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It’s been four days and still one question remains: What exactly was behind Thursday’s stock-market free fall?
Washington is gearing up to find an answer — or at least make a show of trying to find an answer. Congress will hold a hearing tomorrow, while the SEC has summoned the heads of the nation’s two largest stock exchanges to D.C., who have been trading barbs over who was to blame. (They called a truce over weekend)
What we know:
While most of the aberrant trades occurred during a 10-minute period starting around 2:40 p.m., traders noticed irregular market activity shortly before that. Around 2:30 p.m., a flurry of rapid-fire trades cycled through the market as volume picked up.
Around 2:37 p.m., Nasdaq triggered its “self help” mechanism against NYSE Arca, the NYSE’s electronic trading venue. SEC rules require exchanges to route orders to the exchange that has the best price. But an exchange can occasionally enter “self help” if it perceives unusual activity at another exchange, allowing it to stop sending orders to that venue.
Officials at NYSE jumped on the phone to ask Nasdaq to come out of self-help mode, but amid the chaos, they couldn’t get through.
At 2:49 p.m., after the market had already experienced its most dramatic selloff, Bats (maybe explain in couple of words what Bats is) declared self help against NYSE Arca. Other electronic exchanges continued to trade with each other.
Here's who the critics (and there are many of them) are blaming:
Sal Arnuk and Joe Saluzzi at Themis Trading are pointing the finger at high-frequency trading: They write: Thursday’s “price swings in a great number of stocks highlight the inherent and systemic risk of our automated stock market, which has few checks and balances in place. Once the market sensed stress, the bids were cancelled and market sell orders chased prices down to the lowest possible point.”
Barry Ritholtz echoes those concerns about high-frequency trading: “it is still a violent abrogation of the fiduciary duties owed to investors by stock exchanges. The NYSE has sold investors down the river in order to allow fee-paying, co-locating, black-box traders to profit unfairly at the expense of every other investor…The capital destruction the exchanges are encouraging warrant capital punishment for exchange's C level execs.”
To get sense of the mayhem, Ritholtz has the audio of President of TradersAudio.com Ben Lichtenstein's breathless order-taking in the S&P 500 pit in Chicago Thurday.
This is not the first time U.S. markets have hiccuped. James J. Angel writes over at Forbes: “Our markets currently depend on slow-moving humans to catch mistakes. We need automatic circuit breakers that will halt trading in individual stocks instantly when things go haywire in order to prevent further damage. It is time for the SEC to take action to minimize future damage from the inevitable high speed trading mistakes that will occur in our high-speed electronic markets.”
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If……. anyone is interested in a perfect senerio like Jdoe’s Blog above… you have to go no futhure than the upgrade by GS today of Boieing’s Stock Price. See the tale of Short’s at their best here… GS back to business as usual? Go look (*IT) up for your self… what GE’s Aviation Arm of Transportation is doing today on the coat tails of GS upgrade on Boeing? http://www.foxbusiness.com/story/markets/industries/industrials/boeing-soars-amid-goldman-praise/
Eurodollars plunged on Thursday creating a wave in the interest rate swaps market. The largest cash market in the world. These swaps are what most ETFs actually trade, not baskets of stocks. Is it a coincidence the majority of stocks NASDAQ froze were ETFs like FAZ? Stocks designed to profit off a market crash failed on Thursday.
How international banks manipulate the markets to service the U.S. war debt: http://www.gamingthemarket.com/financial-armageddon-zombies.html
My $’s on Jdoe’s-Hokey-Pokey’s Senarieo! There are Bandarellows on Globle Wall Street at work here… ya’ think?
Market glitch or market manipulation? If large systemic risks are “inherent” in the exchanges, these situations can be manipulated and a “savvy” trader can create a trigger event if they know how the market will react to a major Dow component taking a hit. Slowing things down does not address the problem,, that is addressing a symptom not the root cause. Read below for gaming techniques they with a variation could have triggered the sell off. This is not expert testimony, but merely a suppostion that needs to be carefully reviewed. Wealth transfer on a major scale occured on Thursday 5/6 and if a “glitch” can create a $Trillion dollar redistribution (before exchanged cancellation) we need specific answers.
Savvy traders can use information about your order to manipulate prices in their favor. Some of the most common gaming scenarios include: ? Gaming by manipulating the stock price. This scenario is explained with the following sequence of actions: Figure 3. Gaming with Fishing How gaming happens: 1) The Information Leak (Fishing)- By selling a few small lots, a gamer determines that a passive buyer has placed a standing order in a stock 2) The Exploratory Maneuver - The gamer buys the stock rapidly in the displayed market and succeeds in moving the stock up. 3) The Hit – After moving the stock, the gamer sends a large sell order to the dark pool and sells at substantially higher prices than the price he started buying at in the displayed market. 4) The Reversion – In less then two minutes it is all over. Prices revert as the gamer stops supporting the market.
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