Nanex: A nightmare on Elm Street for high-speed trading. Part 1

Nemesis of all high-frequency traders from Wall Street works in an office the size of an apartment located directly above the Bliss salon, where for $ 45 they do a manicure and pedicure on Elm Street in the village of Winnetka, near Chicago.

Before Eric Scott Hunsader ( Eric Scott Hunsader ), founder of Nanex LLC , the provider of stock market data, as many as four monitors showing psychedelic images of jumping triangles and points at which he looks for signs of illegal trading. Triangles and points on its monitors are quotes for selling and buying shares on US stock exchanges that go at a rate of a fraction of a second.
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The trading schedules created by the Hunsadera company, consisting of eight people, at once attracted the attention of literally everyone, starting with state control bodies and ending with the owners of art galleries. Even what a trick was done: teams to buy and sell shares of one of the funds were transferred to the melody of a digital piano . Some traders were infuriated by this: they began to declare that the results of Nanex’s work were not confirmed by anything, and the company itself was just spreading rumors about another conspiracy theory.

For Hounsader, images generated from market data are proof that high-frequency trading firms purposely use market rules to make a profit in an environment not regulated by law. And while others see propaganda in the reports and graphs of Nanex, the company's findings help initiate a public discussion of the fundamental issue of fairness in modern stock markets.

“Have you watched or maybe read the Lord of the Flies?” Hunsader asks, using William Golding's novel about boys abandoned to fend for themselves on an uninhabited island, as a metaphor for stock markets. "When there are no parents, the situation is out of control."

Photo: Getty Images

'Ticker Plant'

From the point of view of the 51-year-old Hunsadera, this metaphor particularly well reflects the situation in the markets issuing quotes for the sale and purchase of shares with a frequency of 2 million per second - in 1990 this figure was only 1000 values ​​of quotations per second. According to Nanex, whose task is to process data and provide information to users in the form known as ticker plant, the options market issues new quotes with a frequency of more than 10 million per second.

The company Hunsadera revealed that, according to him, it can be considered evidence of trade fraud on the eve of the government report on employment in the United States of October 22. On October 16, the Nanex system fixed a team to buy shares worth more than $ 400 million shortly before the opening of European stock markets. According to Nanex, the E-mini S & P 500 futures team was canceled "just before the start of serious sales."

In Nanex, a report on these events was called “Panthers are free again?”, Hinting that these trades resemble a situation that provoked the Commodity Futures Trading Commission to force Panther Energy Trading LLC to pay fines and confiscate profits of 2.8 million dollars. This firm was charged with "spoofing", that is, using an algorithm for illegal placement and quick cancellation of requests for the purchase and sale of futures contracts in order to artificially increase demand.

David and Goliath

“The regulator should spend no more than an hour to figure out who did it, and not more than one day to spend on finding out the reasons,” says the Nanex October 16 report. "We will wait".

The Hunsadera Company paints itself as a kind of David struggling with industrial Goliath - rich high-frequency trading companies that dominate the US stock markets. And this industry began to strike back, accusing Hunsader that his company was making wrong conclusions from its own schedules.

When Chris Concannon , a partner in a private New York trading company Virtu Financial LLC and formerly authorized by the Securities and Exchange Commission, went to the microphone at one of the industry events last month, Chris Concannon approached the microphone at one of the industry events, the first thing he did was let the Nanex joke.

“I have the honor to announce that Nanex is the sponsor of this segment of the event,” Concannon said to the audience’s laughter at the Washington Conference of the Association of Securities Traders on market structuring. According to him, the motto of Nanex is “to improve the state of the markets through inaccurate information.”

To be continued …