Front Running, Flash Orders, or Blackbox/Algorithmic Manipulation?

[TraDaToR]

Quote from mgmaggie:

I really don't know what you are looking at but you are dead wrong. The es, nq, even the ym did not have the moves cl did.

Nq was in about a 13-15 slow point move, es about the same while cl from yesterday is over 4 dollars. The majority of the move in Nq, ES was premarket. So based upon your statement you obviously can not read a chart or you don't trade.

Cl moves 30-50 points per candle once it breaks out, today cl moves at the times noted we larger with cl moving over 50 on several candles resulting in a move over a dollar with cl being up over 4 dollars in total.
Please provide us the charts you see showing the other futures moving even close to that today. I would bet you are not even looking at cl but some stock?

You should really think before you type. You are the one who looks like the fool, fool.

???

CL futures are on Globex. I have never seen anything suspicious on Globex.

Never heard of ask levels disappearing when trying to hit it, or people at bid/ask getting "pennied" milliseconds before a market order comes in...Of course there are algos submitting bids/asks for a very short amount of time but that's not detrimental at all.

This flash order thing is getting too much attention now. I hope for stock traders it will be banned but people are seeing flash orders everywhere now...

 

[black diamond]

Quote from pacific7:

_______________________________________________

Black Diamond, just a note;

Called Nadaq, they said all orders sent through them from our computers (at least mine with sterling) can show up as flash orders to others who purchase the flash information, unless your particular broker/dealer has them sent for you using a specifidc strategy. I am assuming that BATS and EDGE work the same way.

Good news is that this whole situation should be fixed on Sept 1st. Guess we all have to wait to see if it has any impact on our individual trading styles...

I am back from dealing with all my margin calls ...

Here is an article that says Nasdaq flash orders are opt-out, on all the others it is opt-in. So you always should have the option to use a market order or marketable limit order that doesn't get seen. But it is possible your broker may not give you the choice.

http://www.advancedtrading.com/regu...TMY32JVN?articleID=217701372&pgno=1#undefined

And on the sub penny prints, a guy on the discussion under this article agrees with the poster here that says reg NMS prohibits normal orders in sub-penny increments and says they are VWAP orders.

http://fridayinvegas.blogspot.com/2009/07/we-fear-what-we-dont-understand.html

Some of this was posted on another thread I can't find now (sorry to whoever I am not giving credit to), I just have the printouts sitting on my desk now.

 

[black diamond]

My other posts pretty much dealt with what I think are hard facts. Here is the other part of why I am skeptical about a lot of the flash order stories out there, which is more talking out of my ass.

Say you have access to order flow, like the flash trade subscribers do. There are two main types of orders in the world, the ones you want to trade with and the ones you want to trade against. Roughly speaking when you trade with the right ones you get paid for providing liquidity and the price stays where it was, and when you trade with the wrong ones the price moves against you. It is your job to figure out which is which and do the right thing.

In the OTC world part of this is things like knowing who is on the other end of the phone and asking questions. I have heard traders say "are you sure that is all you are going do do" and stuff like that. Nitro talks about this in another thread, maybe he will agree with this if he is still here. (Nitro - I remember disappearing on you after you wrote a long thoughtful post, sorry). You don't frontrun the smart orders if you don't want to go to jail, but you try to avoid taking the trade.

So in an electronic market how do you figure out which is which? I have never done it but I would guess you would start with some kind of statistical analysis of the order flow and whatever order characteristics you could see. But I would think that when someone clicks the "flash this order" checkbox it is a pretty strong signal that this is an order you want to fill, not join or frontrun!

If you think you are being frontrun after your orders are flashed you must believe that whoever is frontrunning you thinks you are smart enough to be worth frontrunning but not smart enough not to flash your order. I just find it hard to believe that this would be a profitable frontrunning strategy.

 

[mgmaggie]

Quote from TraDaToR:

???

CL futures are on Globex. I have never seen anything suspicious on Globex.

Never heard of ask levels disappearing when trying to hit it, or people at bid/ask getting "pennied" milliseconds before a market order comes in...Of course there are algos submitting bids/asks for a very short amount of time but that's not detrimental at all.

This flash order thing is getting too much attention now. I hope for stock traders it will be banned but people are seeing flash orders everywhere now...

You have "never" seen anything suspicious on Globex?
It happens all the time. Last year they were investigating the manipulation being allowed with cl.

On one options expiry cl ran in the last few minutes of the day from just over 100 to 128 dollars. So unless you were long you were dead on that specific trade as the move was completed in a few minutes (literally).

Yes any trader realizes you can get pennied, slipped and so on in the market. My comment was saying how evident it was in response to triple 7's comments.

I would agree with you if you are a long term cl trader or futures options trader but not being able to exit or enter on a more regular bases as a result of an item they are looking at banning in my case is detrimental. Especially if I have had a working order in place for some time and as the market hits my price I do not get filled or part filled.

I wouldn't mind some sort of level field and rules being implemented that are in place. One of the governing bodies should be able to front run these items as the loop holes get exposed except they are owned by the very players who they are suppose to have the auspices over. If GS as an example has the ability to see all of the players hands and then deal themselves a winning hand without the others knowing, how is that even legal. I would have thought one of the governing bodies would alone lay charges for manipulation and unfair business practices. They are just too big, too big to fail, too big to sue, too big.

Don't you find it strange how the 3rd week of every month is plagued with Broker and exchange trade problems and that goes for Globex from here.

Just my point of view.

 

[pacific7]

Quote from black diamond:



So in an electronic market how do you figure out which is which? I have never done it but I would guess you would start with some kind of statistical analysis of the order flow and whatever order characteristics you could see. But I would think that when someone clicks the "flash this order" checkbox it is a pretty strong signal that this is an order you want to fill, not join or frontrun!

_________________________________________________

Red_Inc or Black Diamond

Just out of curiousity, where do you trade and under what platform that gives you the option to flash your order (or not). I use sterling and do not have this option?

 

[trom]

Quote from tripledtrader:

One of the major problems of flash trading, which has not been brought up in this thread is the "sub-pennying" that it leads to. When you see those 25.0001 and 25.9999 prints going by on the NASD, the bid and offer is getting sub-pennied by the Algo's.The flash trading practice allows the super computer to see the market order buy coming in, and instead of the person sitting on the offer getting the print, the algo sub-penny's the offer by printing .0001 in front of it on NASD or BATS.

I'll give you an example, let's say the current Bid on a stock is 49.05. This is the best bid and any market sell order, should be filled at 49.05, and the person bidding would get filled. What happens when you bring flash technology into the game is, when the market sell order comes in, it is flashed and the brokerage house receiving the order sees it for that split second (not public information). They then step in front of the bid and fill the order in house at 49.0501 (sub-pennying the bid). The poor bidder is not filled because of this. This happens to me constantly all day. It is especially prevalent in thinner issues. I believe the SEC should adjust their rule 612 (the "sub-penny rule") which prohibits market participants from accepting or displaying orders or quotations in a pricing increment smaller than a penny. The brokerage houses are getting by this rule on a technicality (because they are technically not displaying the order, they are simply matching the market order. If the rule were changed to prohibit any trades taking place in a pricing increment smaller then a penny, it would eliminate some of the problem. Of course they could still penny the bid or offer, but this sub-pennying is ridiculous. You don't stand a chance. Eventually it will get to a point where we'll always have to pay the spread in order to get filled.

I agree this is extremely annoying. But, I'm not so sure that it's all due to flash orders. Many dark books' order matching rules allow for prints that go off at fractions of the spread. When I'm posting dark liquidity, quite often I'll get price improvement, and partial penny fills are quite common, as well. Note, I'm not actually pricing my order at a partial penny. The same can happen when posting hidden liquidity on ECNs with links to dark pools. Other than firsthand experience, I know of no way to really stay on top of how all these executions currently work. The ECNs/exchanges are constantly coming out with new and different order types and new links to dark pools. On top of that, the dark pools all have different routing/matching rules. It's really a big mess.

 

[tripledtrader]

Quote from propseeker:


nasdaq and bats don't allow sub-penny bidding, so your info is wrong here. if by NASD though you mean the National Association Of Securities Dealers, then yea you'll see this, but it has nothing to do with flash orders. _that_ nasd is where dark pools have to print their trades to the alternative display facility... you'll usually see these trades marked as ADF in your t&s.

that example is not an example of how flash orders work. flash orders don't flash at brokerages, they flash at the exchange. if your broker is sub-pennying you and you can prove it, then get a new broker.

again, those sub-penny prints you're seeing are from _dark pools_ and have nothing to do with flash orders. i have no idea which pools allow it, and i agree they're annoying as hell, but mark my words, you'll still see them after they ban flash orders. (which, btw, was one of the few ways of helping active traders reduce slippage/fees by getting rebated when taking. it was also an optional setting, so most of this complaining is total crap and could have been averted if you would've just talked to your dev guys). [/B]

Hi propseeker, I agree with your points, and there's definitely alternative reasons for sub-penny prints including dark pools. The point I was trying to make, was if a market order is flashed to the exchange, and the broker has access to this information via the location of their super computers being on the exchange, then those super computers have the capability to take the other side of that market order. My problem is not with my own broker (my broker is GS btw), as my order is placed and displayed in the NBBO. My problem lies with the market order trying to take my bid or offer. If the market order on the other side is flashed, then those super computers have the ability to step in front of me. If the order wasn't flashed, then the market order should give me my fill.

NASD and BATS do not allow sub-penny quoting as per SEC Rule 612, but they are not quoting anything. The brokerage super computers are simply taking the other side of the flashed market order, and printing it at .0001 or .9999 in front of the NBBO.

Any internal sub-pennying from my own broker would definitely still exist if flash trading is banned. But again, my problem isn't with my own broker, my problem is with the contra broker.

 

[tripledtrader]

Quote from trom:

I agree this is extremely annoying. But, I'm not so sure that it's all due to flash orders. Many dark books' order matching rules allow for prints that go off at fractions of the spread. When I'm posting dark liquidity, quite often I'll get price improvement, and partial penny fills are quite common, as well. Note, I'm not actually pricing my order at a partial penny. The same can happen when posting hidden liquidity on ECNs with links to dark pools. Other than firsthand experience, I know of no way to really stay on top of how all these executions currently work. The ECNs/exchanges are constantly coming out with new and different order types and new links to dark pools. On top of that, the dark pools all have different routing/matching rules. It's really a big mess.

Trom, you are exactly right. The sub-pennying is not all due to flash orders. There can be internal sub-pennying by the brokerage house, or internal matching or liquidity from other dark pools. Flash orders is only the problem, when the market order is flashed to the exchange, and the brokerage computers located on the exchange provide liquidity to it by stepping in front of the NBBO. The only way to really solve this problem is to alter SEC rule 612 (the sub-penny rule) to deal with the actual trades and not the quotations. If we eliminate sub-penny prints (on stocks priced above $1 of course), much of this problem would be eliminated.

 

[TraDaToR]

Quote from mgmaggie:
Especially if I have had a working order in place for some time and as the market hits my price I do not get filled or part filled.

This sentence alone shows how little you know about how orders are matched on Globex. Where were you in the queue? How do you know you should have been filled?

I scalp different globex instruments day in day out and I can tell you I get the fills I' m supposed to get when joining bid/asks... Every time I thought something weird happened, it was because of a change in matching algos or something like that, something you can find on CME website.

I have never seen an algo stepping in front of me in the queue, or improving my price BEFORE my order is placed or a market order comes in...That's what is important, algos have the right to go lightning fast to take your edge after your order is submitted, it's called competition.

 

[neke]

Quote from TraDaToR:

...algos have the right to go lightning fast to take your edge after your order is submitted, it's called competition.

Hmmm. That seems to me like legalized front-running: taking my edge based on seeing my order before my execution (due based on the quotes) was done.