Translation: the ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity.
On February 14, 2012 at 10:48am, someone stuffed KORS with quotes from multiple exchanges at rates exceeding 18,000 quotes/sec. What is the purpose of blasting hundreds of thousands of quotes to millions of computers around the world in a single stock that had a few hundred trades at the time? Why is this tolerated?
With the Tradeworx program, the agency will gain access to every bid to buy stocks and every offer to sell shares on each of the nation’s 13 public exchanges. The system, akin to an X-ray machine for the stock market, could enable regulators to detect whether trading firms are overwhelming the market’s plumbing when they rapidly submit and cancel orders.
The potential cost is huge; the short-term benefits are minuscule. Let’s give HFT the funeral it deserves.
Deep dive into the world of algo-trading :
In a mere 20 milliseconds, the world’s ‘traders’ had managed to read Bernanke’s 4549-word script, interpret it (as bearish in this case – which apparently is wrong now?) and start to sell down the major equity indices.