More seriously, could someone with a bit of experience in this sort of thing speak to the actual import of these patterns? It's not entirely obvious whether or not there are shenanigans at work.
1) If you wanted to deliberately manipulate the markets, you'd come up with something less obvious than this. You might even come up with a pattern that is non-periodic or even put a few calls to rand() into your code just to spice things up.
2) If you were doing anything in the markets on purpose, you'd try to be unpredictable. And by "unpredictable", I mean "hard for a human to look at a graph and guess at". Once you trade predictably, the other guy can exploit you.
3) I've come up with trading strategies myself that generate "crop circles" in simulation. It's never on purpose, and I'd certainly never be permitted to put such things into production.
Sometimes algorithms behave in ways you didn't expect. For instance, you might compute a quantity f(t), place a buy order when f(t) > 0.5 and cancel it when f(t) < 0.5. If f(t) oscillates wildly from 0.4995 to 0.5001, you will wind up doing "quote stuffing" yourself. Of course, most of the time f(t) winds up oscillating from 0.631 to 0.632 or something like that, and things work normally.
If your system is designed well, some monitoring system further down the line will prevent this. Not all systems are well designed.
but simply algorithms behaving in ways their creators did not expect
Incidentally, if your algorithm spams the exchanges too much (i.e., your fill rate goes way below 1%), your broker will shut you down. So while there may be crop circles out there, no one person is responsible for more than a few of them.
[..] quote stuffing by HFT algorithms in tens of stocks, in which thousands of
cancelled quotes would reappear each second with a definitive periodicity
and regularity, [..]. Aside from the fact that it is illegal to indicate a
quote without a trade intent, this form of quote stuffing is in fact
manipulative when conducted by HFT repeaters in specific "shapes" as it
actually moves the NBBO actively higher or lower, in cases pushing the
bid/offer range up to 10% higher without even one trade ever having
occurred, [..]
Except that that doesn't happen if you essentially are the broker, as is the case with large enough institutions. JP Morgan's broker isn't going to shut them down.
If the NBBO moves around on a thinly traded stock and no trade occurs, so what?The bid ask spread on some thinly traded stock fluctuated for a few minutes, and no one bought or sold stocks? Oh noes, the horror! If we don't put a stop to this, someone might offer to sell a coke bottle on ebay for $10000 and no one will buy it!
Also, if you are a broker, the exchange imposes similar requirements on fill rates. The matching engine gains nothing if you place lots of unfilled orders, and if they allow too much of it, customers who do make trades (i.e., the people who actually pay them) are likely to switch to other matching engines or dark pools.
You don't have the ability to back out after your quote is accepted.
Also, if you are a broker, the exchange imposes similar requirements on fill
rates
Then, pretty much everything they said was going to happen, happened, except for the usual wish-fulfillment subtexts about military coups, riots, and TEOTWAWKI.
(Of course, I've heard the same sort of talk since the mid-1970s, so its predictive power isn't all that impressive...)