| Author | Source |
|---|---|
| u/jsmar18 |
Letâs delve into some more evidence of market manipulation as well as an explanation of why we see âintenseâ price action at market open and close!
Itâs that time of the month! NYSE Order Type data has finally come through for March-21, weâll delve into it to see whatâs changed in the month of March-21. Are Shitadel up to their usual shenanigans again? Weâll investigate this and more.
There are two things I want to go through before we get into the new order type data:
NYSE Auctions (This will explain why we see so much action at market open and close)
A recap on my previous post, for the new apes (for those whoâve read it, please skip ahead to âMarch 2021 Order Type Dataâ)
With all that being said, letâs dig in!
đ Market Close and Open Auctions
You can probably see whatâs coming from a mile away based on the sectionâs nameâŚ. But yes, this is the primary reason we see such huge volume at markets open and close!
Letâs start with some history first, the NYSE is the oldest and also the largest exchange in the US. The photo above is what people generally think of when they think of the stock market, along with a group of unruly traders shouting shit at each other with funky hand gestures.
Weâll touch on these human traders again, as some might be wondering, why the fuck do they still exist if everything is electronic.
đ And⌠The Open Auction Begins!
As we all know, NYSE opens up at 9:30 am EST for us retail apes. From 7:30 am onwards for the non-retail traderâs orders can be placed to sell and buy. There are two key orders that are accepted before the market opens:
Before the market opens between 7:30 am thereâs a data stream that comes in that allows traders to observe imbalances between buy and sell order and their prices. The interval that the data is published increases in frequency as follows for traders to adjust their orders based on:
7:30 am - 9:00 am, data published every 5 minutes
9:00 am - 9:20 am, data published every minute
9:20 am - 9:30 am (market open), data published every 15 seconds
Once the time hits 9:28 am, BOOM, the likely opening price for each and every security on the NYSE is added to the published data streams and orders placed between 9:28 am and 9:35 am cannot be cancelled.
Human Time
So where do our lovely human traders on the floor come into play? When extreme events happen.
Take for example some groundbreaking news that happens after market close, if this has had devastating losses and a securities price sharply declines, under these circumstances a decision will be made by NYSE officials to disregard the securities previous closing price and to use a lower price as a reference point instead to start trading the next day.
DMM (Designated Market Makers)
No DD can be complete without discussing Shitadel at least once right? They are of course a DMM for the NYSE. So DMMs have a special as fuck role. They begin to open trading for each security under their control (note I could not find if GME is assigned to Shitadel, reach out via PM if you have any info).
Fun fact, DMMs have the authority to make price adjustments to facilitate trading by maintaining liquidity, interpret that as you wishâŚ
So thatâs market open auctions. It explains why we see so much action at the beginning of the market open as orders are processed based on order information flowing through from 7:30 am. A lot of the orders weâd see executed would be the MOO and LOO orders defined above.
NYSE Chicago Order Type Data
Both of these orders represent around 0.50% of orders across the NYSE, which seems small - but these orders are concentrated in such a small period of the trading day, it creates the action we observe each morning (sadly midnight for me).
đ´ And⌠Itâs time to Wrap Up, Market Close
For the most part, market close functions very similarly to market open. Letâs go through the time differences and the different order types.
Trade imbalance data begins at:
And thatâs it. During this period, data about trading volume, matching trades, trade imbalances and pricing is released. All of this sweet sweet data gives traders an idea into the direction of price movement and interest. Order time.
An important differentiation between market open and close is that regular orders, including our market and limit orders as retail traders of course factor into the closing price. Based on the chart above, Market on Close is the largest auction order, which you may link to the max pain theory that floats around. Speculate away on that point.
đ Summary on Auctions
The process of setting opening and closing prices is fucking complex that involves not just computers but human traders on the floor as well. Itâs also why we see increased volume at the open and close of the market! The more you know hey?
đ Bonus Auction Content
Feel free to stick around for this, or not đ¤ˇââď¸ - I find it interesting to understand the context of why. So the bonus content is for those who wanna know why this is important that we have an auction at open and close.
We actually have highly fragmented markets, the NYSE alone is composed of multiple exchanges. This is why auctions take place for high cap equities on the NYSE Arca (Small-cap on the NYSE American) as traders get the benefit of liquidity being centralised in one exchange. E.g. no cross-exchange nonsense to worry about or consider. This essentially gives investors transparency and the assurance they will get a fair and accessible price.
A particular example of this is the âQuad Witching Dayâ. Funnily enough, when pixel came up with the quad witching day, it was actually a term that already existed and is what traders are well aware of. r/GMEâs quad witching day however is nothing alike to the real Quad Witching Day.
The closing auction gets particular attention on the Quad Witching Day (when stock index futures, stock index options, stock options and single stock futures expire) on June 16, and the Russel Rebalance (we all know what a rebalance is at this point, but itâs when they rebalance their indices, like the ETFs we discuss) on June 23. On these particular days, volatility has the potential to go through the fucking roof - so itâs important for liquidity to be centralised in a single process essentially which aggregates all the buy and sell interest.
Overall, auctions are the least debated topic about exchanges as many view them as a trusted process.
đ ORDER TYPE TIME
As mentioned above, this is a copy-paste from my previous post. If youâve read it please skip ahead, if not stick around to get an understanding of the key order types HFTs (High-frequency Traders) and HFs can use when manipulating the market.
Letâs recap what we saw in terms of order behaviour on the NYSE Chicago exchange over the past 6 months.
(For those who have not read the post, the assumption here is that Shitadel use this exchange as their stomping ground, volume is also really low, so itâs far easier to pick up on patterns compared to other larger NYSE exchanges)
We saw volume shift away from Limit Non-Routable IOC to:
IOC ISO
Limit Non-displayed
Add Liquidity Only (ALO)
These three order types are the keys to the puzzle weâve been needing, to figure out their strategy to manipulate GME prices. So letâs start off by getting an understanding of what they are!
Bare with the explanations, pretty graphs, charts and some pretty mind-boggling conclusions lay beyond the order type explanations.
IOC ISO (Immediate or Cancel Intermarket Sweep Order)
For those who have not read my previous post find an excerpt below.
Intermarket sweep orderâs are generally a large quantity order that is sent to multiple exchanges.This is how it functions:
An order is submitted in the pre market to sell at a price of 40.80 and is sent to exchange A.
The best offer price on exchange A is 40.63.
Exchange B receives an intermarket sweep order to buy 800 shares of the stock at a limit price of 40.88.
The best offer price on exchange B is 40.88
The trader that enters the intermarket sweep order would be required to fulfill their Regulation NMS requirement by executing the maximum available quantity on exchange A at 40.63 and then may execute the balance of the order on exchange B at 40.88 even though it is at a price that is inferior to the 40.80 order resting in the book on exchange A. The 40.80 price is not the inside quote and is therefore not âprotectedâ in terms of the balance of the sweep order executing at exchange B at a price of 40.88.
So in monke speak, it fills the lowest alternate exchange price before filling the order at the higher price.
To make it more complicated this is an order with a modifier (ISO is the modifier), so letâs understand an IOC.
These are orders which attempt to execute immediately and cancel any unfilled portion. E.g. place a buy for 10 @ $180.01 , itâs only able to be filled to a portion of 5 @ $180.01 and then canceled straight away.
A key part to these types of orders is derived from the following.
âThe intermarket sweep exception enables trading centers that receive sweep orders to execute those orders immediately, without waiting for better priced quotations in other markets to be updated.â
This is derived from a response to change how ALOs work by the NYSE, as theyâve been a thorn in their side since 2014. A prelude to what weâll go into later. Sounds suspicious right?
nudge nudge* Almost like theyâd be handy for HFTs *nudge nudge
Limit Non-displayed
An order to buy or sell stock at or better than a specified price, these orders are HIDDEN from us apes and others. They also donât care about lock or cross situation cases. Refer to my previous post for an understanding of this.
This means the HFT (high-frequency traders) can effectively jump the line by posting âhide not slideâ orders instead of visible orders. This is because a hidden order will not be slidden, resetting the timestamp. So if I placed an order at $120.01 for GME, they then place a hidden order for $120.01 as well, I get my timestamp to reset as Iâve placed a locked/cross order, but the hidden order does not get their timestamp reset therefore essentially skipping the fucking line.
Yet another bread and butter tool when it comes to HFT. The key here though is the fact that itâs HIDDEN and how this plays out with ALO order types (IB allows retail to place these orders as well).
đ Add Liquidity Only (ALO)
First of all, major thanks to u/SmithEchoes on this bad boy as itâs a complicated beast.
Now this order type is a doozy and is currently being used for nefarious purposes.
ALO follows a strict âIf,thenâ rule set based on if it locks (7.31(e)(2)(b)iii-iv) OR crosses (7.31(e)(2)(b)ii). This ruleset forces the ALO to perform these trades until it is fully consumed, or the order is cancelled. Rule 7.31(e)(2)(C), once ALO is resting on the exchange AND it was forced to change its price in accordance with 7.31(e)(2)(b)i-iv THEN it now gets to be priced in accordance with 7.31(e)(1)(A)iii and iv. This is the equivalent of HFT when ALO âactivatesâ BUT it comes with a built-in safety feature that IF the price goes UP(Sell ALO) or DOWN (buy ALO) the ALO limit price is no longer locking or crossing at the values it was getting moved to, it REVERTS back to its original limit order price.
Monke speak translator: These orders create sell/buy walls that have a nifty function that essentially âflips the safety switchâ back to the original limit order price if too much buy/sell pressure is applied.
Funnily enough, the NYSE has tried to amend how ALO orders work, because of how they can be used for nefarious purposesâŚ. cough Shitadel cough The amendment would force to cancel the ALO once it crosses or locked, and not perform how it currently does in accordance with 7.31(e)(2)(b)i-v. Which means no buy/sell wall capability for them to use and abuse.
đ March 2021 Order Type Data
STOP SCROLLING HERE, for the apes who skipped the order type run down.
Just a reminder that ALO orders can essentially be used as a buy/sell order wall to stall and reverse a price by HFs and HFTs.
What weâre interested in above is the pretty amazing linear increase in the use of ALO orders within the NYSE Chicago exchange. So the logic behind this and the explanation above is that HFTs can abuse this order type, which is why the NYSE was trying to amend the order to no avail as it keeps getting shot down.
When I wrote my last post it was late March, the only thing I was thinking was that an increase in evidence would be that ALOs continued to increase into March-2021 (only had Feb data available at previous time of writing). This is because we saw a HUGE consolidation period in February, and I was unsure if ALOs were heavily used in the drop from our mini squeeze in late January OR/AND the spike we saw in late February.
Candle chart for reference below to put that into context.
During March we saw a lot of action in terms of buy/sell pressure reversing at many points - so to add more evidence of market manipulation I was expecting an increase in usage of ALOs to manage these reversals.
And yes, we certainly did see an increase from 15.18% of all orders up to 16.04%, making the trend shown below a rather delectable insight into their use or ALOs for market manipulation. Whatâs just as interesting is the non-growth of overall ALO orders, with NYSE Chicago being the one exchange that severely breaks this trend, adding more evidence of market manipulation, through abusing ALO order types.
Thanks for reading, as usual, conjecture is our friend, so share your thoughts and opinions! The ability we apes have to learn is one of our strongest tools to use against HFs, along with the most obvious strategy of HODL.
TLDR; ALO order types still being used to manipulate the market. Market close and open action we see each day is purely due to how auctions work before the market opens and closes, which results in âextremeâ/âintenseâ price movements/volume
Not finance advice
Edit: Thanks to and yes, amazing name u/AnalLingus217 for this link.
It does say that Shitadel is the DMM for GME however, there is no link to the source. BUT given Shitadel coverage of the number of securities sitting at ~2000, thereâs a good chance they are the DMM for them. Yes Suss AF. But thereâs still not 100% solid proof yet. PLEASE pm me if you have something.
Edit: Note quad witching happens four time a year. I was using June as an example.