Slashdot Mirror
Computer Glitch Causes Havoc and Losses on Nasdaq
goombah99 writes "In an illustration of how fragile the electronic stock market system is the NY Times is reporting how a tiny computer glitch rippled through the Stock Markets with buyers who bought low and sold high taking huge losses. An erroneous large sell order was entered. Many people bought at this low price, then signed options contracts to sell these at higher prices, locking in a profit. Or so they thought utill the erroneous low sell order was removed. Now to honor their options they had to buy the stock at a higher price. Since exchanges trust each other's trade prices it rippled throughout the system. There does not seem to be any way to gracefully undo such errors."
What if some smart but malicious programmer rigged the system for his own profit? I know this example here is a glitch, but perhaps in the future...
I wonder how many people got fired because of it.
H.
I bet we can make the two of them poor, while making the two of us rich.
wud
"Oh shit..."
I wonder how a Virus Attack (Specially Crafted) on Wall STreet would play out.. Could be interesting.
(Or,maybe they run Norton SystemWorks... )
// instant - "I for one welcome our new Decaff Coffee-Flavoured-Coffee Overlords"
In a Tom Clancy book (Debt of Honor, I think), a computer programmer takes advantage of a weakness in the stock market to induce a crash. After a week of the market shut down, they recover by resetting the prices to where they were the day before the glitch and instructing stock brokers on steps to avoid re-creating the crash.
It doesn't apply to this situation, but the specifics of how they do it is interesting for anyone who might want to check out the book.
just think what would have happenned if it took any longer for that order to be removed.
... that the glitch caused SCOX to fall even more :)
Definitely some big lawsuits headed someone's way if this is not rectified.
start stocking up on toilet paper and gold coins!
I like microcars
Remeber being a kid and playing some game (like baseball or soccer)? What happened when someone really screwed up? or did something thinking they were allowed? You called "do over!!!"
That is the solution. On Monday morning, all of the trading managers go out on the floor, and start off the day by yelling "do over!!!" Every trader's account is reset to its pre-Friday state, and everyone is happy. Duh, it's so simple.
It wouldn't be a virus. It would just be straight hacking.
Why would anyone make some fancy virus for a one-time job? It might involve using a virus, or not, but I'd think it would be more just direct work on security holes.
Wonder if this is yet another argument to open sourcing critical projects so many more people can watch and debug it. I know, I know -- lots of vulns found on OSS lately, but I'd still rather trust systems where I can see the code if I needed to do so.
While I'm at it, how many SCO stocks did it manage to fsck up?
Lisa: Wow, Dad, you're surfing like a pro!
Homer: Oh, yeah! I'm betting on Jai-alai in the Cayman Islands, I invested in
something called "News Corp"--
Lisa: Dad, that's Fox!
Homer: [shrieks] Undo! Undo! [hits key, sighs]
$cat
Just call a do over. People learn do overs when there like 5 years old. I think I've for the FIX message ID for a do over. We call monday tuesday and everyone learns a few lessons.
Krispy Cream is people
Oh my. Not confidence inspiring. I wonder how many other networks like this aren't built to withstand problems from, er, without... considering the error originated on an external system.
I do wonder whatever made NASDAQ think that all networks connected to it should be trusted. That's just foolishness. And to let it affect the system so dramatically... well, it's interesting.
Plenty of meat for the conspiracy theorists. I'll leave the rest for them.
and while the SEC and others do their best to proteect traders, mistakes do happen. This is part of the random process of the markets, and must be accounted for when making a trade, even on options markets.
If you lost money, sorry. Unless the SEC/others can prove that somebody is liable for the initial mistaken order, you lose. Tough. Trading is risky, and sometimes the risks are completely unforseen.
Support a few technologists in Washington.
This reminds me of a nugget.
The stock market is frail, and a fool's playpen. I remember hearing a story about a huge media barron, before the stock market crash that led to the great depression. The mogul was standing in this elevator and overheard busboys talking about how they were going to start playing the stocks. The millionaire immediately sold everything when he got to the office. His reasoning was that if two people who had no money were playing stocks, that they were a sign that the whole system was at fault and doomed. I forget who this person was, so if anyone remembers... hehe feel free to say.
The guy's logic is correct even to this day, imho. The big companies that go public hope that an infusion of cash will make them more profitable, but it usually ends up that they get to take a break on stockholder's money for a while until it's deadline time again and they have to scramble to make product/service X work.
The whole system is wrong.
Look at all the ads for investing these days. They all suggest that you trust them to make you money, and they have as selling points, how easy it is to make money. The easier it is, the more moot it is, imho.
There is no easier way than hard work.
Glitches are bound to happen. Remember when the grid went down this past summer? I would have suspected major losses then, but somehow it wasn't that bad?
I work for a firm that writes software for options traders and clearing firms. Sometimes system glitches do happen (or more often than not, a user error, like entering in the wrong price). However, when this happens and a trade occurs, it sticks unless both parties agree to bust the trade.
The fact that the trades were cancelled without permission from everybody involved in the trades is quite disturbing (because then it can set up precedence that any of your trades could be cancelled without you knowing about it, and that can really screw up your position).
Some people lose money because of mistakes, and some people make money because of mistakes...that's part of how the market works, and you should be willing to accept that risk if you're going to trade.
If it really was that bad (and a $20 difference is huge), and archipellago did screw up, they should take responsiblity and take the losses. If someone just entered in the wrong ask price, then that firm should take the responsibility. I know if our systems screw up our traders, then we mitigate those losses.
I have a feeling there might be some lawsuits in the near future if there were a lot of shares traded.
An erroneous large sell order was entered. Many people bought at this low price, then signed options contracts to sell these at higher prices, locking in a profit.
A large sell order? At fire sale prices you say? Suddenly revoked?
Someone at SCO must have forgot to issue the press release *before* issuing the stocks...
From the FA:
Some exchange officials, speaking on condition of anonymity, said they had little sympathy for traders who bought stock at the low prices, and then lost money when they sold the stock before learning that the earlier trade was being canceled. "They should have known that was too good to be true," one said.
Damn! Gotta check my Linux box for back doors, addware, or some other bug. I should have known it was too good to be true!
Don't waste your vote! Vote for whoever you want, unless you live in a swing state it won't matter anyways
Didn't they have a saved game?
My first thought when reading the summary above was that this would be an easy problem if managed by a central, relational database system.
Simply "roll back" the transaction that failed, and the dependencies would cancel themselves out. But, then I realized that the current RDBMS model only allows for a single transaction - you can't nest them.
Also, transactions are private only - you cannot transact with data in the middle of another transaction.
Thus, you might have ACID compliance, but only with one level of "undo".
How hard would it be to create an RDBMS that supports infinite levels of "undo" or transaction/rollback.
Such that you commit transaction A, which affects rows 1,2,3, and 11. Then, another transaction B which affects (further) rows 2, 3, and 12.
Then, if you roll back transaction A, transaction B would be similarly affected. I dunno - the depencies may get rediculous - but it seems that this could and should be done at some point.
Bright idea? Or another noise from an unpleasant orifice?
Let me know what you think!
I have no problem with your religion until you decide it's reason to deprive others of the truth.
Think about it: people who bought and sold the erroneously priced stock can undo their sells and buys. Now the people who bought from those first generation buyers must be allowed to undo also. In the second generation a new problem arrises: these people have no reason to undo nor do they have done anything wrong - you bought a car, paid $1000 instead of $10000 because the clerk at the store made a mistake and sold me the car for $5000: why should be forced to give you the car back when the store come to collect the rest of its money?. Now interact a little more - the future market works at a very fast pace, hundreds, thousands of trades may happen in a minute. Somewhere down the line things may get really messy, bith logistically and legally.
"There does not seem to be any way to gracefully undo such errors"
They wouldn't have to be gracefully undone, if there was a simple check to gracefully prevent them from being made.
Wow sounds intense. The corrections will be made eventually, but the way the heading sounded, I didn't know whether I should be ducking for cover in a nuclear fallout shelter or something.
MoFscker
I'm betting it is related to the biggest monopoly -- I mean company on their index. What is to stop Microsoft from ditching the Nasdaq stock market for the NYSE if Nasdaq weren't to use M$ software?
I wonder if the bug was related to the Microsoft platform or developers for the Microsoft platform.
W3 R Gr8Trades. All U base R belong to us. Nyaaaaa.
(Anyone entrusting a company named "Gr8Trades" to buy 5000 shares at $40/share should be spanked. $200,000 was theirs, now it's not.)
sigs, as if you care.
Clearly the world's financial markets need a rollback mechanism. Literature abounds with tales of chaos that would ensue because of a set of erroneous or malignant trades rippling through the economy.
This is my sig.
This sounds like a typical case of user error.
I'd say the program might need a little revamping, or the user who entered the wrong price should take the fall.
What about bait & switch laws? Shouldn't they cover this since the people involved bought at a listed price then due to no error of their own the price was switched on them?
I think the people left holding the bag here are exactly the right ones: The ones who thought they were gonna make instant big profits.
Not only did think they had bought something something at far below its value, they then signed options contracts to sell what they had just bought at slightly below its regular price. They should have known something was fishy... why would anybody want to pay close to the normal price to them if the price had just plumeted? Why would anybody want to sell to them at far below the usual price?
The should have known that the rules of the game allowed for their trade to be undone, yet they committed to an options contract that couldn't be undone because if they had hesitated, they risked their "instant profits" going away... their fault.
This has to be one of those Urban Legends! :)
I heard it wasn't busboys, but bell hops.
bah, a miniscule amount of money involved in a minor glitch in a 3rd party system putting in an erroneous price that the NASDAQ successfully detected & stopped.....this has nothing to do with how "fragile" the stock market systems are. Move along, nothing to see here.
/. write up:
There does not seem to be any way to gracefully undo such errors.
From the article:
Such losses would have been prevented if the markets had not resumed trading until a decision was made on which trades, if any, should be canceled. But with markets intensely competitive, trading resumed before officials had made their decisions. The losers were traders who were not responsible for the errors or the slow decision making.
But I guess hindsight is 20-20, right?
given enough damage, it is not impossible for Nasdaq to consider voiding every deal since the glitch started...
I'm just wondering if it was the one Microsoft was so proud of... here is the Case Study.
It would not be a suprise in light of the nuclear material lost as a result of Microsoft. I'm not saying it WAS their fault, just wondering.
Politics, Culture, Food?
Whoever modded this +1 funny should never get any mod points again... ever.
There is no easier way than hard work? What kind of "hard work" is more certain to pay off (monetarily) than the market? Are you saying that researching the market isn't hard work? At least the market isn't going to pink slip me. The "system" certainly has flaws, but I'm afraid that you will find that labor has, and will continue to fail compared to the market's return on investment of capital. I beleive that's why they call it Capitalism and not Socialism.
open markets are positive feedback and therefore inherently unstable systems.
regulation and policing can change the feedback loop enough to bring quasi-stability, but it's interesting that all it takes is a big goof to set off some sort of spiral.
if you really want stability, there's always communism, but the limit point is zero.
me, i'll take unstable but with regulation and jail time for fraud.
nasdaq is all electronic, right? is rollback possible?
This is why aggressively trading is a stupid thing to do. It's bad enough that you buy into stocks as a belief in the future of a company when you don't have any control over that company or it's future behavior. --- No agressive trading is wagering on how others will perceive that future. DUMB!
I'll probably be modded down for this, but linux is more susceptible to bugs than the software that runs nasdaq ie os/390 & vms.
I wonder if they'll have anything to say by 2sday?
"My mother works for Microsoft now. A whole other cult."
How can I have confidence in a stock market where trades can be suddenly reversed if someone cries, "but it was a mistake!" That's like my buying a car and while driving out of the lot someone jumps in front of me and demands an extra $5,000 because they made a mistake. Sorry, I've got my receipt, the car is mine buddy.
It was unusual to see the spread between buy and sell markets be more than a few cents. And with the software that let you see the position on NASDAQ and all the other order books simultaneously, that spread was getting even smaller.
So I find it puzzling that traders wouldn't realize something was amiss with a $20 spread on a stock. I'm sure they did realize it was amiss, and there was a strong possibility that NASDAQ would break the trade, but they figured they'd go ahead with the trade just in case they could make some money before it was broken. It was, they lost money, and now they're crying.
BTW: Somebody asked what NASDAQ's software runs on. Mostly they use Suns, although there are some Windows systems, and possibly some SGIs.
The next Cmdr Taco duplicate will be ready soon, but subscribers can beat the rush and see it early!
Graceful way to undo? Of course not. However, it's not to say that a financial market could not operate with these types of glitches anticipated in the system. For example, there could be introduced explicit insurance against the risk of such infrastructure failures. Notably, large players -- typically making the most sweeping "hedging" buys of the kind described here -- would not buy such an insurance product. Instead, they would self-insure, adopting internal practices that would factor in the risk of infrastructure failure, and spread the risk across all its operations. In other words, in the absence of explicit insurance, it's just another example of games that only large institutions should play. In fact, it is often neither advisable nor desirable to make markets "safe" for small players. It's just too expensive, in terms of additional overhead and lost market efficiencies.
how about slashdotting the stock market?
everyone here buys some the same cheap stock options
and see what happens!
*resistance is futile, or fuzzy, i dunno*
Pffft...Screw that! Start making a list of people who are stocking up on toilet paper and gold coins. This is anarchy baby!
The system actually seemed to have worked pretty well except for the actions of th Archipelago market. There's no way to prevent errant data from making its way to the financial markets, so the question is what are you gonna do about it once it gets there?
What's supposed to happen is that everyone is supposed to stop trade in the stock while market officials try to sort out what happened. The NASDAQ did just that, and called the company involved to see if they had any news that would have justified the drop and they responded that there was no news. NASDAQ announced that their initial review indicated that there was errant trading going on, reserved the right to cancel the trades made before the halt, and released the stop. Within the hour, they confirmed the source of the problem, and revesed the errant trades.
Yet, while trading was still halted on NASDAQ, Archipelago undid their halt without any announcement that anything was wrong. This is wrong on two levels... not only did it falsely convince other people that the drop was for real, but it also pressured NASDAQ's decision-makers to hurry up, otherwise NASDAQ would lose trading volume to Archipelago.
So, the blame for this mess really belongs at Archipelago... they seem to have done an investigation that resulted in a verdict of no error, where in 20/20 hindsight we know there was an error on the play. Did Archipelago conduct a flawed investigation, or did they conduct any investigation at all? This was a case of the market's self-policing rules falling apart rather than any computer program...
The money to compensate for losses should come from whomever is responsable.
In this case, the programmers and cookie-cutter "systems administrators".
Duh.
Why? Do you promote censorship?
He got a tip from a shoeshine boy and figured that the last players were in the game and the market could only go down. He got out and preserved his fortune through the crash of 29.
I was going to say the same thing, but I couldn't have done as well. People need to recognize that the risk is getting an unforseen qualities of the product, not getting an unforseen price.
http://www.accountkiller.com/removal-requested
Now, try saving a file as AUX.txt (or anything) in Windows see what happens. (It's right up there with LPT, PRN, NUL, COM, etc..)
Unfortunately many market analysis programs try to do just that when they store data! Kaboom!
There is no better ROI than genius.
:P
You could be like the guys who invented ICQ.
Or you could create a business, that slowly churns in the coin.
Or you could make a movie like Blair Witch, using about $5 of pocket change and some cigarettes, a scrap of tent and some gasoline, and make way more money than you'd ever make measuring stocks. Just don't make a sequel.
Stocks are mere gambling, imho. The house always wins...
Maybe they need to put more checks in the system to prevent human error. But its certainly not a computer glitch.
Manipulate the moderator system! Mod someone as "overrated" today.
The traders who picked up the shares at the so-called "unrealistic" price are not the ones who should carry the burden. They were by no means picking up free money off the floor. They took a speculative risk -- maybe the price drop was the result of an unfounded rumor, or perhaps it was the result of early knowledge of enterprise-sinking news. Let the parties who caused the error pay the price.
Not to flame, but what exactly is your evidence for this? I work around, and I do mean work around, an os/390 system that causes almost as many problems as the Windows servers in our little farm. I also have a 2.4 kernel linux box that's been up since installation.
You are not the customer.
No computer system is 100% perfect 100% of the time. There will always be errors that are no ones fault, they just occur. In fact, considering how long the NASDAQ has been running I'm suprised there haven't been more errors before this one... It is possible to reduce the chance of errors happening, but it is impossible to render something completely foolproof against every conceivable error
95% of all computer errors occur between chair and keyboard (TM)
I noticed that noone is implicating Diabold?
I was about to toss in Microsoft but I notice they were thoughtfully included!
I, for one, welcome our new pulp fiction overlords
MLT - simple and robust open source multimedia framework for Linux
Damint...they are on to me!
Ken MacLeod - a prophet?
Oh, wait a second... my gun just told me to stop posting at Slashdot and do something more worthwile...
If I was a trader I would have assumed the resumed trading meant the price was validated. I'd want to know what convinced Nasdaq officals based they're decision to resume trading.
I'm not sure how much "buyer beware" is in the trades, but one way or the other, I'd prefer to know.
Did the NYT even report what option contracts these people bought? How cum we get so little information.
It would seem to me that if they bought a put option that they probably didn't need to pay all that much and as a result those who made these trades didn't necessarily lose much money.
In fact, if they don't sell the put options then they may actually make money from them if the stock actually does drop.
You just landed on "Community Chest" and your card is: "Market Error Not In Your Favour, pay 1 Trillion Dollars!"
(Pinky to corner of mouth)
Censorship is half of what the mod system is for, you fucking nihilist.
Programmer, or not, the likes of NASDAQ are privite entities and should be 100% accountable for their actions and every consequence.
If the "error" can't be undone, however it was allowed to happen, then NASDAQ needs to make it right, everywhere, or be terminated immediately as a uniquely harmful and unmigigated risk to the safety and welfare of the nation.
With a couple honest actions like this, and we might find a few people actually giveing a damn about who they hire, proper practices, and making sure the wares they spew onto the rest of us aren't just so much "who cares" nonsense driven more by minimal expense outlays than a notion of delivering a real product.
I have to pay for my mistakes, even to the point I end up in a box under the bridge. So should they.
obligatory Mad Max Beyond Thunderdome Quote
NASDAQ needs to learn it's lesson.
"Break a Deal, Face the Wheel!"
As reported early, the "new" it is a compendium of "experts" each with little to no responsibility for the system as a whole.
Any those may get fired surely will NOT be the responsible parties.
Who's responsible? The people that allow sub-standard organizational theories to hold sway. The people who focused on minimizing expenses over insuring appropriate accuracy.
In short, every manager and technologist in the place, except for those already unemployed because they argued against the policy.
If I sell you an orange, not knowing it's rotten inside, and you buy it, not knowing (or checking) that it's rotten inside, that's bad luck. I didn't do anything wrong by selling you what I thought was a decent orange. In a fair world, everyone in the universe would share this small bit of bad luck equally, but in the real world one person usually ends up with most of it. In this case, it's you with the orange, since I already have your money and I'm not a big orange-selling vendor with a reputation to maintain.
People in trusted positions should take reasonable precautions and be held accountable if they don't but that doesn't mean bad luck never strikes.
"If you look 'round the table and can't tell who the sucker is, it's you." -- Quiz Show
It's hard to say... last year, some butter fingers from credit suisse (I believe) added an extra zero or two for a large ftse futures order -- the price moved up 200 index points (5%) in an instant... (and promptly fell back after the market re-adjusted). Those trades were kept, and I've heard that the party that messed it up actually came out ahead (not sure, though)
there is no thing
what else could you want?
You mean that speculators, who thrive on 'chum' and rapid buy and sell activities, the people who contribute almost nothing to the capitalization of industry (what the stock market is supposed to be about) got stung by this?
I guess we should all cry a river...
A Good Intro to NetBS
I'm not sure if I should even waste my time replying, but here it goes...
Or you could create a business, that slowly churns in the coin.
You realize, that people who make businesses don't have all the money they need immediately. Even the smallest business requires some sort of initial capital. To get this money, they go to someone and say "give me some money now, and I'll give you a percentage of whatever money my business makes". This is exactly what investing is.
Stocks are mere gambling, imho. The house always wins...
Except, there is no "house" It is a game people play against each other. In this regard, if it is like gambling, it is like poker. You win by being smarter or knowing more than your opponent. Therefore it just resolves that in stocks... "There is no better ROI than genius" (duh)
---Lane
You didn't say anything about what the os/390 system, the Windows servers, or the linux box are doing.
I can throw Linux on a little 386sx box in the corner, power it with a UPS, and clock uptime, if that's what it's all about.
A Good Intro to NetBS
and that's its greatest strength and weakness at the same time. There cannot be any safeguards against such price moves in a truly free market without impeding the flow of capital. More than likely this problem was caused by human error and blamed on a programmer. Or some dumb-ass quant who thought they could program and wrote a really naive arbitrage program that went into a feedback loop. I've seen it happen a dozen times before.
They buy low but the seller can't deliver at the low price because of a computer glitch so the buyer has to eat it?
Bernard Baruch was the rich guy.
Doesn't it sound like human error? They say a faulty order was entered onto the system and they don't know who caused it... it's easy to blame the computer rather than have the world hate you...
$10 bank error in my favor?
i just invested a bundle into glitch.com, too! i've got to stop trading based on by horoscope.
At the same time, it is relatively easy to catch straight keying by requiring confirmation.
The regulatory framework may be suboptimal, as may be trading and markets, but essentially it is the very best we have.
The ripple effect probably took about 100 million Euros off German Market capitalisation for some time while all the trades were unwound.
Ok the functional side was clear - the market should be stopped and the trades unwound, but some damage was done in any case as shares remained depressed for the rest of the day. I guess there were also some margining issues that evening.
On Oct 2 2002, someone at a brokerage firm Bear Stearns entered a 4 million dollar trade as a 4 billion dollar trade and it wasn't doublechecked and caused most market indices do go down about a half percent DURING NORMAL TRADING HOURS during the last hour of trading.
& cp 1=1
This was widely reported in the financial press, and eventually the sell position was unwound.
Since the order was a sell order tied to a diversified holding, it caused this decline to happen with both the electronic Nasdaq exchange and also the auction-based NYSE.
"In October of last year, for example, a trader at Bear Stearns mistakenly entered an order to sell $4 billion in stocks instead of $4 million. And two years ago London's stock market collapsed after one hapless trader entered an extra zero into a sell order."
See
http://stacks.msnbc.com/news/945909.asp?0sl=-21
and
http://news.bbc.co.uk/1/hi/business/2294525.stm
for more details
Previous errors
Mistakes have been made in market trading before by other companies.
In May last year, London's FTSE 100 index dropped by more than 2%, after a trader typed 300m, instead of 30m, while selling a parcel of shares.
In 1998 a Salomon Brothers trader mistakenly sold 850m-worth of French government bonds by LEANING ON HIS KEYBOARD.
And at the end of 2001, shares in Exodus, a bankrupt internet firm, jumped by 59,000% when a trader accidentally bid $100 for its shares, at a time when its value was 17 cents.
Game: Player 'Donald J Trump' now has AI skill level 'experimental'.
Islamic Shari'ah Law forbids paying and charging interest. If they had invested according to Shari'ah Law this wouldn't have been a problem. Check out some alternatives to this type of investing at iHilal Financial Services.
Speak truth to power.
Once the bad trades are 'undone' another pre-opening auction is needed to refix the price as the existing historical data (bids and offers) is hosed.
He saw an ad for really cheap DVDs at some discount web site. So he ordered a bunch of copies and then sold them on eBay. Only problem is he didn't wait until the DVDs actually arrived before he sold them, and it turned out they were out of stock, and the order was cancelled. So he had to buy the DVDs at a higher price somewhere else in order to fulfill his eBay sales. Oops.
Actually, it's the opposite: the "player" usually wins. Investing in stocks isn't a zero-sum game, and your expected rate of return is actually positive (at least judging by the last 70+ years... who knows what the future will hold).
To within half a percent, pi seconds is a nanocentury. -- Tom Duff
Clancy was a bit simplistic there - it would be a hell of a rollback.
whoever modded this offtopic should get extra mod points
I wrote the front end to an options management system for a commodities market a few years ago. market managers could drag the volatility graph as they saw fit (with the real trades superimposed).
:)
it was a quiet market mainly because only about 3 people really knew how to deal these things so most traders venturing in there would be fleeced.
anyhow, as the terminal would reside on the trading floor i thought some security would be in order. the user had to log in to the system (validated against the network credentials) then after 2 mins of nothing happing, it would log out.
the annoyed the trading floor staff and i was instructed to remove it, despite vigerous protesting (or should i say, a stream of explitives from me). lo and behold within 2 weeks there was an investigation - in a quiet period a trader had gone in and rigged the end of day prices (to make his book look better).
this taught the management a lesson. this also taught me some things
#1 dont underestimate human lazyness
#2 dont understimate the stupidity of managment that is 'customer focused'
now i look at this it has bugger all to do with the topic, but really ive wanted to get this off my chest for like 7 years
When you buy stock, and you get confirmation that your trade has successfully executed, it's a done deal.
You WILL base your future behavior on the premise that you now hold that stock.
If you make a trade based on that (or a promise of a trade, in the case of an option), but then have your original trade canceled, you should not be liable.
Those trades should not have been canceled. The company that created the bogus sell orders should be accountable for actually making those sales, even if it means they now have to buy up stock at a higher price. They should have insurance to cover mistakes/accidents like this.
It is pure, utter bullshit to pull the rug out from under legit trades like this. This kind of behavior will undermine the stock market (and at a time when there's already plenty of reason for potential traders to be wary.)
.sigs are for post^Hers.
I cant have sympathy for those who get burnt by such a glitch.
.. what, if anything, are these people contributing to society ? What motivation can they have aside from personal greed ? Why should they have any safegaurds provided ? Let em burn.
Anyone dealing in short term 'guaranteed profits' is just a speculator at best, a parasite at worst, depending on your POV.
Its just gambling
...is for buyers and sellers to all SLOW DOWN and pay attention to long term performance rather than minute-by-minute numbers which aren't real meaningful statistics anyway. Frankly anything outside the offical quarterly reports is speculation anyway! Simply allowing only 1 trade per 24 hour period per stock would fix many, many issues with the market right now. The "day traders" should be restricted to playing "numbers" with Magic:TG cards and Ty Beanie Babies....rather than mucking with our financial backbone.
According to the posts on elitetrader.com:
h readid=25431
"A guy in my office said it was a trader at Bear. He was supposed to send a market order for 9,000....accidentally sent it for 9,000,000."
Apparently an erroneous sell order (offer) was placed for 9M shares at $42. About 2M shares executed before the remainder of the order was canceled.
Read the real-time reaction of traders here:
http://www.elitetrader.com/vb/showthread.php?s=&t
Everyone realizes the offer is out of line. Some declare "free money!" and purchase as many as they can, then sell at $47, $52, $55, etc. None seem to realize that trades will be busted (canceled) until it's officially announced.
If that corporation noticed it had accidentally overcharged the customer, there is no way in hell it would notify the customer and say "Here's your money back! Sorry!".
The corporations go out of their way to fool and trick people into things; there's no fucking way you should let them off the hook when they fuck up in your favor.
Maybe if we had a more rational economic system where the corporations didn't exist solely to fleece people out of their money, your solution would be allowable, but there's no way in hell anyone should give an american corporation the benefit of the doubt. They wouldn't think twice about raping you up the ass when given the chance.
Either those that thought they bought low did not Buy options or they did not lose money due to having to cover the position because an option is just that, optional, if you don't want to exercise the option you don't have to. I suspect there is an element of the urban legend about the 'options position' aspect to this story since the only option that makes sense to have bought was a put and as such that put would have, depending on the strike, been really cheap (at least to start with :-) and may even still be in the money.
Now if they bought futures then, yes, they are in a hole. But then they would be idiots and they got what they deserved
"The first thing to do when you find yourself in a hole is stop digging."
Anyone that's done some control theory knows how to solve the problem --- just add some hysteresis into the feedback loop, ie. response delay in both directions.
:-)
All forms of instability are reduced in their effect by this means, so it doesn't matter whether the instability stems from human error, bugs, or system glitches arising from other things.
And exactly how would one do this? There's a ton of ways, and quite a few of them simply entail holding quoted prices steady for a mandated period, plus a few adornments.
There are much more creative ones around though which could probably work even better, like allowing only audio readouts in trading rooms so that info comes in slowly like in tickertape days, or the one I like best, allowing traders to use no equipment other than the morning's financial newspaper, plus a pen and notepad.
"The question of whether machines can think is no more interesting than [] whether submarines can swim" - Dijkstra
That the sell order which was in order should have been honored which would have eliminated everyone elses problems.
"There is no better ROI than genius" (duh)
This reminds me of Scott Adams and his comments about making people feel stupid. Just say duh after anything;
I need more resources for my puny empire! DUH!
I happen to like vacations. DUH!
I think pork is fatty but we could sell it as nonfat. DUH!
The moon is readable with a micron superscope. DUH!
There are people living in my pants. DUH!
1) Anybody who bought at those low prices knew something was
either a) very wrong or b) very bad news was out. This was
after all a $60 stock and they were now buying at $42.
Without going into detail, I find it impossible they lost
any money on options trades (no open exchange, prices were
much higher when they did reopen).
2) Similar things have happend at CBOT and CME on their
electronic stock index products a few times this past year.
Most recently, a trader was said to have entered a stop/loss
order in the less liquid Dow Jones futures for a very large
amount. As CBOT handles S/L orders natively (internally),
their system proceded to hit bids until the order was
filled. Those trading S&P futuers did notice what was going
on and started selling there as well, perhaps fearing a
terrorist or other news related item. The sell off was not
as far (500 Dow pts), in part because of the greater market
depth, and the fact nobody could figure out what was going
on. Trades were subsequently broken, hours later, on the
CBOT, but NONE were cancelled on the CME. This caused quite
a bit of pain for people who had s/l orders open which were
executed, for all intents erroneously. (no not me, but I do
know one who was). CME refused to cancel as the original
event did not occur in house.
To this day, I do not believe the order was entered in
error. I believe a hedge fund or other firm had a need to
buy, and buy large. What better way to get filled then to
trigger a large move in a closely correlated market (Dow
futures) where you know the majority of the trades will be
cancelled, and just sit on the bid in the other market
(CME) as people panic sell. And do not rule out collusion.
You know nothing about financial markets. You're advocating one all-inclusive trade per day. You obviously have no idea what kind of volatility that would enter into the market. The matching of orders at the beginning of trading is the most difficult and unpredictable part of the day. Having only one trade per day would make it orders of magnitude worse. The benefit of all-day trading must completely be over your head so let me explain. With 24-hour trading, despite times of day when there is reduced liquidity, you always have a market and the possiblity of getting in or out. When the markets are closed you have nothing to gauge the price of a stock by. Uncertainty is what creates volatility, basically by definition. To create less volatile markets you want them open 24 hours a day and want as many people as possible trading them. Whether those people are market makers, day-traders, nice little grandmas, or dumb-asses like yourself.
I caught the various news reports on CNBC on friday evening... apparently NASDAQ is only allowed to halt a stock when they are under investigation for regulation violations. When NASDAQ froze it, they also asked the west coast & overseas markets to halt trading on the ticker, but there was no precedent for this; NASDAQ just broke procedure. The interviewees seemed really pissed.
From the article, it appears that the software that communicated market orders went into a loop, and submitted a loop of Sell orders on this one stock. If it were just little old me selling stocks I don't own, it's called a Short, and I'd be liable for buying back any shares I don't own. If its really a computer error, then its up to the market providers to cancel the orders.
At some point, the SEC needs to find out who was liable this this little adventure. Why does NASDAQ allow companies to submit raw sell commands w/out proofing them for validity? And what about this software company? If it were me playing with Ameritrade, and their software repeats my order 100 times, shouldn't the software company be liable for all of the (unsolicited) trades? If these trades should have been cancelled, why did some markets resume trading before they validated the orders? I wouldn't be surprised if there's another round of market rules that fall out of this, because obviously there's a big loophole here.
You seem to misunderstand what stocks are. You are buying a piece of a company. When the value of the company goes up, so does your piece. Most large companies even split up the excess profits of the company to all of the shareholders as dividends.
So basically a surefire way to make money in the stock market is to find a company which is going up in value who is willing to sell you a piece of it for the current proportional value or less. In the long term, as long as the company grows and continues to increase profits, you will make money.
Day trading is gambling, companies don't significantly change in value in such small periods of time. However real investing in stocks is a lot more than luck and guesswork.
Furthermore, suppose you do make millions because of some brilliant idea you came up with. What would you do with it? Start another company? How many companies can one person effectively manage? Perhaps you could give some of that money to someone else to help run their company. They could give you a piece of paper in return to indicate how much of the company you own. Call it a stock certificate.
Cancelling trades, even real errors, is the worst policy for NASDAQ. Here's why:
#1 It destroys faith in the markets. A lot of the people who bought stock to provide liquidity had their buys cancelled, but not their sales. Therefore they lost money. This is a rare, but not the first time, this has happened. All those liquidity providers will be a little slower to stabilize the markets in the future because of the risk someone comes and cancels their trades later. Than means when you go to sell your 1000 shares of SCOX when the market is down and SCOX is down more, but you need the money to buy your house, that bid you are counting on might not be there, or it might be a lower price that it would otherwise be. And this happens thousands of times compared to the occasional "real" error, so the cost of this "what if my trade gets cancelled worrying" is very high and very real.
#2 Negates personal (and corporate) responsibility by the people who caused the problem (which turned out to be a problem for a lot of people, not just them). People should think a bit before they hook up hundreds of millions of dollars to an automated machine, especially one that does things like "sell if I'm down 5%." Then they should think again. And if they handle that much money, we should be able to rely that they are sophisticated entities that should absorb their own errors. If not, someone needs to take their computers away and give them back their Nintendos to play with instead.
#3 Nasdaq only cancelled orders executed through certain systems under their direct purview, not all trades done during that time regardless of system. Half a solution really is worse than none at all. Pretending the rest of the market doesn't exist (it's not part of us, so it's not our problem) is not a high quality solution.
If you want serious reliability, it is possible. You have to think, and you have to be willing to pay for it, one way or another, if it's really that important.
I tried to find a good link to Jay Forrester's Reliability of Components article but the only thing I could find was the IEEE which wanted me to buy it (again--I can't find it). If anyone knows of a valid link, or has the pdf, please respond or email me.
--
...if they used Multi-version concurrency control, like PostgreSQL has. Maybe they're using MySQL. ;-)
You may now begin your flame war.
as i recall this story, it was about futures trading. and, although that was the story (i.e. that it was an error), you're trusting the powers-that-be to be telling you the truth here. that was a futures sell on a very slow trading day (holiday), and - even though the futures trades were unwound - the effect on the general markets could have made anyone with a big short position a decent profit. more than that, it gave them an opportunity to buy low and sell on the gap up after the holiday.
... this buyer isn't an "investor".
:-P
but "slow down" is not the lesson of this story. look at the statistics for any of the recent months: a full 42% of all trading nowadays has been program trading. if that sounds big, it is - by historical standards. almost half of the trades are just computers trading with each other. look at any of your favorite stocks - techs in particular - and look at their daily volumes. you'll see that some big fraction of the float trades every day. so if your average buyer is holding the stock for an average of 30 days before flipping it
and finally, re the futures market: if you've been watching the markets over the last month you'll have noticed what everyone else has noticed: these huge ramps on the futures market which causes ramps in the major indices (dow, nazdog) for no good reason - although usually saving the market from a decline before any selling pressure can build. nowadays, its the tail that wags the dog, the futures market driving the indices.
oh, another unusual statistic: count the number of times the tick has gone over 1000 over the last couple months. if you follow the markets, you know this means a pretty huge buy program coming in and bidding up prices on all the crap in sight.
anyway, no matter what statistics are quoted here, historical claims on "stock market outperforming other investments" is based on markets where a majority of that performance comes from dividends. nowadays, its a casino and a wealth re-distribution mechanism. and lately, a political tool.
yah, i know, i'm paranoid. i'm the type that invests in gold and gold miners after all. (which, by the way, have outperformed even the SCOX.)
First, the deal between NASDAQ and those licensed to trade on it is not in any way legally shaky... you can be sure thousands of lawyers have poured over it.
It has a rule, well known by all licensed traders, that a clearly erroneous transaction can be rescinded by nasdaq. It's not some "Loophole" or some stupid rule.. it's a cold, hard fact.
And as I said before, when you do trades... as an individual, you are mostly not a licensed nasdaq trader.. you are more likely someone trading through a brokerage.. adn what happens is set out in your contract with that brokerage, not a contract between you and nasdaq. THAT contract might be a bit more shaky.. and there might be room for manoevering if you got screwed... but it's not at all clear that nasdaq should eat the cost of this.
Yes, you can quote stuff about various laws that apply to totally differnet things and draw some parallels... but remmeber, if nadsaq had to eat costs like this, they could be bankrupt and the market would cease to exist in a day if a large mistake was made, and that benefits nobody.
My family owns a shop, and I have been at the cash register many times.
I have (twice) given money to clients who I gave too little money in return. One the same day, another the following day.
Also, I have never had (that I remember) a client returning to give me back money that I paid them in excess, but I would of course attempt to refuse it.
The sweet shop in the corner has done the same to me, when I went to buy.
Of course the shop is in a 5000 habitants village, and you have to take care of the client. I have been in other small shops in big cities, and the same seems to happen. Big shops and supermarkets are different of course, and anyways there are always jerks.
...it's not computers that make mistakes,
it's the monkeys tapping the keys...
That bought a buggy program instead of paying to do the job right?
Stocks were never meant to be traded as speculation on the share price. Purchasing stock is purchasing a share of a company's future earnings in the form of dividends.
Yes, and that share has a value, the stock price. But speculating in its future value is a very valid business. Say e.g. I buy a piece of forest. Sure, it might also turn a dividend by lumbering, but it can also be a speculation in the property value (because e.g. I suspect it can be re-regulated to housing). Then I can sell it expensively in small pieces to people wanting a house.
People that are successfully able to predict what other people will want in the future are typically very successful. To predict that people would want product X, and that investors would want shares in companies making product X, is really two sides of the same matter. However, it's really more in the field of investor psychology than in actual economics, which is why I think you value it so low.
They're all trying to predict the future movements of those with a longer perspective. As are the real economist, only they try to predict the consumers, not the other investors. But when it comes down to it, it's much the same... short term, mid term, long term dividends, short term, mid term, long term stock prices. All about predicting what others would want. Maybe you just don't like that someone is trying to outsmart you, pushing up the prices on the stocks you're going to want to buy?
Kjella
Live today, because you never know what tomorrow brings
"Stocks were never meant to be traded as speculation on the share price"
This is wrong.
Speculators are amazingly valuable in a market. They add liquidity. This allows medium/long term players to buy and sell without disrupting the market.
Markets without speculators are generally hard to enter and (much worse) hard to leave.
The Singularity is closer than you think
Quant
You don't understand 'offtopic'.
- http://slashdot.org/~sllort/journal/15007