‘Fake’ orders chased E-Mini S&P higher, then disappeared: Nanex

High-frequency trading scourge Nanex Research on Tuesday highlighted what it says was a couple of  strange things  in E-Mini S&P 500 futures  this morning.

As one of their trademark order-depth chart (above) shows — click here for detailed instructions on how to read it — orders to buy around 10,000 E-Mini contracts chased the market higher only to disappear without being executed. That’s not the only strange thing, they said in a blog post. Right before consumer confidence data at 10 a.m. Eastern, liquidity evaporated rapidly.

Were the phenomenon unrelated? It’s not clear, but Nanex said the incident was reminiscent of case brought by the Commodity Futures Trading Commission case against Panther Energy Trading in July. The agency ordered the firm and its principal, Michael J. Coscia, to pay $2.8 million in penalties and banned them for trading for one year for “spoofing” in numerous commodity futures contracts.

Spoofing is the practice of  using a computer algorithm to place and then immediately cancel potentially thousands of bids and offers. Critics charge HFT firms use the practice to fake out traders.

In the Panther case, the CFTC alleged Panther would place a small sell order, then place huge buy orders at higher prices to give other traders the impression of heavy demand. They would then cancel the buy orders as soon as they had filled the sell order. Then Panther would reverse the process, the CFTC said, with a small buy order followed by several large sell orders.

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Meanwhile, the Conference Board’s August consumer confidence data at 10 a.m. Eastern had little market impact. But if it had, the lack of liquidity means prices would have moved substantially, Nanex said.

The sudden evaporation of liquidity is another criticism associated with high-frequency trading. While supporters of the practice say the computerized trading strategies boost overall liquidity, critics say high-frequency traders often disappear when markets get rough, spiking volatility and contributing to trading glitches.

–William L. Watts

Follow William on Twitter @wlwatts

Follow The Tell @thetellblog

View more information: https://www.marketwatch.com/story/fake-orders-chased-emini-sp-higher-then-disappeared-nanex-1377618548

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