Slashdot Mirror
House Calls For Hearing On Stock Market "Glitch"
Lucas123 writes "The House Financial Services securities subcommittee plans to hold a hearing next Tuesday to examine what caused the US stock market to plunge almost 1,000 points in a half hour Thursday, and it called on the SEC to investigate possible problems with computer algorithms that may have exacerbated a human order-entry error and led to the precipitous drop. 'Reports have surfaced that much of this movement was potentially as a result of a computer glitch,' Committee Chairman Kanjorski said. 'We cannot allow a technological error to spook the markets and cause panic. This is unacceptable. In this day and age and with the use of such complex technology, we should be able to make sure that our financial markets are effectively monitored and investors are protected.'"
I mean.. they *have* the logs, i hope. I mean they *have* some software anyway which does data-mining to analyze for unusual things....
It doesn't take a subcommittee hearing to figure out that people are finicky and the system is remarkably fragile.
Wall Street sits there.
Nothing gets done.
And in this case, I don't there's really anything to be done. It was a mistake that was corrected and if anyone was hurt, it was Wall Street traders and the only thing I have for them is this nano-tech violin.
If you had your mutual fund or individual stocks, it really didn't affect you.
RIP America
July 4, 1776 - September 11, 2001
Cancel or Allow?
The world got to see the reality for a short time and then went back to sleep
http://www.zerohedge.com/article/day-market-almost-died-courtesy-high-frequency-trading
http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=C%3AUS&sid=agW5_B0D1z9M
"CME Group Statement on Today's Market Activity:"
"does not appear to be irregular or unusual in light of market activity today"
Domestic spying is now "Benign Information Gathering"
"This is unacceptable. In this day and age and with the use of such complex technology, we should be able to make sure that our financial markets are effectively monitored and investors are protected." ... because protectig investors is more important than protecting the economy.
WSJ is reporting that the trigger was a very large sell order for P&G coupled with unchecked computer trading and some inherent flaws in the current system of fragmented exchanges.
Felix Salmon also did a good explanatory post that pulled in work from other writers about what might have happened and why.
Mr. Salmon's post links to a thought provoking post by a blogger named Kid Dynamite, who posits that it's a really bad precedent to cancel the erroneous trades because it lets the program traders off the hook for the consequences of their computer mess-up.
Who decides that? And what happens to a smart invester that buys stock at $0.01 that usually trades at $40, to quickly later sell it at $30? Will the $0.01 buys be cancelled, but the $30 sells not be cancelled? But that would leave you with a short position, having to buy them back at $40. May be very expensive.
Follow the money. SOMEONE made money, it sure as hell wasn't me.....
I'm pretty sure Brazil imported this idea from somewhere else and I strongly belive this place is the US. I just don't know if 1000 points were enough to trigger it. Also, it closes the market for half or an hour for the first it's hit. If it's hit again it closes for more, until it reaches the end of day.
Found it.
If the Dow falls 1100 points before 2 p.m. we would see a one-hour trading halt.
If between 2-2:30 p.m., there is a 30-minute trading halt.
3 p.m. or later, there is no trading halt.
source.
English is not my first language. Corrections and suggestions are welcome.
Is it mere coincidence that the Senate planned for a vote to break up the big banks on the same day?
"In politics, nothing happens by accident. If it happened, you can bet it was planned that way."
-- Franklin D. Roosevelt
It is a miracle that curiosity survives formal education. - Einstein
All the crazy action was on electronic systems that are allowed to "trade around" the primary exchange. The huge spikes shown everywhere represent a very small volume of trades.
So the worst hit stocks were NYSE listed stocks that traded on electronic boards (because the NYSE did have a quiet period, there was fast, thin trading in those stocks). NASDAQ never paused trading, so they were able to sit on the other side of some of the crazy action, limiting how crazy it got.
NASDAQ says that NYSE shouldn't have paused, NYSE says NASDAQ should respect their pauses.
A lot of people were talking about how there was wild action on the currency markets well before the drop started, so it is quite clear that a fat finger was not the only thing going on.
Nerd rage is the funniest rage.
I'm pretty sure Brazil imported this idea from somewhere else and I strongly belive this place is the US. I just don't know if 1000 points were enough to trigger it.
I am not a stockbroker but my understanding is that there are "circuit breakers" built into the electronic trading system but they don't trip until the market drops 10%. The 1000-point drop was just shy of that, which makes me wonder if there wasn't some deliberate manipulation involved. That's pure speculation, of course, I have no evidence of it.
This ain't rocket surgery.
Informed speculation I heard this morning is that some markets had delays (and possibly other mechanisms) built in to trading in order to maintain stability (any feedback loop, including the stock market, can become unstable under certain conditions, such as when the timing of the feedback is such that swings are reinforced rather than restrained - sufficient delays in feedback can usually dampen such swings) Other markets had different delays and mechanisms. Automated arbitrage then took over to take advantage of the difference in markets to drive large trades that led to an almost out-of-control dive in prices.
Wow, we are sinking to new levels of idiocy now.
The MSM would have you believe that the tremendous sell-off in the markets was just a trading error. If it was a trading error, then these markets SUCK! Are you telling me we put TRILLIONS of dollars, including our retirement savings, into a system that can be completely thrown into chaos because a single guy hits the wrong button on a single transaction? It’s a good thing Faisal Shahzad isn’t still working on Wall Street anymore, or he could have just pushed a button and caused a lot more damage that way than he did with a faulty car bomb
This is financial terrorism, folks, retail traders were stopped out and margined out while the pros made Billions picking up the pieces. Don’t worry though, if you are rich enough and connected enough, the Nasdaq will reverse your losses but if they really wanted to make amends, they would cancel the day’s trading for ALL traders.
This market didn’t just sell off because of a trading mistake. Whatever really happened, it happened because there were no real buyers when the selling came - something I have been warning would happen during the last 3 months of low-volume run-ups. I keep using the house of cards/Jenga metaphor and that’s exactly what we have so be very careful when the same idiots who have been telling you BUYBUYBUY are now telling you to "come back in - the water’s fine."
and here:
Having seen the capitulation unfold second by second and then listen to CNBC come up with every excuse under the sun just got under my skin. I've decided to chart some of our one second analytics charts of the capitulation unfolding on our screens. The chart below (more to follow) captures the moment of the final capitulation, before the reversal today. The idea that it was a 'fat finger' error is ludicrous; unless the fat finger hit every market in the world virtually simultaneously. Liquidity simply left the world financial markets for about four minutes this afternoon. The bids just vanished. And what else vanished? Remember the vaunted supplemental liquidity providers, led by Goldman Sachs. Remember that they are paid to "provide liquidity" through their predatory high-frequency algos, they are not required to do so. So when the S@#$T hit the fan they just disappeared. In one second more or less someone (and yes, under these circumstances, human beings take control of the machines) made the decision to pull the bids on every equity in the S&P, every financial futures contract, every FX contract in every market in the world. This kind of thing just doesn't happen in a pure auction environment; there just isn't a tight enough communication link between the parties to allow the decisions to propagate within the same second -- even with HFT algorithms. No. Some human made the decision to pull the bids; all of them, all at once. If that is not a condemnation of the concentration of financial power and the systematic risk it engenders I don't know what is.
The assumption of an "honest" error, that is; who is to say that the market isn't being routinely manipulated, and somebody goofed the size of the planned "bump"?
Orwell: "In a Time of Universal Deceit, telling the Truth is a Revolutionary Act"
Games have rules, strategies, inspectors, and punishment too. Nobody wants to admit it, but these markets are full of shams at all levels -- "legislation and regulation" is just enough to keep the whole game from collapsing, not to make it honest. These "glitches", "crashes", and "abuses" provide occasional glimpses of a not-so-welcome, much deeper iceberg reality. End naive belief, and see overall it's unsustainable long-term, as more profit and waste comes out, and less rational, productive labor goes in. It's not work, economy, and productivity for years, just money gaming. Play according to greed and ability. Enron, Arthur Anderson, Madoff, "subprime" investors, etc were caught in their bluff, but many, many others continue just fine, thank you. But don't let the masses discover it has no foundation, or they will pull out what holds it up - their belief it it, which deposits follow. But marketing works wonders, and the show goes on. Until the structure collapses under it's own weight, or there is no money in the world left to keep pumping in. In the 'cold war' there were two sides, not really so different. One fell under it's own weight of lies. The other stands, so far. With no "social superstructure", there will still be human beings, and their minds and abilities, good or not.
Build your own energy sources from scratch. http://otherpower.com/
Perhaps someone who knows more about stock trading can help me understand:
1) TFA states that someone made an input mistake and sold 16 billon Fortune 500 stocks instead of 16 millon. Did he have that many to sell? How big a player do you have to be to be able to make these type of mistakes.
2) TFA states that at one point shares for some companies dropped to a mere penny and then rebounded. Were people able to take advantage of the sudden drop to sweep and get a fast couple of millons due to the glitch?
And in conclusion: Does the system's inherent frailty allow this type of event to be orchestrated in order to make a big profit, or a new type of terror attack?
As a Slashdot discussion grows longer, the probability of an analogy involving cars approaches one.
Effectively the shares were stolen ... transfered from the small investors who can't watch their stocks all day long...
That's the risk you take when you choose to follow the herd. I'm also a small investor who can't watch my stocks all day long, but guess what? When my stocks go down 10%, I buy more. In fact, some of my stocks were down 90% from their highs during the crash of '08. Yes, I bought more, and yes, I ended up making a lot of money. Of course, I made no where near the kind of returns John Paulson made, so I still have a lot to learn.
Stock market investors basically control society's capital. Their decisions determine how efficiently our resources will be used. So, excuse me for saying this, but I want money to be transferred from emotional, panicky investors to calm, smart investors, because I believe the latter will allocate our resources more efficiently. You can say that you're not an emotional investor, but you've set a trigger (i.e. stop-loss limit) that programs your account to behave like an investor who panics when everyone else is selling.
As a side-note, I hate it how people want to change the rules of the game whenever their strategy stops working: "I set a stop-loss limit, which caused my shares to be sold when they clearly under-valued, so the system must be broken! We have to close the markets early next time." Or: "I blindly trusted the rating agencies (even though they're paid by the companies they're rating) and I lost a lot of money, so the system must be broken! We have to regulate the rating agencies." And on and on and on. People, the system is not fragile. The system is not broken. But your strategy might be.
Precisely. If you can't take the heat, stay out of the kitchen. Lots of OTHER people had automatic buy orders kick in when the stocks dropped, and they _made_ money on the deal. Would you be crying for them if the drop turned out to be long-term instead of ephemeral? Volatility is one of the risks of being in the stock market. You bet that any severe drop would be long-term, and you lost. They bet it would be ephemeral, and they won. I bet neither way (I have stock which dropped and recovered on Thursday, but no automatic orders) and came out roughly even.
If you want to be invested in equity but want someone else to manage the day-to-day risk, there are plenty of companies which will do that for you. You will of course have to accept a lower expected rate of return in exchange for the reduced risk.
First of all, stop losses are not a "strategy", they are a tactic. My strategy is to invest in solid, widely traded, predominantly blue chip companies or in broad indices via ETFs. None of these types of investments should gyrate 10% in value in a matter of minutes because that means hundreds of billions or even trillions of dollars are vanishing and/or appearing. Of course, sometimes oil wells explode and big companies can take an instantaneous hit in their market cap (stop losses salvaged a year's gains on my BP stock just one week ago). Those types of events are fortunately rare, affect one or a small group of companies and are what stop losses are mostly for. Thursday was more like a magician's trick. One minute the trillion dollars is in his left hand. Then a blink later it's in his right. I suppose it doesn't matter to you that the "left hand" was largely small investors like me and the "right hand" was hedge funds, high frequency programmed traders and banks, but to me something smells rotten.
How exactly does micro-penny programmed trading accomplish this? Positions are bought and sold in microseconds skimming micropennies on each share transacted. The computer with the fastest network access wins. This, you assert, is efficient allocation of capital? This is good because it transfers capital from "panicky emotional investors" to people who will better allocate it? What is the real economic benefit of this activity, because one undeniable side affect of it is to distort and destabilize the market.
I very rarely find myself in favor of increased regulation, but in this case I think the rules do indeed need to be changed. If the majority of people lose faith in the market capital allocation will be severely and negatively impacted.
The more you regulate a company, the worse its products become.
I wonder whether the synchronous-counter approach would help reduce glitches here. In other words:
- at HH:MM:00 update the prices (and allow the change to propagate; everyone can put in their next trade order)
- at HH:MM:30 execute the trades (and then there are 30 seconds to decide on the new price before a value is propagated)
This is the way that synchronous logic works. The current model is more like hundreds of ripple-counters.
(It would also ensure slightly greater fairness by not giving an advantage to the person with the absolutely fastest network connection, and would slow down the cycles so that a market collapse took many minutes.)