pU.S. regulators probing the May flash crash are focusing on a trading practice known as quote stuffing, in which large numbers of rapid-fire orders to buy or sell stocks are placed and canceled almost immediately./ppCFTC commissioner Scott O'Malia told Reuters on Thursday that the futures regulator was reviewing data from Nanex LLC, a trade database developer that issued a study suggesting that computer algorithms used quote stuffing to gain an edge during the May 6 crash./ppThe U.S. Securities and Exchange Commission, which is investigating the crash jointly with the Commodity Futures Trading Commission, is looking at quote stuffing and something called sub-penny pricing, a person familiar with the flash crash probe said./ppThe Nanex study uses market graphics and playful names to illustrate quote stuffing, arguing that high-frequency trading firms do this to flood the marketplace with bogus orders to distract rival trading firms./ppInvestors could make trades under the false impression that those orders were legitimate, only to see liquidity disappear and the market move against them when the orders are canceled -- all in the blink of an eye.
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