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Alternative Market Briefing

Nanex: More high frequency trading events in the U.S. last week

Friday, October 12, 2012

Benedicte Gravrand, Opalesque Geneva – Last Wednesday (October 3rd), shares of Kraft Food spiked by $13. When the market opened, Kraft shares went from $45.55 to a high of $58.54 before the Nasdaq cancelled trades above $47.82. This was another episode created by high frequency traders (HFT).

Eric Hunsader, the founder of Nanex, a market data firm, told CNBC that the pattern was seen in five separate events. "It was something that was stopping at the liquidity, then waiting about three quarters of a second for the book to build, and then taking that liquidity out, and repeat," he explained. "It just did not seem to have any sanity check on how high it was willing to go." This algorithm, either alone or with another trader getting involved, caused the price of the Kraft share to go up sharply.

"Just yesterday, a brand-new algo showed up that accounted for 4% of all the quotes in the market yesterday — and this is one person," he said on "Fast Money."

It would be difficult to prevent this, he said. Exchanges only focus on their own trades, not on the bigger picture, so they do not see the outside repercussions of such trades. One solution should be allowing the trades go through and make the bidder pay the inflated price, he suggested.

In a separate article this Monday, Nanex’ founder talked about the mysterious computer program that placed order......................

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