Slashdot Mirror
New "Circuit Breaker" Imposed To Stop Market Crash
Lucas123 writes "The SEC and national securities exchanges announced a new rule that would help curb market volatility and help to prevent 'flash crashes' like the one that took place on May 6, when the Dow dropped almost 1,000 points in a half hour. That crash was blamed in part on automated trading systems, which process buy and sell orders in milliseconds. The new rule would pause trading on individual stocks that fluctuate up or down 10% in a five-minute period. 'I believe that circuit breakers for individual securities across the exchanges would help to limit significant volatility,' the SEC's chairman said. 'They would also increase market transparency, bolster investor protection, and bring uniformity to decisions regarding trading halts in individual securities.'"
Exactly. Some of those automated trades were selling stocks at pennies on the dollar when there was no fundamental reason for that stock to be down at all that day. I would think the fact that these auto trades caused banks to lose millions would be the incentive for the banks to fix the system themselves.
">>>Trades faster than a day should be simply outlawed
You just bought Ford stock an hour ago, and now you just learned that the company is declaring bankruptcy effective 5 o'clock today. Do you really want to be forced to keep that stock until 23 hours from now (when it will be worthless)?"
Didn't you read? On his account, there's no problem. You will need to wait for 23 hours... but everybody else will have to too!
Your stocks will be worthless (than any other's) in 23 hours if and only if those said others are allowed to sell sooner than you and *specially* sooner than the buyer's knowledge about the bankrupcy. If everybody *have* to wait for a sane amount of time, the same for everybody, you are just leveraging the field allowing for more competitors and better reasoned actions.
Now, what do you prefer? To compete with big traders on an equal foot or compete with your morning newspaper against their supercomputers under the trade ring?
"I agree with your idea of 1 second intervals, but not 24 hours. A lot can change during that time."
It is not what can change between intervals but how much time is allowed for you to digest it.
Sure you become more vulnerable to cascade effects, but you also get plenty of benefits like significantly increased liquidity.
Explain how stock trading liquidity is a benefit in and of itself - to human society and the Earth's biosphere - rather than as a benefit only to those wanting to extract wealth from the markets due to volatility.
Remember that extracting wealth from the markets and transferring it from one account to another is not the same thing as 'profit', because it reduces the wealth available to actual productive investment - the corporate processes which do not and cannot change any faster than the time it takes to gear-up a factory or harvest a crop.
Remember also that every trade on the market which is not directly linked to the true value of a stock actively destroys information because it introduces noise into the market, polluting the use of that stock's trading symbol as a measure of real wealth (rather than imaginary fantasy wealth).
Explain clearly how, despite the information-destroying nature of speculation, nevertheless 'providing liquidity' to enable this destruction of information is still a significant human benefit.
Show all your work.
You are not a brain: http://books.google.com/books?id=2oV61CeDx-YC
Hi,
Normally I would be content to sit by the sidelines but I'm jumping in just to clarify, there is a lot of misinformation swirling around this discussion, a lot of conjecture by smart people who really have little to no experience in high frequency trading which is rapidly becoming the new wall street boogeyman. HFT dramatically improves liquidity and price discovery. It has helped lead the way to more efficient markets, and for the most part helps stocks and various other instruments reach their "true" value faster than ever before.
There are a lot of whiners out there complaining about how HFT is somehow "not fair", while they continue to get taken to the cleaners by their brokers, the banks, and hundreds of other middle men. Why do you think the spreads are so tight on a lot of these markets? HFT. Believe me, the institutional brokers would like nothing better than to make very wide markets and charge you for the privilege. The vast majority of investors who are taking long term positions in the markets are not effected by intraday moves. If you got burned because you were trying to make a profit intraday then you got what was coming to you, because not only are you not as fast as most of the firms out there, but also not as smart. (sorry) Frankly if NYSE's attempt to "restore order" wasn't so entirely broken the price discrepency would have been even shorter lived. However, because of the steps their market took to restore order most savvy shops immediately routed around them in order to complete and start new transactions (as they should). Attempts to regulate the markets in this way will not work as expected, because they are introducing arbitrary rules which will largely be ignored by the really big players (dark pools anyone?). So far there has been no indication that the recent price drop was the result of an HFT strategy gone awry, but rather a temporary blip made worse because of an outdated mode of operation. I think an interesting experiment would be if all of the HFT shops pulled their liquidity (this would never happen), the results would be fairly disastrous for short term investors, unless you like getting worse prices.
Anyway, I don't want to rant any more. It is unfortunate that people aren't really looking at this from all angles. Competition is a good thing for everyone. It applies to Microsoft and Linux, but not the markets right? ...