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Stock Market Sell-Off Might Stem From Trader's Fat Finger
s122604 points out a CNBC story according to which "the catalyst for today's extraordinary price swing (at one point the Dow lost almost 9 percent in less than an hour) may have been because a trader entered a 'B' for billions instead of an 'M' for millions on a trade of Procter and Gamble: 'According to multiple sources, a trader entered a "b" for billion instead of an "m" for million in a trade possibly involving Procter & Gamble, a component in the Dow. (CNBC's Jim Cramer noted suspicious price movement in P&G stock on air during the height of the market selloff).' Unbelievable there are no safeguards to protect against this."
I suspect that I speak for everyone with their retirement money and/or savings invested in the markets when I say: HO-LY SHIT.
Frankly, I was more comfortable with the concept that the DOW could drop 1000 points in one afternoon due to some obscure overseas debt concerns than I am the idea that the DOW can drop 1000 points in one afternoon because of a fucking typo. I realize that markets and the economy in general are collective illusions to begin with and all that, but do we really need to be reminded quite so forcefully?
Might be time to invest my money in something a little more solid, like canned food and ammunition.
Every year during my review, I just pray the words "slashdot.org" aren't mentioned.
Thats a f*ing fat finger if it hit b instead of m! or maybe its not a qwerty
www.RacquetUp.org - Helping Detroit Youth
I can relate because one time I typed :q! instead of :w, losing about 5 minutes worth of typing. The typed text had sentimental value worth billions.
CBC Story about software controls for selling on the market: http://www.cbc.ca/money/story/2010/05/06/tsx-markets.html
Nuts to fat finger keyboards, there are automated software controls in the industry that caught-on to the sale and snowballed this individual's mistake into something really big. The issue wasn't just in this guy's mistake, but the fact that potentially billions of dollars changed hands because of a trust relationship these systems have with market indicators.
Not that there's anything wrong with that: on a good day this could protect big firms from being the guy caught holding the bill, but I think we've discovered where the next upgrade in broker software might be :)
-Matt
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So you implement some protection. Then some prima donna trader comes by and asks that they be disabled and his trades unquestioned. If the company makes good profit off the guy, down the protection goes.
Reminds me of this story on a commodities trader that not only didn't close his position, but actually ended up taking physical delivery of the commodity. Oops. Sure there were protections, but the guy had them disabled.
http://thedailywtf.com/articles/special-delivery.aspx
Hell, for all we know, this is exactly what happened - most traders can't enter in a "b", except a succint few well-trusted individuals. Just one of the "gods" managed to fumble it.
It may have been a system problem, that's quite possible. But institutional traders don't type in "b" or "m" next to some number they type in of stock they want.
But even in some strange world where they did, entering in a standard lot quantity that required an "m" (much less a "b") for the stock that is suspected to be the issue at hand (PG), would result in an order that exceeded the 30-day avg vol for PG by a factor of 10.
And that's not even considering that the firm's risk management would, in theory, have caught the issue already.
I am, obviously, doubtful of this explanation.
They've been saying for some time the market was due for a correction. Mind you, at the height of the financial meltdown, the Dow was at 6500, and has almost doubled value in about a year, it was rising too fast considering that the recovery still really hasn't come (i.e., there are still no jobs).
The only people making money are the same ones that are always making money -- the fat cats. Now it looks like the market will correct, and probably stablize around 10k, maybe 9. And even more people will lose their jobs and the cycle will continue until America admits that it is bankrupt.
Then will come some really hard times, but, once we address the real issues plauging the country, we'll come out of it stronger. But first, we need to start getting rid of all the lawyers....
If telephones are outlawed, then only outlaws will have telephones.
Not that there isn't some finance-clippy that pops up and asks "You appear to be tanking the Dow, would you like help with that?", or that people are allowed to do whatever stupid shit they want with the assets they have(the amount of stupid shit that people are allowed to do with assets that they don't have is somewhat concerning, however).
However, I am somewhat surprised that the guys who do UI design for financial systems don't design systems to make things like power-of-ten or million/billion errors very difficult. Having a 3 factors of 10 difference be just one key away(and phonetically not all that dissimilar) seems like a mess waiting to happen.
I've seen in doctor's offices(and I know pharmacists and pharmacy techs, especially ones where compounding and other tougher than "dispense stock pill" type activities go on get drilled hard on this) outlining acceptable and unacceptable notetaking protocols to reduce the risk of power-of-ten dosing errors(things like ".2 is wrong, there should always be a leading zero to clue you in to the decimal point, use 0.2.") Some of them are even domain specific conventions, specifically trading off other factors in favor of reducing the risk of error. In science, for instance, saying 2.0, or even 2.0000 if you have that much precision, instead of 2 is a good thing. It tells your reader how precise the value they are looking at is. In prescriptions and medical notes, "2.0" is dangerously close to "20", and is thus avoided.
One would think that, even if it meant making up arbitrary symbols, or using UI element sizes to convey magnitudes, or something, financial UIs would adopt a similar set of domain-specific tricks to head off the most common and dangerous errors.
Might be time to invest my money in something a little more solid, like canned food and ammunition.
Yes, because fat fingers and ammunition go together well...as long as you don't invest in a gun too.
These posts express my own personal views, not those of my employer
If they were running Vista, they would have to click through "Are you sure you want to do this?" and "Are you really sure you want to do this?" popups, as well as a popup of Clippy asking "It looks like you are trying to trigger a stock market panic. How can I help?" No fat-finger problems there!
I've abandoned my search for truth; now I'm just looking for some useful delusions.
You read that headline right. This should happen ALL THE TIME. It would be good for the markets.
Speculators would be driven out, or driven insane. Emotionally driven traders would have heart attacks.
Sound judgments made based on factual data would not be affected.
Next week, people like me won't give a toot that this ever happened. However, a lot of day traders just pooped their pants. I'm buying men's underwear stocks.
The person who made the mistake will be punished dearly.
Shouldn't this hot topic be debated on /. in, say, a week?
because in central EU(let me speak for Germany) - 10^6 is a "Million" you would say million (we all agree) - 10^9 is a "Milliarde" you would say billion - 10^12 is a "Billion" you would say trillion We also have a trillion but if our state debt would be measured in trillions of euros, we all would have "fun" like in the 1930s. Ok this is totally missing logic, he just had fat fingers.
When you can make money hand over fist doing nothing, a very bad thing has happened: work has ceased to become a rewarded function. Instead, it's who you can screw over with dodgy investment strategies and exotic financial instruments that are not only worthless, but a liability. It's time that we end the casino markets and return to investing in things that are actually part of the economy that creates jobs - manufacturing, infrastructure, and technology.
Fund managers who literally do nothing but piss away money are making $1,000 an hour, and the people who educate our children are making less than $20 an hour. Something is seriously wrong with this picture.
A NYSE Spokesman disagrees with this: http://www.marketwatch.com/story/no-bad-procter-gamble-trades-at-nyse-spokesman-2010-05-06
Sturgeon was an optimist.
.... or something. Shit, I always do that.
I always mess up some mundane detail."
I'd love to have had my eye on the boards at that time, there was major money to be made in those brief minutes between when the B was bought and when it was immediately resold. This is not so much a problem of insanity on the stock exchange floor, as it is the automated stock trading programs running continually looking to take small advantages on micro market fluctuations. This one just tripped a few too many of them all at once, causing something of a domino effect. I'd expect 80%+ of the "very high volume" of that time period was done entirely by automated trade programs.
Then one has to ask, was the mistake in the fat finger that hit "B" instead of "M", the (popular option) "are you sure you want to do that?", OR can we look at the trading apps that haven't been told to do a sanity check when they see a very unusual trade occur. IMHO this entire fiasco is a collection of bugs (ok we'll call them "oversights") in the auto trade programs on wallstreet. The people on the floor were just looking at the board with their jaws dropped open trying to figure out what was going on -- what the programs SHOULD have been doing. Should have been throwing up a flashy window on someone's screen saying HEY COME TAKE A LOOK AT THIS! Instead they just went wild selling and buying, thinking they were reacting to market conditions, not able to consider fat fingers.
I work for the Department of Redundancy Department.
What's being talked about here isn't the general decline in the market today, but a very suspicious "blip" that occurred in a huge number of stock prices at 2:45 EST, followed by immediate recovery.
Look at the blip:
Adobe
Google
Westlake Chemical
Cabela's Incorporated
Apple
Microsoft
Titanium Metals
Fidelity IIS
This shit is across the board, with very few exceptions. You try explaining how something like that happens apart from some major fuckup somewhere.
It amazes me that the financial industry continually gets a free pass on matters that would result in public outrage towards any other industry that deals with people's livelihoods.
This explanation, whether true or not, is equivalent to saying that an airplane crashed because of a single faulty sensor.
Or a bridge fell due to one rusted bolt.
But, here, one fat finger led to the temporary destruction of nearly 1 trillion dollars of value! Would we tolerate such bogus explanations from aerospace engineers or architects? Why can we not demand the same from our financial "engineers"?
Obesity is destroying America!
Your comment is spot on. Look at the volume of shares traded for PG today. There is no statistically significant spike in volume today that correlates with the price drop. If the sell was staggered, the price drop should have been staggered. Since it isn't, either Google's volume is way off or this story is a crock. Based on the volume data, the sell-off started well before the major drop in stock price.
I suspect that something funny did happen though, in TFA they are quoting that PG was trading down at $30 per share at some point, so something definitely slipped. Fortunately, we managed to avoid another Black Monday, where the DOW went down and stayed down.
Gentlemen! You can't fight in here, this is the war room!
We all know this and have known this for decades. The people who operate within the market like to think of themselves as sensitive to trends and currents and activities, but the reality is further from the truth -- a bunch of people doing what everyone else is doing hoping that the person in front of them knows where they are going.
The cure for much of this (not all of it) is setting up rules that limit the number of times a single item can be bought or sold in a day. Whatever the real "best solution" is (and I'm sure my notion isn't even close) it should probably focus on getting rid of the lemming factor that tends to send people marching off the edge of a cliff taking the whole market with them.
On the Dvorak keyboard, B is right next to M. That said, I use Dvorak, and have never personally caused a stock market fiasco. Maybe I should change professions...
It wasn't a typo, it was Bernie Sanders speaking for an hour on the Senate floor today, pushing for a bill to audit the Fed. Everyone who is anyone knows what we will find if we audit the Fed, and it isn't good. Not just for us, but for the world. Which is why Obama threatened to veto this bill, citing national security. The dollar is the world's reserve currency. If all the plebeians of the world found out how utterly worthless our currency is, we would suffer a crash that would make the last one look like a cake-walk.
As for Greece, though, that crisis is actually pushing investors back to America.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
15 billion dollars cannot move the markets that way, even if it was an accident. That's like trying to blame 2008 on the fraudster at "Societée Generale". It wasn't just the US stock market, it was all the currency markets too. This is trillions of dollars we're talking about, moving away from the Euro and the US dollar and into Asian currencies. The trouble in Greece and the uncertainty about the UK elections were the excuse. The Chinese made a major move into the Japanese Yen yesterday, strengthening it. Today european bankers followed suit. As a result the Yen gained nearly 10% against the dollar, with Cable (GBP.USD) and Fiber (EUR.USD) dropping quite a bit too. This panicked the equities markets.
Seven puppies were harmed during the making of this post.
Fund managers who literally do nothing but piss away money are making $1,000 an hour, and the people who educate our children are making less than $20 an hour. Something is seriously wrong with this picture.
Yes. And further, consider how Wall Street has attracted the best and the brightest of all of our people, math PhD's, engineers, those with an excellent ability to see the broad patterns in society. Our most brilliant citizens are pulled into Wall Street as "quants" or traders or corporate lawyers, and are often paid six and seven figure remuneration per year. And to do what? To game the system in favor of their wealthy masters at the expense of the middle classes. Do they create wealth, or are they merely helping to transfer it from the hands of the many to the hands of the few who can afford their services. Wall Street quants were supposed to make recessions a thing of the past. We all know how that turned out.
Meanwhile fields like science, engineering and medicine lose the most brilliant individuals. Citizens who would formerly have become professors, providing independent analysis of society's problems instead become selfish multimillionaires, who then retire at 40 to a life unproductive leisure. Think of what these brilliant people could have done if their abilities were harnessed in the right fields and with the right motivation. Think of the problems that could have been solved. Think of the knowledge that could have been gained. Think of the lives that could be saved by new medical discoveries. Think of the new technologies that could have been developed for the common good. Wall Street's co-opting of so many of the geniuses in our society will have profound consequences for our civilization. I can only hope that we can undo much of the damage been done by this corruption.
This and no other is the root from which a tyrant springs; when first he appears as a protector - Plato (423 to 327 BC)
I mean really? What do these traders produce? Nothing. But they earn money, quite big money solely on speculation. What is the purpose of this at all?
Naw, its Goldman Sachs selling their holdings to pay for lawyers.
Accenture (ACN) went down to 1 cent from about 40, for all of one or two minutes, then went back to about 40. The iShares Russell 1000 Value Index Fund (IWD) had a similar ride, from around 60 to 8 cents. Centerpoint Energy (CNP) went from 14 to somewhere under a penny (I saw a number, but I can't remember if it was 0.007 or 0.0007). There may well be other cases like these.
I really suspect there was a software bug that affected several stocks, not fat fingers.
Are you adequate?
Financial engineers as a whole are a bunch of Dilettantes. They literally play guessing games disguised with fake knowledge. Any scientist would look at the markets as an optimization or stochastic problem. Not financial engineers. They look at indicators that have minimal mathematical basis and "psychological" levels.
They're also damn good at what they do. No offense to scientists, but anyone trading using the scientific method is just going to be giving money to people who use more effective methods. The simple explanation is that the scientific method is far from optimal for the problem of rapidly evaluating the price of a security in real time. Market trading also isn't an optimization or stochastic problem. Those are approximations for the real deal. As I see it, a seat-of-your-pants market maker is going to know more and make better trades.
Pardon me while I make a brief appeal to authority here. I have a PhD in math. It's not in financial mathematics, but I'm acquainted with what they do here. The math/computation part is in getting a good estimate of what things are worth and how they correlate with other securities over certain time scales. It enables the trading of complex derivatives and execution of automated strategies (especially hedging and arbitrage related trading). IMHO, there's no magic math algorithm that will trade well understood securities far better than current methods. That vein is probably almost mined out. There might be something there, but I doubt it. The current play seems more in those complex derivatives.
I see a lot of the current problems more as social engineering problems. For example, I bet every single bank and investment firm that collapsed in 2008 had incentives (and lack of accountability) in place for the traders and managers to accumulate highly leveraged risk. Guessing right on a highly leveraged strategy can get you excellent bonuses. A prudent strategy can lose you your job, even if you are right in the end. The last of the outcomes, guessing wrong with highly leveraged risk just loses your job again (the company might go belly up as well, but it's not your problem any more).
As I see it, the fundamental problem with most such businesses (and most publicly traded companies as a whole) is simply that the owners do not run the business. The people making the decisions risking the capital are completely divorced from the owners of the assets. The decision-makers only stand to lose their jobs.
What's interesting is that the online boards (websites) weren't able to keep up with the market due to so many people hitting their servers. Even Yahoo and Google Finance couldn't keep up.
The Web Struggling to Keep Up with the Market
... a butherfucking mig bistake!
Have gnu, will travel.
? The Fed's books are already open and reviewed by accountants regularly.
Really? Then please direct me to the assets in Maiden Lanes 1,2,3. Now, I don't mean the 'extend and pretend' valuations they report. Any external reporting is sent over with a topline valuation. Period. They do not provide enough information for any external party to establish values.
Please direct me to FRB NY's communications, oh let's go back 5 years. I don't want it all, just the stuff where it was decided AIG's creditors were paid 1:1 for debt obligations where a haircut (pennies on the dollar) is the norm. And... what about all those side bets that were made good?
Finally, it's not an either 'Business As Usual' or 'Politicize the Fed.' choice. That kind of rhetoric, by design, goes nowhere. Discarding the whole notion of greater transparency for the Fed has already cost us a trillion or so dollars. I'd like to use that money for other things.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
US will NEVER do this, it's impossible. It will print and print USD into hyper-inflation.
That's a nice theory. Complete nonsense of course. The US has been in this situation before multiple times.
The US has never defaulted. Not once - even when the national debt was a much higher percent of GDP than it is now, which happened after WWII. It also was approximately as high as it is now around 1880 as well as throughout the 1930s and in the 1950s and 1960s. Sure the numbers are bigger (inflation does that) but our GDP is bigger too. The solution to the deficit is fairly simple - cut spending on some combination of the military, social security and/or medicare. Not politically easy of course but certainly possible.
The reason your argument is nonsense is that if the US were to continue to just print money without regard to the consequences, the economy would crater since no one would trade with the US, and the government would be cast out of office. Your assumption that people can never accept any legislation that is good for the country but not them personally is demonstrably wrong and pathetically cynical. It also assumes that the people in charge have no clue or sense of responsibility or fear of losing power. As much as we criticize our government, they aren't complete fools - at least not all the time.
Wall Street has attracted the best and the brightest of all of our people, math PhD's, ... Our most brilliant citizens are pulled into Wall Street as "quants" ... And to do what? To game the system in favor of their wealthy masters at the expense of the middle classes.
Then the PHBs misunderstand and misapply the PHDs' work, and the whole thing comes crashing down on them.
Case in point: Mortgage-backed securities.
Risk on such things is hard to estimate, because it takes a lot of investigation and skull-sweat to evaluate the risk on each mortgage. Evaluating the risk on a bundle of mortgages was so much work it was not practical.
Then the young math whiz proved that price of mortgages was very strongly correlated with risk, and came up with a formula that, given price, estimated risk very well. (Well, DUH! They're correlated because smart buyers and sellers were researching the mortgages, determining the risk, and basing their trading prices on them.)
THen the PHBs came up with something like bonds backed by a "basket of mortgages" (to "average out the risk of individual defaults). Buy the bonds (to finance the mortgages), get paid dividends from the borrowers' payments. Sell THREE sets of bonds against each "basket" of mortgages, with missed payments coming out of the dividends of the third, then the second, then the first, so investors could get different prices and risk/reward tradeoffs from the same basket. So far so good...
But to sell these bonds they needed a rating. So they talked the rating companies into using the shiny new risk-estimating tool to rate them. Oops! Any controls engineer who understands these bonds and the market will recognize that this substituted a positive feedback loop for the signal from the real world. Higher price -> lower risk estimate -> higher price... (The guy who did the original work said not to use it this way - but nobody listened. And he moved on to other things.)
And now that they could get a rating they could get a rating from reputable companies they could sell a bunch of these bonds. So they could buy up mortgages to make more. So this raised the demand for mortgages, which raised the price. The positive feedback loop was kicked off with a big up-push, the ratings went sky high, the prices of the bonds climbed, and the bubble was on.
With the price skyrocketing more people wanted to buy in. So the demand for mortgages went through the roof. Banks and the like could sell any mortgage they could write, even to "NINJA" borrowers with no income, job, or assets. Who cares if some of the loans in the basket are "subprime"? The price says the aggregate risk is low and it will all average out, right?
So the bubble blew up bigger and bigger, with developers building more houses that were bought by more subprime borrowers with more and more unconventional mortgages - until finally there were enough defaults to actually cause problems.
The last straw was probably because a gas price hike made the commute expensive enough that people commuting between big cities and the "executive homes" tightly clustered in former farmers' fields a two-hour commute away from their job could no longer afford both the gas and the payments.
So enough mortgages defaulted that some of the bonds were doing worse than expected. So the demand for them went down. Oops! The positive feedback loop was still in place and it finally got a signal strong enough to get it out of saturation. Lower demand -> lower price -> higher risk estimate -> lower rating -> lower price. Rinse and repeat. Prices for mortgages drop, interest rates rise, more defaults, more positive feedback.
And thus the subprime mortgage market collapsed.
(Then the government throws a trillion or so of our money into pumping it back up...)
Now stock market guys are used to this sort of thing: It's the old chartist vs. value investor dichotomy. Every so often somebody finds a
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
I know far more people who have been screwed over by doctors, mechanics, and contractors than by accountants or investors.
I am a certified accountant. If you believe that, you don't understand accounting at all. I have a textbook downstairs which is all about how accountants can fudge the numbers. Even the best financial records have a lot of slop in them and it is REALLY easy to commit fraud as an accountant often on a very large scale. Even if no laws are broken, finance experts can seriously screw you, often without you even being aware of it. I'm not required to take classes on ethics every year because accountants have been so honorable in the past. If accountants were so honest there would be little need for audits.
No, I'm afraid accountants and finance professionals are no more ethical than anyone else.
Yes, teachers should be paid more, but there should be higher standards for teachers as well.
You get paid more for doing things that either A) other people can't do or B) other people don't want to do. Teaching generally falls into neither category. The ability to teach is not a rare ability and plenty of people chose it as a career. (note that I did not say teach well - that's a different issue) Ergo supply being relatively high compared with demand dictates that teaching will not be a lucrative profession.
There's no reason that teaching should be any less a noble profession (as determined by the general population, not Slashdotters) than being a doctor or professor.
Who said it is less noble? It just pays less. Being a college professor or a doctor requires a PhD or an MD and there are fewer people who have the brainpower and dedication to earn those degrees. Nobility of a profession isn't determined by pay and being a teacher is generally quite well respected.
If you think that the markets reward long term investments that don't turn up in quarterly reports, you're not paying attention.
I'll take Warren Buffet's opinion on that over yours. Here's a hint: he disagrees with you. Yes the markets can be myopic but long term success gets rewarded handsomely. Companies of all sizes make investments with time horizons measured in decades on a daily basis. If few thought long term, the companies that did would have a heck of an advantage.
Moving jobs to third world countries is rewarded in the stock market, not building American factories to employ American workers.
Actually neither of those things is rewarded in the stock market. Profits and growth of profits are rewarded. Nothing else. If you can grow profits with American workers, the stock market is fine with that.
Suppose that the article is correct and some high-power trader accidentally placed an order 1000X the size of the intended order.
The mere fact that there is ANYONE in this market with this sort of power is all the evidence I need to convince me that the stock market is a rigged game and the big financial firms have the deck stacked in their favor. If their advantage was merely a result of sophisticated research and analysis and they played the game according to the same rules as everyone else, more power to them. When they can game the market with high frequency trades and cause wild price swings with a single keystroke however, they're just preying on the small investors who can't pull the same stunts.
If someone can do this "accidentally", then they could also "deliberately" skim off profits from anyone with stop-losses in place. I cringe to think of what happened to some small traders who might have had margin purchases in their E-Trade accounts and were auto-liquidated to meet margin requirements. Seems like the big fish could also game the options market.