemingly small increments of time eventually add up and serve to slowly erode the confidence of investors small and large.

Nanex Research

Inquiries: pr@nanex.net