Hedge funds caught red-handed using flaws in the NASDAQ market exchange to manipulate the price silver using high-speed computer trading algorithms.

Despite documented flaws in the way market exchanges handles high speed trades at high volumes, which are attributed to the DOW flash crash, electronic trading systems still have not been patched to fix the issue.

The vulnerability stems from bad timestamps assigned to orders when traders flood the system which causes trades to executed on quotes before they even yet exist in the system.

Earlier today high frequency traders were caught in act by NANEX taking advantage of the flaw to exploit the NASDAQ silver ETF by barraging the system with a whopping 75,000 trades per second.

The exploit then triggered other trading robots to execute trades based on the high volume of trades quickly plummeting silver price.

Zero Hedge reports:

Catching The “Silver Crusher” Algorithm In The Act

There was a time when catching the silver “whack-a-mole” algo, or process, or intervention, or manipulation, or whatever one wants to call it, in action was a myth: an urban legend, perpetuated by silver conspiracy theorists. Until today that is. Courtesy of Nanex we now have direct evidence of just what the reflexive market (in which derivative products such as ETFs influence underlying assets) goes to town by taking silver to the woodshed at a whopping 75,000 times per second! From the broken market sleuths at Nanex:  “On March 20, 2012 at 13:22:33, the quote rate in the ETF symbol SLV sustained a rate exceeding 75,000/sec (75/ms) for 25 milliseconds. Nasdaq quotes lagged other exchanges by about 50 milliseconds. Nasdaq quotes even lagged their own trades – a condition we have jokingly referred to as fantaseconds.” Translation: so desperate was the desire to crush silver at precisely 13:22;33, that the Nasdaq order flow directive ended up moving faster than light. Frankly, we don’t know about you, but when someone is willing to bend the laws of relativity, just to get a cheaper price in silver, to perpetuate a failing monetary system or for any other reason, we quietly step aside…

Source: Zero Hedge

Tyler Durden the goes onto layout the proof of the price manipulation as evidenced by Nanex

SLV 1 second interval chart showing trades colored by reporting exchange.

SLV 1 second interval chart showing the NBBO
Shaded black if normal, yellow if locked (bid = ask) or red if crossed (bid > ask).

SLV 1 millisecond interval chart showing trades colored by reporting exchange.
Chart shows about 200 milliseconds of time.

SLV 1 millisecond interval chart showing the NBBO
Shaded black if normal, yellow if locked (bid = ask) or red if crossed (bid > ask). Note the insanely high quote rate in the bottom panel. Chart shows about 200 milliseconds of time.

SLV 1 millisecond interval chart showing the quotes and trades from ARCA (red) and Nasdaq (black).
You can clearly see the delay in Nasdaq quotes, yet their trades aren’t delayed at all. Chart shows about 200 milliseconds of time.

SLV 1 millisecond interval chart showing the quotes and trades from BATS (purple) and Nasdaq (black).
You can clearly see the delay in Nasdaq quotes, yet their trades aren’t delayed at all. Chart shows about 200 milliseconds of time.

SLV 1 millisecond interval chart showing trades colored by reporting exchange.
This chart shows approximately 150 milliseconds of time.

SLV 1 millisecond interval chart showing the NBBO.
This chart shows approximately 150 milliseconds of time.

Source: Zero Hedge