A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.
Oh really? The motive is unclear eh?
No it’s not.
The motive is to try to goad someone else into placing an order against the fake orders that are never intended to execute. This, incidentally, is illegal — the Securities Act makes unlawful any action taken in the market with the intent to distort prices. In other words the placement of any order into the market for any purpose other than to have it executed is against the law.
Translation: The ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity.
That’s a crime; intentional disruption of the markets is illegal.
“I feel a tax on order-stuffing is what the markets need at this point,” said David Greenberg of Greenberg Capital. “This will cut down on the number of erroneous bids and offers placed into the market at any given time and should help stabilize the trading environment.”
It’s much simpler to fix this, as I’ve noted before.
All orders must be valid until executed or 2 (two) full seconds have elapsed.
That’s it. That’s all you have to do. This change instantly makes this sort of game unprofitable and it ends instantly. It makes all orders comply with the law; any order you place is exposed to execution risk against every other person in the marketplace. That’s what the law says, and a literal one-line change in regulation would put that in place.
Why hasn’t it been done?
Because the markets are not for you, nor are they for honest companies. They have been stolen by the Wall Street bandits and now are used as a tool to screw you and everyone else.