Tag Archives: May 6 2010 flash crash

Understanding High Frequency Trading

High Frequency Trading has been around for a while but has been getting more attention since the unprecedented intraday U.S. stock market crash, known as the flash crash, on May 6th, 2010, when the Dow Jones Industrial Average dropped nearly 1000 points in a half hour before recovering in minutes.

So, what is high frequency trading?

VOA‘s Philip Alexiou reports:

See also: Here’s The Official Flash Crash Report; Scapegoat Found

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The Ultimate Trading Weapon

HFT Turns To Low Liquidity Stocks

Derivative Trading Just Keeps Getting Bigger

“Artificial Intelligence” To Be Implemented In HFT

US Stock Markets Infected By Malicious Software?

Testimony Of A High Frequency Trader

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Ex-Physicist Leads Flash Crash Inquiry

As a doctoral candidate in physics two decades ago, Gregg E. Berman spent most of his time in a laboratory searching through subatomic data for an elusive particle called the heavy neutrino. Today, from his office at the Securities and Exchange Commission, the former physicist is supervising a team of more than 20 investigators who have spent the last five months scrutinizing stock-trading data interview transcripts in an effort to figure out why stock prices went into free fall for 20 terrifying minutes on May 6th.                       

“What everybody would love to hear from the SEC is that XYZ trader blew up the market and made a gazillion dollars and is now in jail.”                       

Larry Tabb                 

Gregg E. Berman, head of an inquiry into the crash, said he will show how conditions and events led to an abrupt drop. (Photo: The New York Times).

 

Their long-awaited report on the so-called flash crash, in partnership with the Commodity Futures Trading Commission, is due to be published in the next two weeks, the New York Times reports.                

Mr. Berman (44) will not say exactly what will be in the report, but he says that it will not simply restate what regulators have already said — that markets were volatile because of worries over the debt crisis in Europe, causing some computerized trading programs to stop trading, and finally causing computers on other exchanges to misread the pullback as a rapid bidding down of stock prices.                       

Instead, he says, the report will focus on a specific sequence of events that preceded the crash.                       

He says it will tell a clear story about what happened in the markets on that stomach-churning day, beyond simply pointing a finger at the perils of the kind of high-speed computer trading that dominates today’s markets.                       

“The report will clearly demonstrate how  market conditions and events prior to the flash crash led to the extreme price moves.”                       

Some blame the high frequency trading for the so-called "flash crash" on May 6th.

 

When pressed, he adds, notably, that he had found no evidence of a deliberate attempt by anybody to disrupt markets.                   

The implications of the report are not merely academic.                       

Ordinary investors, shaken by the brief stock plunge and the lack of an official explanation, have withdrawn money from stock mutual funds every week since the crash.                       

The Berman report will not be the final word on the matter. Its findings will be used by a group of advisers to the S.E.C. and the commodity futures commission, which will make policy recommendations.                       

Still, some analysts question whether the report can deliver a simple answer that will satisfy everyone eager for reassurance.                       

“What everybody would love to hear from the S.E.C. is XYZ trader blew up the market and made a gazillion dollars and is now in jail,” says Larry Tabb, chief executive of the Tabb Group, a specialist on the markets.                       

“The answer, I think, is much more complicated and nuanced and has to do with a lot of different things. I am not sure that everybody outside the industry is going to have the patience to understand that.”                       

Market analysts say investors want to be reassured about the integrity of the nation’s markets so they can be confident that a nose dive will not happen again.                       

Visit The Swapper to read the rest of this story.                       

Related by the Econotwist.                       

May 6. 2010: “The Black Thursday”                       

SEC Expand Single Stock Circuit Breakers for Russell 1000 Index And Others                       

Wall Street Collapse: Did Somebody See It Coming?                       

David Rosenberg: “The Weirdest 20 Minutes Of My Life”                       

U.S. Stock Crash Compels Further Investigation of Wall Street Scam                       

Testimony Of A High Frequency Trader                       

The Ultimate Trading Weapon                       

The Rise Of The New Market Makers                       

US Stock Markets Infected By Malicious Software?                       

Update: Day Traders Crack The Timber Hill Trading System                       

Living In A Derivative World                    

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Filed under International Econnomic Politics, National Economic Politics

US Stock Markets Infected By Malicious Software?

The once great American Stock Market are behaving more and more like an old Compaq Presario, still operating on a windows 98 platform and heavily infected by malicious software. It keeps flashing and crashing, and seems to become more and more unstable every day. The new single stock circuit breakers are almost meaningless, as they only reboot the system – over and over again.

“The CBOE Stock Exchange is looking into the issue.”

CBOE spokeswoman


The trade, which appears to have taken place on a stock platform owned by CBOE Holdings Inc . (CBOE), set off a single-stock “circuit breaker” as exchanges this week expand the trading halts to all stocks in the Russell 1000 index, alongside some exchange-traded funds, Dow Jones news wire reports.

Strangely, very few other news media does…

Im spite the fact that it’s only been a week since the last flash crash occurred in the US stock markets.

And the fact that nobody have managed to figure out what really happened on May 6th when we had the first big one that later triggered a cascade of investigations and the recent implementation of single stock circuit breakers.

Today‘s hiccup appears to have originated at the Chicago Board Options Exchange:

“The trade, which appears to have taken place on a stock platform owned by CBOE Holdings Inc . (CBOE), set off a single-stock “circuit breaker” as exchanges this week expand the trading halts to all stocks in the Russell 1000 index, alongside some exchange-traded funds,” Dow Jones news wire writes.

“A spokeswoman for CBOE said Tuesday that the trades that triggered the circuit breaker were canceled. The CBOE Stock Exchange, the market where the trade took place, was looking into the issue, she said.”

Big Boys With Big Toys?

However, amongst the common traders, there’s little doubt about what’s going on.

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Tyler Durden at Zero Hedge comments:

“It has been about a week since we have had a flash crash in our broken markets, and we were getting a little antsy. Then Nucor showed up and traded at $0.01. At 11:52:21 something broke, and as the QR chart below shows, it was basically precisely the same algo malfunction that either goes and hits all bids all the way to zero, or some HFT decided to shut down, and wipe out the entire bid-side order book. The stock which had been trading at $39.58 literally milliseconds earlier, saw a SkyNet T-1 unit go berserk and take out the bids at $37.22, and $35.77 in sequential fashion, with the next trade being at at the residual stub quote of $0.01. Of course, circuit breakers were triggered, but not before even more irreversible damage to investor confidence was suffered. And those idiots ‘upstairs’ still wonder why tomorrow we will report another massive outflow from mutual funds.”

And here’s some charts to visualize:

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Zero Hedge: “There is a pattern emerging: every week we are seeing a flash crash in more and more prominent stocks. These are getting more and more frequent. And instead of fixing the underlying cause, the SEC continues to fret with reactive damage control, and DKing trades of those who are brave enough to step in and take advantage of broken algos. How long will this kind of bullshit travesty continue?”

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By the way, this is what the heavyweights in the financial news business reports:

Bloomberg: U.S. Stocks Drop as Financial Shares Slump, Technology Rallies

CNN: Stocks end mixed after choppy day

CNBC: Stocks Fail To Hold Gains; Technology Rises

The Wall Street Journal: Gold at New Peak; Dow Slips

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Related by the Econotwist:

SEC Expand Single Stock Circuit Breakers for Russell 1000 Index And Others

May 6. 2010: “The Black Thursday”

Testimony Of A High Frequency Trader

Thursday May 6. – Busiest Day Ever On CBOE

Wall Street Collapse: Did Somebody See It Coming?

David Rosenberg: “The Weirdest 20 Minutes Of My Life”

U.S. Stock Crash Compels Further Investigation of Wall Street Scam

The Rise Of The New Market Makers

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Filed under International Econnomic Politics, National Economic Politics