Back On The Grid; Yan Ohayon’s Quote-Stuffing Clarification

I am back on the grid. The rumours of my buying a six-pack boat charter business in the Virgin Islands are not true. At least not yet!

Ok. Reality now!

You may remember earlier this week, April 4th to be exact, our Themis Thoughts featured the topic of quote stuffing, after our friend Jim McTague’s Barron’s article last weekend in which he interviewed Eric Hunsader from Nanex. Our piece also highlighted a video of Yan Ohayon speaking at TedX . We wrote:

“However, we did just discover a video where an alleged HFT is bragging about how he uses quote stuffing to game the system.  As far as we know, this is the first video where this practice is explained and admitted to. The speaker in the video is a man named Yan Ohayon Watch video here. His LinkedIn page describes him as a Capital Market Expert and Algorithmic trading system strategist.  We don’t know Mr. Ohayon and can’t vouch for his credentials but his speech on HFT is very interesting. After he goes through an overview of HFT, (skip to the 7 minute mark) he explains the way he competes is through a “fun little game called quote stuffing.” He says “in order for me to gain a competitive advantage, I try to slow it down. I simply stuff data into the market and because my machine originates this data, I simply ignore it and gain a computational advantage.”Again, we don’t know Mr. Ohayon and don’t know if he really engages in quote stuffing or if he is simply trying to make a name for himself. But if he is actually doing this, then we think the regulators may want to check in on him.”

We did find it odd that anyone would admit to the practice, as Yan appears to have in the above referenced video, out in the public eye. We especially found it odd, as Yan’s presentation concludes with his view that our market structure has gone horribly wrong.

Yan called in to speak to us and clarify a few things regarding that TedX video. We want to share his voice, in his words, today with you, using the same platform we used to question his actions. We share with you his explanation, with his permission, of that video:

“As outlined in our discussion, I strongly believe quote stuffing and similar predatory practices must be abolished as soon as possible. In my own opinion, markets may be entering a point of no return in my opinion since many traders are leaving the field and moving on to different areas of finance leaving nothing but boxes out there. I was merely questioning the value of our new found ability to trade at such speed and volume through out the video but clearly understand how my choice of words may lead to major confusion. The purpose of my TedX talk was to bring awareness to the subject and help motivate people to do their own research. Many traders already see what is going on out there but the public is oblivious. The words “I” and “we” were meant to represent the automated trading industry and in no way represent my own actions. “

Yan emphasises that he and his firm do not engage in quote stuffing, and that in the video his statement was made using poorly chosen words that were meant to convey what the industry does, and not him.

We are happy to include Yan’s clarification this morning, and we look forward to the knowledge and good that can come from an insider such as Yan, who can see the forest through the trees, and understands that the markets must above all perform their intended purpose.

Where we left off 4:00pm EST:

INDU 12,409.49 -17.26

SPX 1,333.51 -2.03

CCMP 2,796.14 -3.68

Futures now at 7:30am EST:

DJA +44.00

SPA +5.80

NDA +6.00

Key Data out today:

10:00: Wholesale Inventories (estimate +1.2%)

10:30: Weekly Index (prior 130.0)

Since yesterday’s close, some key stories:

– Wells Fargo eliminates 1900 Mortgage Jobs as home lending slows.

– Expedia plans to split into 2 companies.

– CononPhillips warns Alaska on low flows, high taxes.

– Seagate sets 5% dividend, Q3 outlook tops estimates.

– Goldman buys more than $900 million in China insurer Taikang.

– Tetra Technologies to sell majority of E&P for $222 million.

– U.S. Fed Balance Sheet grows to record in latest week.

– Money Supply: M-1 up $11.8 billion, M-2 down $1.1 billion.

– Foreign Central Banks’ U.S. debt holdings rise- Fed.

-U.S. equity funds net $7.7 billion in latest week – Lipper.


Pre-Market: BTH

After the Close:  NONE

Significant Movers This Morning:

Trading Higher: EXPE +14.40% (splitting into 2 companies), ATPG +4.97% (receives 2nd deepwater permit), STX +5.7% (preliminary 3Q rev’s above estimates, declares dividend), NXPI +4.4% (takeover talks with INTC, QCOM and BRCM)

Trading Lower: HERO – 10.00% (SEC probe) RVBD -4.00% (downgraded at SunTrust), BYI -3.8% (downgraded at Keybanc and Credit Suisse), JEF -2.90% (500m stock offering)