| Phantom Liquidity and Perfect Pilfering Posted: 17 Jul 2014 10:49 PM PDT A friend of mind asked me to comment on the Nanex article Perfect Pilfering, a detailed exposé on how the market is rigged from a data-centric approach. We received trade execution reports from an active trader who wanted to know why his large orders almost never completely filled, even when the amount of stock advertised exceeded the number of shares wanted. For example, if 25,000 shares were at the best offer, and he sent in a limit order at the best offer price for 20,000 shares, the trade would, more likely than not, come back partially filled. In some cases, more than half of the amount of stock advertised (quoted) would disappear immediately before his order arrived at the exchange. This was the case, even in deeply liquid stocks such as Ford Motor Co (symbol F, market cap: $70 Billion, NYSE DMM is Barclays). The trader sent us his trade execution reports, and we matched up his trades with our detailed consolidated quote and trade data to discover that the mechanism described in Michael Lewis's "Flash Boys" was alive and well on Wall Street.
The Setting
Let's take a look at what we found from analyzing 5 large trades executed at different times over a 4 minute period in Ford Motor Co. Before each of these trades, the activity in the stock was whisper quiet. Here's a chart showing millisecond by millisecond trade and quote counts in Ford leading up to one of these 5 trades:
You can clearly tell when the trade hits: activity explodes to over 80 quotes in 1 millisecond (this is equivalent to 80K messages/second as far as network/system latency goes). But the point here is that nothing was going on in this stock in the immediate period before this trade hits the market.
In this particular example, there were a total of 24,800 shares advertised for sale at $17.38 (all trades and offered liquidity will be at this same price) from 8 exchanges. The trader wanted 20,000 of these shares. What he got was only 12,133 shares and 600 of these were on a dark pool (which wasn't part of the 24,800 shares of liquidity on the lit exchanges)! Worse, someone ELSE was filled for 1,570 shares during these same milliseconds! Remember, nothing was happening in Ford until this order came into the market. Based on the other 4 examples, we are sure that no trades would have occurred during these few milliseconds of time if it wasn't for this trader's order.
What happened to the 24,800 shares offered and why couldn't he get at least 20,000 of them? How is it that others were able to get shares during this time? This is especially disturbing when you consider these other traders (HFT) only bought shares in reaction to the original trader's order. Phantom LiquidityNanex goes on to discuss detailed analysis of the trade as well as "phantom liquidity". Recall that "liquidity" is the alleged benefit of HFT. The article shows that order cancellations happen far faster than trade executions, and that is why the Ford trader wasn't able to get the advertised liquidity - the orders simply disappeared faster than exchanges processed his buy order. Nanex concludes " If you believe that the industry can fix these problems on their own, then we believe you are no longer fit to regulate, because that is not, and never was, how Wall Street works. Honestly, a free for all, no–holds–barred environment would be better than the current system of complicated rules which are partially enforced, but only against some participants. And make no mistake, what is shown above is as close to automatic pilfering as one can get. It probably results in a few firms showing spectacular, perfect trading records; it definitely results in people believing the market is unfair and corrupt." I agree with the conclusion, also noting that insider trading is allowed for members of Congress but no one else. But did Namex really reveal anything? The answer is not really. There were spoof bids and offers in the markets long before the arrival of HFT. Yet, things are undoubtedly worse today with more spoofs from fewer and fewer places. That is the only way some HFT systems can go for months or longer without reporting a single loss for even a day. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Did the Rebels Have a Buk System? How About a Working One? Flight Diverted Over Restricted Space? Posted: 17 Jul 2014 09:12 PM PDT People seem to have their minds made up on whether or not the plane was shot down and by whom. The propaganda du jour is the separatists were responsible. By even discussing alternatives, ridiculous accusations have come in about "Mish" being a Russian name. The first casualty in war is always the truth. Statements from both sides are suspect. Here is another update from reader Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian, regarding whether or not the rebels had a Buk system. Hi Mish,
I told you the rebels have never claimed a high-altitude air defense capability, and despite that "tweet" (which I believe is genuine), I stand by what I said: The rebels do not have a working Buk system.
Late last month, the Donetsk rebels took over a small military base that housed at least one "Buk" system. Immediately, Kiev announced that the captured equipment was not in working order. And that was the end of it.
The rebels never claimed to have deployed the system. In fact, they have stated many times that they have a modest air defense ceiling, and that Ukrainian planes have been trying to make their attacks from above that ceiling (not always successfully.) And the rebels have never claimed a high-altitude capability.
My guess still remains that the Ukrainians (unwittingly) repeated their Siberian Airlines stunt from 2001. Questions Du Jour- Is Anyone Telling The Truth?
- Were both Ukraine and the Rebels lying about Rebel possession of a working Buk system?
Missile Claims Deepen Escalation FearsPlease consider Missile Claims Deepen Escalation FearsLittle is yet known about who targeted Malaysian airlines jet MH17. But the destruction of an airliner at high altitude by a missile strike, as Kiev suggests, shows the conflict in eastern Ukraine has reached a new level in terms of military hardware and tactics.
To down a commercial plane flying at 10,000m requires a missile system of a sophistication until now regarded as well beyond the capabilities of pro-Russian separatists, raising the question of exactly what such a system might be, and more importantly, where it came from.
For weeks, the militia forces in the regions of Donetsk and Lugansk have been waging a highly successful ground-to-air missile campaign.
At least 10 Ukrainian military aircraft including Mi-24 and Mi-8 "Hind" helicopters, An-30 and An-26 transport planes and, last month, an IL-76 military transport carrying 49 troops have all been shot down this year.
So far, planes in eastern Ukraine have been hit with missiles launched from Manpad – shoulder-launched – systems, with a limited range of around 3,500m.
Around five hours before the crash of MH17 on Thursday, locals near the town of Grabovo, where wreckage of the flight is now scattered, spotted a Buk launcher.
Pinpointing where such a Buk launcher might have come from, is the hard part.
Both the Ukrainian and Russian military possess such systems. Kiev operates 60 Buk 9K37s, according to the International Institute for Strategic Studies. Moscow operates 350, including a large number of more modern Buk 9K317s.
"It's a standard Soviet anti-aircraft system," says Igor Sutyagin, a research fellow at the Royal United Services Institute and an expert in Russian military equipment and tactics. "We know that missile systems have been coming across the Russian border [in recent weeks], but this type of system falling into separatist hands is new."
The best evidence that has emerged so far is that the Buk launcher fell into rebel hands on June 29.
On that day, rebel forces took control of a base in the suburbs of Donetsk at which surface-to-air missile unit A1402 of the Ukrainian army was located.
A picture put up online shortly after the seizure by the rebel forces shows very clearly a Buk launcher in situ armed with four missiles.
It is impossible to directly verify whether the claim is genuine, but the picture – and many other references online from rebel groups to Buk systems being captured – have been removed in recent hours. So, was the captured system working or not? If it was working, were both sides lying about it? You-Tube ProofZeroHedge had a couple of interesting posts today. Here is the first: Ukraine Releases YouTube Clip "Proving" Rebels Shot Down Malaysian Flight MH-17. If you read the article you will note that the You-Tube timestamps have been edited and it is not entirely clear who is even having the discussion that Kiev offers as "proof". In short, there is no proof of anything other than someone is attempting to cover their tracks. ZeroHedge concludes " The opinion of the world as to who is at fault here is most certainly very much made up by now anyway, and if it isn't, the "unbiased" media will certainly help, even it has nothing but repetitive soundbites and speculation presented as fact, in the coming days." Also consider the ZeroHedge question Was Flight MH-17 Diverted Over Restricted Airspace?My interpretation is a combination of maybe and no. The flight did take a mysterious path for reasons not yet reported or understood. The Financial Times reports Downed Airliner was Travelling Above No-Fly Zone. While the plane was not in restricted space, it was just above it, but perhaps on an unusual path. If so, why? Conspiracy TheoriesClearly there is a cover-up conspiracy by someone. Whoever did it, knows they did it. I am willing to entertain the possibility that it could be either side, my position all along. I am not willing to accept the mainstream media position that the rebels are clearly to blame. The fact remains that unless Kiev and the rebels are both telling the same lie, there is no reason to believe the Buk system captured by the rebels is in working order. Finally, Ukraine accidentally shot down a civilian plane once before (see Did Ukraine Shoot Down Passenger Plane? They Did Once Before: SA Flight 1812 Erroneously Downed by Ukraine in 2001) Ukraine denied it then. Why is it so inconceivable the same thing happened again? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Ukrainian Buk Air Defense System Allegedly Deployed Near Donetsk Yesterday; Questions Still Linger Posted: 17 Jul 2014 01:43 PM PDT A Russian news website claims Ukrainian Army Buk Missile Likely Downed Malaysian Plane. A Ukrainian army battalion of Buk air defense systems was deployed near the city of Donetsk a day before the crash of a Malaysian passenger plane on Thursday, making the downing of the aircraft by one of the missiles highly probable, an expert source said.
"According to reconnaissance data, a Ukrainian army battalion of Buk air defense systems was deployed near Donetsk on Wednesday morning," the source said.
The source added that armed militia fighting Kiev-led forces in eastern Ukraine does not have Buk systems, which are capable of shooting down aircraft flying at altitudes up to 25 kilometers (82,000 feet).  Questions Still Linger Do we know any more than we did hours ago? In spite of various claims and even an alleged admission by Ukraine rebels they did it, the answer is not really. Foreign Policy Magazine discusses the situation in What We Know So Far About the Passenger Jet Allegedly Shot Down Over Ukraine. A spokesman for the Russian Embassy in Washington declined to comment on charges that pro-Russian rebels in Ukraine shot down a Malaysian Airlines plane. "Why should we comment on allegations?" the official said. The spokesman did however point to an article published by the Russian news service RIA Novosti suggesting that the Ukrainian military shot down the aircraft, not the rebels.
The source in the article also raises doubts that pro-Russian rebels could've carried out the attack, claiming that the armed militia in eastern Ukraine "does not have Buk systems." Both the Ukrainians and pro-Russian rebels deny shooting down the passenger plane.
Following the plane's crash, the rebels denied having access to the Buk, but in recent weeks, there have been widespread reports of separatists acquiring the weapon, and possibly other surface-to-air missiles, as well. On June 29, the Russian newswire ITAR-TASS reported that rebels in the self-proclaimed Donetsk People's Republic had acquired Buk missiles. The group even tweeted about having acquired the weapons.
Crucially, the Ukrainian armed forces also have the Buk missile system, which gives Russia and its proxies a measure of plausible deniability if it is confirmed that a Buk was indeed responsible for downing the Malaysian jet. According to Patrick Megahan, a research associate for military affairs at the Foundation for Defense of Democracies, the Ukrainian military has been operating Buks in the area near the crash-site, raising the possibility that Ukrainian forces made a mistake.
"It's a very capable system, proven under real-world conditions," Andrew Bowen, a columnist for The Interpreter and a researcher at the political risk consultancy Wikistrat, told Foreign Policy. It's also not an easy weapon to fire, and would require some training or prior knowledge to use it. "These systems require a large amount of technical know-how, unlike these MANPANDS, which are basically 'point-and-shoot,'" Bowen said. Claims and AllegationsRebel tweets claiming acquisition of a Buk system are not believable for two reasons. - Propaganda: In war all kinds of claims are made so the enemy does not know what to believe.
- Was the tweet planted?
Similar questions arise over the assertion rebels claimed responsibility. - Did someone see a crash and take credit, not even knowing what happened?
- Did anyone really make the claim or was it planted then removed from a rebel website?
Also see Did Ukraine Shoot Down Passenger Plane? They Did Once Before: SA Flight 1812 Erroneously Downed by Ukraine in 2001. It is still entirely possible this was just a jet crash. But if the plane was shot down, then all things considered, Kiev seems more likely than rebels. I am willing to reconsider as evidence comes in. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Did Ukraine Shoot Down Passenger Plane? They Did Once Before: SA Flight 1812 Erroneously Downed by Ukraine in 2001 Posted: 17 Jul 2014 10:37 AM PDT Moments ago a Malaysian BA 777 Passenger Jet Crashed in Ukraine. 280 passengers and 15 crew were killed. The plane was at an altitude of about 33,000 feet. According to the Financial Times Anatoly Geraschenko, an adviser to Ukraine's interior minister, said in a Facebook posting " Using a zenith-rocket Buk system, the terrorists just downed a passenger airline heading from Kuala-Lampur to Amsterdam". How likely is that statement? Reader Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian, just pinged me with this comment. The rebels have never claimed to have an air defense system with that kind of altitude capability. Neither have they been known to have shot down any Ukrainian military aircraft flying above 6000 meters. So we are talking some heavy duty weaponry here.
The only other civilian airliner to have been shot down over Ukrainian airspace was the Siberian Airlines flight from Tel Aviv to Novosibirsk in 2001. Ultimately that was found to be the handiwork of a poorly-coordinated Ukrainian air defense exercise.
Kiev eventually paid out compensation to the victims' families. So I would not be too surprised if the Ukranians "did it again." But neither would I jump to conclusions. Siberia Airlines Flight 1812Please consider the fate of Siberia Airlines Flight 1812Siberia Airlines Flight 1812 crashed over the Black Sea on 4 October 2001, en route from Tel Aviv, Israel to Novosibirsk, Russia. The plane, a Soviet-made Tupolev Tu-154, carried an estimated 66 passengers and 12 crew members. No one on board survived. The crash site is some 190 km west-southwest of the Black Sea resort of Sochi and 140 km north of the Turkish coastal town of Fatsa and 350 km east-southeast of Feodosiya, Ukraine.
Ukrainian military officials initially denied that their missile had brought down the plane. However, Ukrainian officials later admitted that it was indeed their military that shot down the airliner. Did Ukraine Do It Again?Like Jacob, I would not be surprised, especially given the rebels do not claim ownership of a missile system capable of hitting that altitude. Repeating my earlier comments before I even heard from Jacob ... "I do not know who is responsible, but it sure seems Ukrainian officials jumped to conclusions, especially since this was the second disaster this year to hit Malaysian Airlines." A shoulder fired missile cannot reach that altitude, but a Buk Missile System could. From Wikipedia The Buk missile system (Russian: "Бук"; beech, /bʊk/ BOOK) is a family of self-propelled, medium-range surface-to-air missile systems developed by the former Soviet Union and Russian Federation and designed to engage cruise missiles, smart bombs, fixed- and rotary-wing aircraft, and unmanned aerial vehicles.  I am not stating Ukraine did this. I am merely asking a question, while pointing out the possibility, and noting they did it once before. As of this moment, the rebels deny responsibility and never claimed ownership of medium range weapons capable of reaching that altitude. Clarification From JacobThe Ukrainians have previously claimed that one or perhaps two of their planes were shot down by the rebels at 6000 meters. To my knowledge, based on their various statements, the rebels have never admitted to shooting down anything over 2500 to 4000 meters (depending on who you listen to), nor have they boasted of that kind of capability. Mish Comment: 4,000 meters is 13123.4 feet, a far cry from 33,000 feet altitude of passenger jets. Update From JacobAnother wrinkle: The Ukrainians had officially closed the airspace over Donetsk and Lugansk on July 8th. The airplane went down over this area. Mish Comment: This is looking more and more like an "inside job" not the work of rebels or Russia as widely presumed. By "inside job" I mean either Ukraine or Malaysian pilot. Update TwoPlease see Ukrainian Buk Air Defense System Allegedly Deployed Near Donetsk Yesterday; Questions Still LingerMike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Malaysian BA 777 Passenger Jet Goes Down Over Ukraine, 295 Killed; Ukraine Blames Separatists Who Deny Responsibility Posted: 17 Jul 2014 09:43 AM PDT A second disaster hit Malaysian Airlines today. Bloomberg reports a Boeing 777 crashed near the town of Torez in eastern Ukraine killing 280 passengers and 15 crew. A Ukrainian Interior Ministry official was quick to point the finger, stating that pro-Russian separatists shot down the passenger jet. The self-proclaimed Donetsk People's Republic said it did not attack the airplane. The Financial Times has a few more details. A Malaysia Airlines passenger jet has crashed in Ukraine 60km from the border with Russia, ITAR-TASS news agency reported on Thursday.
The plane, a Boeing 777 with 295 people on board, was reported by Interfax news agency to be en route from Amsterdam to Kuala Lumpur when it came down before entering Russian airspace. Malaysian Airlines confirmed by Twitter that it had lost contact with flight MH17, the scheduled flight for that route.
The crash is the second disaster to hit the Malaysian carrier. Investigators have still not located the wreckage of MH370, which crashed on March 8 en route from Kuala Lumpur to Beijing.
The crash of MH17 immediately triggered claims that the aircraft had been shot down. The precise location of the crash was unclear.
The crash came hours after local officials accused Russia of downing a second army plane within days, and the stepping up the flow of arms and fresh rebels despite decisions by the US and EU to punish Moscow with a deeper economic sanctions.
Several Ukrainian aircraft have been shot down in the disputed areas of eastern Ukraine near to the border with Russia in recent months, including a Ukrainian Su-25 jet fighter on Thursday which Kiev claimed was downed by a Russian jet.
"Using a zenith-rocket Buk system, the terrorists just downed a passenger airline heading from Kuala-Lampur to Amsterdam," Anatoly Geraschenko, an adviser to Ukraine's interior minister, said in a Facebook posting. Buk MissileI do not know who is responsible, but it sure seems Ukrainian officials jumped to conclusions, especially since this was the second disaster this year to hit Malaysian Airlines. A shoulder fired missile cannot reach that altitude, but a Buk Missile System could. From Wikipedia The Buk missile system (Russian: "Бук"; beech, /bʊk/ BOOK) is a family of self-propelled, medium-range surface-to-air missile systems developed by the former Soviet Union and Russian Federation and designed to engage cruise missiles, smart bombs, fixed- and rotary-wing aircraft, and unmanned aerial vehicles. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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