Algorithmic Terrorism on Wall Street

By Michael Feldman

August 5, 2010

High frequency trading (HFT) is back in the news, and as seems to be the trend lately, it has become the recipient of yet more criticism. For those of you who invest in the stock market in the old-fashioned way (i.e., via your broker or through your retirement plan), HFT is a type of algorithmic trading that uses high-end computers, low-latency networks, and cutting-edge analytics software to execute split-second trades. Unlike long-term investing, the strategy is to hold the position for extremely short periods of time, the idea being to make micro-profits from large volumes of trades. In the US, it is estimated that 70 percent of the trade volume is executed in the HFT arena.

The recent news relates back to the 1,000-point stock market bounce — the so-called “Flash Crash” — that occurred on May 6. At the time, there was plenty of speculation flying around (including some by me) that HFT was involved in one way or another. But some recent detective work by market analysis firm Nanex suggests that questionable behavior by these HFT systems may have had a more direct role in the market chaos back in May.

Alexis Madrigal’s article in The Atlantic gives a layman’s account of what the Nanex techies uncovered with some clever algorithmic sleuthing. The Atlantic piece, which I came across by way of a related article in Ars Technica, points out the HFT shenanigans were uncovered when Nanex computer engineer Jeffrey Donovan went beneath the covers to look at trading that day in millisecond-level timeframes, a level of granularity that never shows up on stock charts.

What Donovan found was evidence of “quote stuffing,” a term that refers to the practice of sending large volumes of bids — on the order of hundreds or thousands a second — without the intent of executing a trade. For example, on May 6 there were hundreds of times that a single stock was getting a 1,000 bids per second. Since the originating algorithm knew these were false bids that would never be filled, the implication is that it would have an edge on its clueless competition. Madrigal writes:

Donovan thinks that the odd algorithms are just a way of introducing noise into the works. Other firms have to deal with that noise, but the originating entity can easily filter it out because they know what they did. Perhaps that gives them an advantage of some milliseconds. In the highly competitive and fast HFT world, where even one’s physical proximity to a stock exchange matters, market players could be looking for any advantage.

The unfortunate side effect of quote stuffing is that it tends to destabilize the market, presumably as a result of so much “false” information being injected into the system. Worse yet, Nanex found this type of algorithmic spoofing was not just a one-time event that corresponded to the May 6 crash. Apparently, this behavior was (and is) going on systematically. They have uncovered dozens, and perhaps hundreds, of times on any given day when these unexplained quote bursts occur.

The HFT arena is certainly one area in which the technology has evolved so rapidly and with such little transparency and accountability that it seems to threaten the system it was designed to serve. In particular, legacy institutions like the SEC and the exchanges themselves seem to be having a hard time grappling with the consequences of supercomputing and low-latency data feeds. In the Ars Technica article I referred to above, author Jon Stokes notes that even the traders themselves recognize that they’re no longer in control:

Informal conversations I’ve had with money managers and traders indicate that in the wake of the Flash Crash, even the insiders are scared of what the markets have become. Still, they have no choice but to keep trading—not only must they keep trading, but everyone is quietly stepping up their automated trading efforts to avoid getting eaten alive by their competitors’ machines. It’s a bit like The Sorcerer’s Apprentice, except that there’s no master magician who can step in and save us in the end.

Subscribe to HPCwire's Weekly Update!

Be the most informed person in the room! Stay ahead of the tech trends with industy updates delivered to you every week!

Exascale Computing Project Names Doug Kothe as Director

September 20, 2017

The Department of Energy’s Exascale Computing Project (ECP) has named Doug Kothe as its new director effective October 1. He replaces Paul Messina, who is stepping down after two years to return to Argonne National L Read more…

Takeaways from the Milwaukee HPC User Forum

September 19, 2017

Milwaukee’s elegant Pfister Hotel hosted approximately 100 attendees for the 66th HPC User Forum (September 5-7, 2017). In the original home city of Pabst Blue Ribbon and Harley Davidson motorcycles the agenda addresse Read more…

By Merle Giles

NSF Awards $10M to Extend Chameleon Cloud Testbed Project

September 19, 2017

The National Science Foundation has awarded a second phase, $10 million grant to the Chameleon cloud computing testbed project led by University of Chicago with partners at the Texas Advanced Computing Center (TACC), Ren Read more…

By John Russell

HPE Extreme Performance Solutions

HPE Prepares Customers for Success with the HPC Software Portfolio

High performance computing (HPC) software is key to harnessing the full power of HPC environments. Development and management tools enable IT departments to streamline installation and maintenance of their systems as well as create, optimize, and run their HPC applications. Read more…

NERSC Simulations Shed Light on Fusion Reaction Turbulence

September 19, 2017

Understanding fusion reactions in detail – particularly plasma turbulence – is critical to the effort to bring fusion power to reality. Recent work including roughly 70 million hours of compute time at the National E Read more…

Exascale Computing Project Names Doug Kothe as Director

September 20, 2017

The Department of Energy’s Exascale Computing Project (ECP) has named Doug Kothe as its new director effective October 1. He replaces Paul Messina, who is s Read more…

Takeaways from the Milwaukee HPC User Forum

September 19, 2017

Milwaukee’s elegant Pfister Hotel hosted approximately 100 attendees for the 66th HPC User Forum (September 5-7, 2017). In the original home city of Pabst Blu Read more…

By Merle Giles

Kathy Yelick Charts the Promise and Progress of Exascale Science

September 15, 2017

On Friday, Sept. 8, Kathy Yelick of Lawrence Berkeley National Laboratory and the University of California, Berkeley, delivered the keynote address on “Breakt Read more…

By Tiffany Trader

DARPA Pledges Another $300 Million for Post-Moore’s Readiness

September 14, 2017

The Defense Advanced Research Projects Agency (DARPA) launched a giant funding effort to ensure the United States can sustain the pace of electronic innovation vital to both a flourishing economy and a secure military. Under the banner of the Electronics Resurgence Initiative (ERI), some $500-$800 million will be invested in post-Moore’s Law technologies. Read more…

By Tiffany Trader

IBM Breaks Ground for Complex Quantum Chemistry

September 14, 2017

IBM has reported the use of a novel algorithm to simulate BeH2 (beryllium-hydride) on a quantum computer. This is the largest molecule so far simulated on a quantum computer. The technique, which used six qubits of a seven-qubit system, is an important step forward and may suggest an approach to simulating ever larger molecules. Read more…

By John Russell

Cubes, Culture, and a New Challenge: Trish Damkroger Talks about Life at Intel—and Why HPC Matters More Than Ever

September 13, 2017

Trish Damkroger wasn’t looking to change jobs when she attended SC15 in Austin, Texas. Capping a 15-year career within Department of Energy (DOE) laboratories, she was acting Associate Director for Computation at Lawrence Livermore National Laboratory (LLNL). Her mission was to equip the lab’s scientists and research partners with resources that would advance their cutting-edge work... Read more…

By Jan Rowell

EU Funds 20 Million Euro ARM+FPGA Exascale Project

September 7, 2017

At the Barcelona Supercomputer Centre on Wednesday (Sept. 6), 16 partners gathered to launch the EuroEXA project, which invests €20 million over three-and-a-half years into exascale-focused research and development. Led by the Horizon 2020 program, EuroEXA picks up the banner of a triad of partner projects — ExaNeSt, EcoScale and ExaNoDe — building on their work... Read more…

By Tiffany Trader

MIT-IBM Watson AI Lab Targets Algorithms, AI Physics

September 7, 2017

Investment continues to flow into artificial intelligence research, especially in key areas such as AI algorithms that promise to move the technology from speci Read more…

By George Leopold

How ‘Knights Mill’ Gets Its Deep Learning Flops

June 22, 2017

Intel, the subject of much speculation regarding the delayed, rewritten or potentially canceled “Aurora” contract (the Argonne Lab part of the CORAL “ Read more…

By Tiffany Trader

Reinders: “AVX-512 May Be a Hidden Gem” in Intel Xeon Scalable Processors

June 29, 2017

Imagine if we could use vector processing on something other than just floating point problems.  Today, GPUs and CPUs work tirelessly to accelerate algorithms Read more…

By James Reinders

NERSC Scales Scientific Deep Learning to 15 Petaflops

August 28, 2017

A collaborative effort between Intel, NERSC and Stanford has delivered the first 15-petaflops deep learning software running on HPC platforms and is, according Read more…

By Rob Farber

Russian Researchers Claim First Quantum-Safe Blockchain

May 25, 2017

The Russian Quantum Center today announced it has overcome the threat of quantum cryptography by creating the first quantum-safe blockchain, securing cryptocurrencies like Bitcoin, along with classified government communications and other sensitive digital transfers. Read more…

By Doug Black

Oracle Layoffs Reportedly Hit SPARC and Solaris Hard

September 7, 2017

Oracle’s latest layoffs have many wondering if this is the end of the line for the SPARC processor and Solaris OS development. As reported by multiple sources Read more…

By John Russell

Google Debuts TPU v2 and will Add to Google Cloud

May 25, 2017

Not long after stirring attention in the deep learning/AI community by revealing the details of its Tensor Processing Unit (TPU), Google last week announced the Read more…

By John Russell

Six Exascale PathForward Vendors Selected; DoE Providing $258M

June 15, 2017

The much-anticipated PathForward awards for hardware R&D in support of the Exascale Computing Project were announced today with six vendors selected – AMD Read more…

By John Russell

Top500 Results: Latest List Trends and What’s in Store

June 19, 2017

Greetings from Frankfurt and the 2017 International Supercomputing Conference where the latest Top500 list has just been revealed. Although there were no major Read more…

By Tiffany Trader

Leading Solution Providers

IBM Clears Path to 5nm with Silicon Nanosheets

June 5, 2017

Two years since announcing the industry’s first 7nm node test chip, IBM and its research alliance partners GlobalFoundries and Samsung have developed a proces Read more…

By Tiffany Trader

Nvidia Responds to Google TPU Benchmarking

April 10, 2017

Nvidia highlights strengths of its newest GPU silicon in response to Google's report on the performance and energy advantages of its custom tensor processor. Read more…

By Tiffany Trader

Graphcore Readies Launch of 16nm Colossus-IPU Chip

July 20, 2017

A second $30 million funding round for U.K. AI chip developer Graphcore sets up the company to go to market with its “intelligent processing unit” (IPU) in Read more…

By Tiffany Trader

Google Releases Deeplearn.js to Further Democratize Machine Learning

August 17, 2017

Spreading the use of machine learning tools is one of the goals of Google’s PAIR (People + AI Research) initiative, which was introduced in early July. Last w Read more…

By John Russell

EU Funds 20 Million Euro ARM+FPGA Exascale Project

September 7, 2017

At the Barcelona Supercomputer Centre on Wednesday (Sept. 6), 16 partners gathered to launch the EuroEXA project, which invests €20 million over three-and-a-half years into exascale-focused research and development. Led by the Horizon 2020 program, EuroEXA picks up the banner of a triad of partner projects — ExaNeSt, EcoScale and ExaNoDe — building on their work... Read more…

By Tiffany Trader

Amazon Debuts New AMD-based GPU Instances for Graphics Acceleration

September 12, 2017

Last week Amazon Web Services (AWS) streaming service, AppStream 2.0, introduced a new GPU instance called Graphics Design intended to accelerate graphics. The Read more…

By John Russell

Cray Moves to Acquire the Seagate ClusterStor Line

July 28, 2017

This week Cray announced that it is picking up Seagate's ClusterStor HPC storage array business for an undisclosed sum. "In short we're effectively transitioning the bulk of the ClusterStor product line to Cray," said CEO Peter Ungaro. Read more…

By Tiffany Trader

IBM Advances Web-based Quantum Programming

September 5, 2017

IBM Research is pairing its Jupyter-based Data Science Experience notebook environment with its cloud-based quantum computer, IBM Q, in hopes of encouraging a new class of entrepreneurial user to solve intractable problems that even exceed the capabilities of the best AI systems. Read more…

By Alex Woodie

  • arrow
  • Click Here for More Headlines
  • arrow
Share This