HFT robots seeing orders before the exchange ?

Read up on Rules 610 and 611 of Regulation NMS. All trades unless expressly reported as exempt are required to be filled at the NBBO.

When we process and analyze the daily message streams on average 3% of all trades are reported outside the NBBO. Below is a compilation for December 31 2012.


Exchange Trades Outside NBBO Rate
Nasdaq Exchange (NQEX) 4,513,474 43,975 1.0%
New York Stock Exchange (NYSE) 1,915,599 14,141 0.7%
American Stock Exchange (AMEX) 43,507 318 0.7%
Chicago Board Options Exchange (CBOE) 125,989 438 0.3%
NYSE ARCA (ARCA) 3,455,116 37,977 1.1%
National Stock Exchange (Cincinnati) (CINC) 51,340 1,055 2.1%
Philidelphia Stock Exchange (PHIL) 167,157 927 0.6%
Boston Stock/Options Exchange (BOST) 948,215 3,817 0.4%
Nasdaq Bulletin Board (NQBB) 1,220 - 0.0%
Chicago Stock Exchange (CHIC) 3,181 44 1.4%
NSX Trade Reporting Facility (NQNX) 4,625,533 394,051 8.5%
NYSE Trade Reporting Facility (NTRF) 892,538 103,632 11.6%
BATS Trading (BATS) 2,859,565 31,688 1.1%
BATS Trading (BATY) 1,192,579 4,836 0.4%
Direct Edge (EDGE) 722,338 5,174 0.7%
Direct Edge (EDGX) 1,833,902 25,328 1.4%
Total across 16 Market Centers 23,351,253 667,401 2.9%


When you analyze the BAT Stream you can clearly see market centers jumping the gun and filling orders at the next NBBO before the quotes hit the NMS.

The pattern is so obvious: a trade reports outside of the instant NMS NBBO and the next NBBO Top of the book change reflects the already filled order price. Some of the price jumps are significant and have the same effect as sweeping the order book without the capital risk.

Our regulators use an enhanced electronic blue sheet system to investigate trades. They basically ask the SRO foxes for an inventory of hens...

This blue sheet data only requires trade dates and does not contain execution time stamps. FINRA has made changes to the Blue Sheet reporting regulations in 2011 requiring second timestamps. Implementation has been delayed twice and is scheduled to go in effect May of 2013. No doubt a huge industry push back is being lobbied to not report timestamps by the SROs.

Unfortunately our regulators do not have the tools, data or technology to enforce basic trade reporting rules thwarting fair play.
 
Quote from monstimal:

Please tell me if I'm wrong I'd like to know, but my understanding is: You can't ask a dark pool what their best bid and offer are. That's what makes them dark. The only information you can get is from executions (although it seems to me not all of them report executions immediately, not sure about that) and that your own orders didn't execute. (Obviously the people running the dark pool know all the orders within it, and who knows if they are playing fair with that information or not.)
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I don't pretend to know what the mechanics of each dark pool are or how IB has agreed to interact with them, thus my original question. However, I will say that the book I referred to above spends some time on the various mechanisms and they are quite varied (with some that are not obvious). The alternatives mentioned in the book are: Auction, Blind Auction, Negotiated, Advertised, Internal...plus hybrid approaches. I believe Advertised venues will show everything but size (not certain though). Regardless, I'm sure that information is well dated by now, but the point is that there are all different flavors of Broker - Dark Pool interactions and I'm hoping someone informed (perhaps Def from IB) would chime in with the specifics of what IB reveals about your order to various liquidity providers.
 
5 f** times i tried to sell at bid today on one not so liquid piece of shit stock . 5 f** times! SELL AT BID. every time they withdraw it and move bid few cents lower. how about that? finally-IB picked my shares just to resell them for couple pennies more 5 seconds later. what a world we are trading in...f** this "business"..what a pathetic place US stocks markets have became..
 
Quote from JohnTrader:

What would have happened if you gave a Market order to sell it?
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same thing that happens on flash crash..
if there is no other participants-they will drop the bid as low as they can and you will f*** real good..

but for some reason-SEC and DC are still 'studying" the cause of the flash crash
 
Quote from PocketChange:

...
When you analyze the BAT Stream you can clearly see market centers jumping the gun and filling orders at the next NBBO before the quotes hit the NMS.

The pattern is so obvious: a trade reports outside of the instant NMS NBBO and the next NBBO Top of the book change reflects the already filled order price. Some of the price jumps are significant and have the same effect as sweeping the order book without the capital risk.

Our regulators use an enhanced electronic blue sheet system to investigate trades. They basically ask the SRO foxes for an inventory of hens...

This blue sheet data only requires trade dates and does not contain execution time stamps. FINRA has made changes to the Blue Sheet reporting regulations in 2011 requiring second timestamps. Implementation has been delayed twice and is scheduled to go in effect May of 2013. No doubt a huge industry push back is being lobbied to not report timestamps by the SROs.

Unfortunately our regulators do not have the tools, data or technology to enforce basic trade reporting rules thwarting fair play.
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There are a few problems with the whole way the CTA/UTP/SIP/NMS systems are set up. It's not entirely the player's fault, the game is broken.

1) Latency: While the exchanges send the data to the SIPs/NMS first from their matching engines before sending them to their proprietary feeds, as everyone knows the people co-located with those exchanges get the data first and if that's not enough then the people who directly connect to the exchange could have a faster fiber path to the exchange than the exchange has to the SIPs/NMS by several microseconds.. and if that's not enough then RF/microwave customers can cut that time in half.

2) Processing: The NMS systems are slow, and if it's not the system itself, it's the message format for both output and input.

3) Timestamps: most of the exchanges are loosely synced to the atomic clock with ntp. So even if they publish their time stamps, they could be micros or even a few millis off from each other which could easily change the NBBO or conflict with it. Until they all sync to the same clock and use gps time sync cards and/or ptp it's all hearsay.

4) Geography: NYSE runs the CTA SIP feeds for tape a and b listed stock located in Mahwah, NJ and Nasdaq runs the tape c UTP SIP feeds located in Carteret, NJ with all of the other NMS participants' data centers in between them. While that doesn't sound like a big deal, if you think of market data in terms of time and space and what happens if mess with the time or space part, it gets messy. As exchanges merge and buy one another and all move under the same roof this will be less of an issue but then you'll have another problem. If you knew the routing strategy for some of the exchanges to fulfill their regnms requirements, you'd laugh (or cry).

While exchange time stamps will make things better they won't be the solution, because even if you have the actual time everything happened unless you're getting the data at the same time as everyone else, you're still at a disadvantage because someone else saw it first. Depending on your strategy, this could mean nothing or everything to your ability to profit.

There are good guys and bad guys in HFT, but I can't really blame the bad guys because when has anyone ever said a stock broker or any one on wall street was trust worthy or ethical. You can't blame a snake for being a snake.
 
Quote from Bob111:

5 f** times i tried to sell at bid today on one not so liquid piece of shit stock . 5 f** times! SELL AT BID. every time they withdraw it and move bid few cents lower. how about that? finally-IB picked my shares just to resell them for couple pennies more 5 seconds later. what a world we are trading in...f** this "business"..what a pathetic place US stocks markets have became..
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What is the stock ?
You made me curious so I want to see for myself the shenanigans they they pull.
 
Points well made.

We process and archive the message stream of quotes and trades from the NMS multicast. This preserves the sequence of events with the same latency for both trades and quotes establishing the official NBBO.

Timestamps are only used as a readable reference and are relatively worthless as there is drift,precision and syncing issues.

The issue is not necessarily with the parties involved in the trades, in fact, one of the parties is owed the difference between the NBBO and their stepped on execution.

I believe the SRO as fiduciaries are responsible because they are using their own derived NBBO and not the official NMS system. Consequently their own colocated clients are the ones that don't receive the NBBO improvements.

There are two main problems:

Trades reporting far enough outside NBBO causing a sweeping the book effect. Client gets price gouged and market price gets manipulated.

Jumping the Gun... trades are being executed and reported in the NMS feed before the quotes.

Whats the point of Reg NMS if its being ignored by the SRO's?
Maybe something as simple as NMS assigning a trade code indicating fast report would at least notify participants to act accordingly.

Quote from baglunch:

There are a few problems with the whole way the CTA/UTP/SIP/NMS systems are set up. It's not entirely the player's fault, the game is broken.

1) Latency: While the exchanges send the data to the SIPs/NMS first from their matching engines before sending them to their proprietary feeds, as everyone knows the people co-located with those exchanges get the data first and if that's not enough then the people who directly connect to the exchange could have a faster fiber path to the exchange than the exchange has to the SIPs/NMS by several microseconds.. and if that's not enough then RF/microwave customers can cut that time in half.

2) Processing: The NMS systems are slow, and if it's not the system itself, it's the message format for both output and input.

3) Timestamps: most of the exchanges are loosely synced to the atomic clock with ntp. So even if they publish their time stamps, they could be micros or even a few millis off from each other which could easily change the NBBO or conflict with it. Until they all sync to the same clock and use gps time sync cards and/or ptp it's all hearsay.

4) Geography: NYSE runs the CTA SIP feeds for tape a and b listed stock located in Mahwah, NJ and Nasdaq runs the tape c UTP SIP feeds located in Carteret, NJ with all of the other NMS participants' data centers in between them. While that doesn't sound like a big deal, if you think of market data in terms of time and space and what happens if mess with the time or space part, it gets messy. As exchanges merge and buy one another and all move under the same roof this will be less of an issue but then you'll have another problem. If you knew the routing strategy for some of the exchanges to fulfill their regnms requirements, you'd laugh (or cry).

While exchange time stamps will make things better they won't be the solution, because even if you have the actual time everything happened unless you're getting the data at the same time as everyone else, you're still at a disadvantage because someone else saw it first. Depending on your strategy, this could mean nothing or everything to your ability to profit.

There are good guys and bad guys in HFT, but I can't really blame the bad guys because when has anyone ever said a stock broker or any one on wall street was trust worthy or ethical. You can't blame a snake for being a snake.
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Quote from Bob111:

5 f** times i tried to sell at bid today on one not so liquid piece of shit stock . 5 f** times! SELL AT BID. every time they withdraw it and move bid few cents lower. how about that? finally-IB picked my shares just to resell them for couple pennies more 5 seconds later. what a world we are trading in...f** this "business"..what a pathetic place US stocks markets have became..
More...

Are you directing your orders to the exchange with the best bid?

IMO, if you're a short-term trader, you're costing yourself a lot of money, on average, by not directing your orders yourself (e.g., to the exchange with the NBBO). In the current regulatory environment, the incentive for brokers to harvest gains in a hidden manner via B/D internalization or PFOF deals is just too great. In general, I've found that "smart" order routing systems are smart for your broker, not so for you.
 
I asked Bob111 above for the name of the stock where he got screwed.

If anyone knows of other stocks where HFT shenanigans are obvious please post them here (or PM me if you prefer).
 
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