The 'Fat 'Finger' trade

[barbaro]

This does not really make sense, according to people that worked in the market in NYC.

I'd like to hear more about this.

Plunge in US equities remains a mystery

By Michael Mackenzie and Henny Sender in New York
Published: May 7 2010 18:49 | Last updated: May 7 2010 20:01

The day after $1,000bn was briefly wiped off the market value of US equities, traders were still trying to work out what caused share prices to plunge and then rebound so dramatically in a matter of minutes.


The conventional wisdom held that an incorrectly typed sell order – one that confused “billions” for “millions”, for example – was the likely culprit.



“The trigger for the sell-off was most likely some kind of errant order, a fat-finger typo, which set off a chain reaction of selling,” said Sang Lee, managing principal at Aite Group. “I would be shocked if that was not the case as the fall in stocks was so sudden and extreme.”


However, despite the persistence of this story, officials were struggling to idenfity a specific cause. “We still don’t know what was the initiating signal for the trading activity we saw on Thursday,” said Jeff Wecker, chief executive officer at Lime Brokerage. “The verdict is still out.”

Link & Entire: FT.com / Markets / US - Plunge in US equities remains a mystery

[barbaro]

How can anyone believe this?

$1 Trillion dollars evaporates - then most of it is restored - but investigator don't know how or why it happened.

This is B.S.

Sign of troubled times ahead? Who knows. But those with siginficant assets in the markets should be very wary.

updated 12:24 a.m. ET May 8, 2010
A day after a harrowing plunge in the stock market, federal regulators were still unable on Friday to answer the one question on every investor’s mind: What caused that near panic on Wall Street?

Link & Entire: NYT:$1 trillion question mark over Wall St. - The New York Times- msnbc.com

[Jet Gorgon]

This was some backroom shenanigans by some big boys. Trades are cross-checked. I'd like to see the trading slip, please.

[Muadib]

From what I have read, it will take days to read & interpret the logs from all trading exchanges for all of the electronic trades between 2:40pm and 3:00pm... No one really knows exactly what happened although there is much speculation... The 'fat finger' trade is becoming less likely as time goes by...

Several have spoken out saying that the system needs to be slowed down... The algorithmic trading programs have nearly crashed the markets in the past and we narrowly avoided in this incident...

[larvidchr]

Incredible story, only goes to show that market reactions and reality are two different things, traders only makes money when they trade so any excuse for getting the market going is OK, some sort of delay should be put in place to stop this very damaging hysteria, like when you want to buy a gun in some places, pay your money and wait 10 days.

[Jet Gorgon]

From what I have read, it will take days to read & interpret the logs from all trading exchanges for all of the electronic trades between 2:40pm and 3:00pm...

It was supposedly for a specific stock -- PG (its current mkt cap at $60 is about $174 Bil). Could be a market manipulator actually placing the order. (Why does Soros always pop into my head when market gyrations occur?) But, of course, it was Citi that is to blame!

[Muadib]

It was more than just PG... There were over a dozen stocks that were affected...

Accenture (ACN) went from $40.xx to $0.01 in less that 5 minutes...

The NYSE & NASDAQ have applied the 60% rules to negate any trades outside that range between 2:40pm and 3:00pm... The problem with that is that many retail investors hit their stops on the plunge while still within the 60% limits... A lot of people have lost a lot of money... The NYSE did not accept any trades on PG below $56.00 when the circuit breakers kicked in... Now the exchanges are wagging their fingers at each other laying blame... Just how is this supposed to instill faith in the system???

[larvidchr]

Just saw the danish foreign news from yesterday, they said that it possibly was a Chicago trader that set the whole thing of by mistake ???

[Jet Gorgon]

It was more than just PG... There were over a dozen stocks that were affected...

Accenture (ACN) went from $40.xx to $0.01 in less that 5 minutes...

The NYSE did not accept any trades on PG below $56.00 when the circuit breakers kicked in... Now the exchanges are wagging their fingers at each other laying blame... Just how is this supposed to instill faith in the system???

Yep, that is interesting. There is always a stop trade if a stock freefalls too fast. I hear some are blaming NASDAQ who is blaming commodity traders who are blaming...

[Spin]

The explanation is simple enough, and it has nothing to do with fingers, fat or not.

70% of all volume in the markets are supplied by computers swapping shares backwards and forwards. Take for example Goldman Sachs SLP scheme, "Supplemental Liquidity Provider" the premise being that NYSE allow GS to trade billions of shares a day and get rebates per trade, earning them millions of dollars per day.

The problem is that this program is just run by computers, the fastest available and located with a few meters of the actual exchange, "co-located"

They get to "see" market data moments before anybody else and the bots that control buying and selling orders act on this.

The problem with these types of arrangements have been clear all along, these computer driven activities do not supply liquidity. They supply volume.

Volume is not liquidity, when the market tuned and began its plunge, the computers turned with it and sold everything short until the plunge hit 1000 points and their ability to short was crowded out by people coming into the market looking for screaming bargain.

I quit trading this market a while back because it became clear manipulation was afoot by low volume buying and the market constantly rising every day. Retail and human participation had clearly dried up when the dow went over 11,000. It has became an electronic casino akin to playing online poker with paddy power or something like that.

[GooMaiRoo]

^interesting and informative post^ A billion dollar bond fund GIM (Templeton Global Income) went from around $9.70 to $0.02. One oddity is that there had to be sellers at such low prices. GIM is diversified government bond fund, so one has to be completely retarded to sell this stock at $0.02. Of course, programmed sell orders such as 'stop-losses' are common, but almost everyone nowadays uses 'stop-limits' so when stock falls below a certain price the programmed sell order is canceled. Apparently the new high frequency trading (HFT) software can 'ping' stocks by ordering trades and withdrawing them in a few milliseconds, finding critical info about other buy and sell orders. Perhaps stocks like GIM, Proctor-Gamble and Accenture just happened to have their sell orders stacked in a way that allowed the high frequency programs to manipulate the prices down, either making a bundle by short-selling or buying up the shares at ridiculous prices. It looks like the rigged casino just became even more rigged. A day trader going up against these Wall Street sharks with their HFT programs is like someone entering a NASCAR race on a tricycle.

[Jet Gorgon]

I quit trading this market a while back because it became clear manipulation was afoot by low volume buying and the market constantly rising every day.

Yep, I was watching that and frankly, it still bewilders me. Thanks, Spin.