FINRA:Trillium HFT Fine

FINRA has fined Trillium for “using an illicit high frequency trading strategy.”
“WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that it has censured and fined New York-based Trillium Brokerage Services, LLC, $1 million for using an illicit high frequency trading strategy and related supervisory failures. Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks. By entering the non-bona fide orders, often in substantial size relative to a stock’s overall legitimate pending order volume, Trillium traders created a false appearance of buy- or sell-side pressure.
This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium’s traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.”
In case this isn’t clear, it seems that what Trillium was doing was trying to induce other market participants to react to their orders.  In other words, Trillium might submit a bid a few cents below the current best bid for a large number of shares, expecting that other market participants (probably other HFT algos) would see this bid and either lift the current offer, or improve the current best bid.  Trillium would be waiting on the other side of the market with a sell order – which is the one they really wanted to execute all along.  The buy orders, although it’s possible they could have been executed, were never intended to be executed, and are referred to by FINRA as “non-bona fide.”
There’s a big problem with Trillium’s strategy:  it’s illegal.  It’s called market manipulation, and they got bagged for it.    Ironically, most of the same people who are/will be happy that Trillium is getting punished for this behavior would also be happy that the participants who Trillium was trying to fool got fooled.  In other words, it’s been made quite clear that the Populace At Large does not like the trend of traders, be they high frequency (moreso, lately, obviously) or low frequency, reacting to publicly displayed quotations by changing their own quotes. or lifting bids / hitting offers in response to publicly displayed quotes.  Those are the very traders Trillium was trying to (illegally) take advantage of.

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