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SkyNet Wars: How A Nasdaq Algo Destroyed BATS
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SkyNet Wars: How A Nasdaq Algo Destroyed BATS

  #1 (permalink)
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SkyNet Wars: How A Nasdaq Algo Destroyed BATS

Following the May 2010 flash crash, the investing public hoped that as part of its "exhaustive report", the SEC would find and hold responsible the various components of a broken market structure, be it HFTs, ETFs, stubbing and sub-pennying algorithms, and all the other knowns and unknowns we have covered over the years.

Instead, in what would prove to be a move of cataclysmic stupidity (if sadly understandable - the SEC, like everyone else "in charge" is used to dealing with a gullible and simplistic public, which has no access to the real data and analysis, and whose opinion could be easily manipulated, at least until now), the regulator blamed and scapegoated it all on a Waddell and Reed trade (we wonder just what the quid pro quo was to get the asset manager to roll over and take the blame despite protestations to the contrary, at least in the beginning).

The result was that the same investing public realized that market structure is so corrupt, and so robotically mutated, there is no place for the small investor in this broken market. Last week's BATS IPO fiasco merely confirmed this. And as usual, BATS (whose chairman Ratterman has just been demoted even as he stays on as CEO) decided to take the "passive voice" approach and blame it all on a faceless, emotionless, motiveless "software glitch".

Just like that perfectly innocuous BSOD we have all grown to love and expect any minute. Only it wasn't. To get to the bottom of what really happened, in a world in which the SEC is far more interested in finding the latest discount internet porn stream than actually protecting the small investor, we relied on our friends from Nanex, who have time and again proven to have a far better grasp of what it is that really happens in the market than virtually anyone else.

And if Nanex' interpretation of events is correct (spoiler alert - it was not a "software glitch") it takes SkyNet wars from the silver screen and to a trading terminal near you. What happened is that a malicious, 100% intentional Nasdaq algorithm purposefully brought BATS stock to a price of 0.00 within 900 millisecond of the company's break for trading! This is open SkyNet warfare.

The fact that the BATS exchange itself halted just prior to break only facilitated this (and could potentially be a case of malicious sabotage). But one thing is clear - as the data below shows, there is no doubt that an Intermarket Sweep Order originating on the Nasdaq exchange was unleashed to make a mockery out of BATS. It succeeded, and in doing so may have destroyed not only BATS chances for going public, but ultimately ruined the firm's credibility.

Who would stand to gain from this? Why exchanges such as Nasdaq and NYSE of course, which already are scrambling for revenue, and in the aftermath of the failed Deutsche Boerse merger, it means that any dirty trick in the book to extend and pretend is now fair game. Such as the algo that crashed BATS.

We fully expect that in keeping with its galactic stupidity of yore, the SEC will do nothing to address this situation which is nothing short of exchange warfare using rogue and malicious algorithms as agents of war.

Further, in doing so, it will once more destroy any latent "credibility" that the stock market may have created with the retail investor following the 4 month ridiculous and centrally planned melt up (we doubt there is much faith to lose - as we pointed out last week, Joe Sixpack no longer wishes to be the big boys' patsy).

Oh well - if the market and its regulators wish to make "investing" solely a provenance of central banks, ultra fast algorithms, and Primary Dealers, so be it. They can play in their sandbox all they want. Just don't expect the trillions in "money on the sidelines" but mostly in savings accounts, where it may earn 0% interest, but at least it won't be vaporized courtesy of some vacuum tube, to ever come back to stocks. Ever.

As for the forensic reconstruction of what truly happened to BATS, below we provide a spreadsheet (the excel can be downloaded here), of every single trade post the BATS IPO


More at:
SkyNet Wars: How A Nasdaq Algo Destroyed BATS | ZeroHedge

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  #2 (permalink)
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Something needs to be done about these algos running loose in the exchanges. It seems like we're due for another one to be unleashed in the energy complex. What will we get next? The Whac-A-Mole? How about the Ascending Cone?

They are right about the melt up. This thing has been run up on very little volume which will most likely provide a flash crash or a series of big range down thrusting days when the party is over. Many smart investors have reduced their equities exposure and have found other asset classes to provide equity like returns with far less standard deviation which could explain the volume issue. And the Mom and Pop investors are probably gone for good and putting their money into CD's after being burned in 2001, 2008 and if they stuck around for the last flash crash, they're definitely gone.

We'll probably continue to see financial industry consolidation over the coming years as more and more financial crises arise. Skynet will eventually own them all! Lol!!!

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