Submitted by Tyler Durden on 06/09/2011 14:28 -0400
* CBOE
* Direct Edge
* FINRA
* Market Manipulation
* NASDAQ
* New York Stock Exchange
* NG
* NYMEX
* Volatility
Yesterday, just after 8 pm Eastern we presented a very curious move in NatGas trading on the NYMEX when under very light volume, the NG performed something akin to a sine wave expansion, with about 12 peaks and troughs with ever increasing amplitude, until ultimately it triggered a major sell off when it appeared to touch off an avalanche of limit orders about 3% from the prevailing price, leading to an almost instantaneous 8% drop in Natgas which was promptly recovered. We dubbed this a fractal pattern, and after a follow up with the trade forensics experts at Nanex, it appears this was a very spot on designation, as zooming into the pattern indicates increasing levels of self-similarity and complexity. Yet aesthetic observations aside, this latest algo appears to be nothing more than a limit order-busting market manipulation device, whose sole purpose is to destabilize and generate volatility for the creator of the algo. Curiously, as Nanex indicates, the algo is not limited to Natgas but also appears to recur in other far more liquid instruments, such as the SPY, when a comparable fractal pattern was observed in broad daylight. As to how the algo itself profits from the price instability it generates: we are unsure. One could certainly trade the increased volatility through derivatives, by buying vol cheap in advance of such as limit order triggered waterfall, especially in very thin markets, and then selling the vol at the apex of a given move. Obviously, this is merely speculation. That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.
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http://www.zerohedge.com/article/fractial-limit-order-buster-latest-market-manipulation-algo-gimmick
Obviously we were joking that someone, anyone, at the SEC or Finra would very possibly care about this. We also are joking when we say that as ever increasing examples of this kind of market manipulation become prevalent and demonstrated by sites such as Zero Hedge, that the investing public will rush to put their money into a casino which is more and more obviously geared to profit only those whose HQs are either located south of Houston street, or who can create nanosecond sine waves designed merely to knock out anyone stupid enough to still trade stocks.
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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