High-Speed Trading Glitch Costs Investors Billions
One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” at about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across all indexes and spiraled out of control.
The answer — that it all started with an apparent error — infuriated Mr. Clancy. “There are so many things wrong with what happened today,” he said. “The market was never down one thousand points. Procter & Gamble should never have traded at $39. But a lot of people lost money as if the prices were meant to drop. This is an injustice to the public.”
The whole trading system, Mr. Clancy said, went into what brokers call “slow mode.” When the large sell order came in, the market makers for each of those stocks were overwhelmed trying to sell that order and they could not take other orders. It was sort of like a traffic jam on one highway that spread to create traffic jams everywhere.
Suddenly, traders started to distrust what they were seeing.
“There was no pricing mechanism,” Mr. Clancy said. “There was nothing. No one knew what anything was worth. You didn’t know where to buy a stock or sell a stock. You didn’t know if the market was down $500 or $1,000.”
SEC Said to Probe Causes, Exploitation of Stock-Market Turmoil
May 7 (Bloomberg) -- U.S. regulators plan to examine whether securities professionals triggered yesterday’s stock- market plunge or exploited the turmoil to profit illegally, two people with direct knowledge of the matter said.
The Securities and Exchange Commission aims to determine if market participants accidentally or maliciously entered orders that derailed normal trading, the people said, declining to be identified because the inquiry isn’t public. The agency will also examine if controls to prevent the rout from snowballing weren’t in place at exchanges and firms.
SEC officials, who haven’t drawn conclusions, began preparing for inquiries in the hours after a U.S. selloff triggered by Europe’s debt crisis briefly erased more than $1 trillion in market value, beginning around 2:40 p.m. in New York. U.S. stocks tumbled the most in a year as waves of computerized trading exacerbated the rout, sparking a slide in Asian shares.
The SEC and Commodity Futures Trading Commission said in a joint statement after U.S. markets closed that they will examine “unusual trading” that contributed to the plunge.
“We will make public the findings of our review along with recommendations for appropriate action,” they said.
SEC spokesman John Nester declined to comment on the investigations. The regulator will also look at whether traders tried to take advantage of the chaos, such as by entering orders that drove some stocks to pennies, according to the two people.
So it's highly unlikely that the "cause" of yesterday's crash was some sort of electronic malfunction.
Unusual exchange-wide agreement to cancel trades in stocks -- that fell more than 60 percent for a 20-minute period Thursday
The Nasdaq Stock Market early Friday widened its list of stocks that will see canceled trades, and the focus turned to derivatives and regulators.
Trades that took place during the worst of the meltdown will be canceled for more than 250 stocks, Nasdaq OMX Group Inc said, adding to the long list of "busted" transactions on NYSE Euronext's Arca, other exchanges and trading venues.
The unusual exchange-wide agreement to cancel trades in stocks -- that fell more than 60 percent for a 20-minute period Thursday -- raised questions for futures and options markets, where many contracts are based on underlying stocks and stock indexes.
CME Group Inc, the giant futures market, had no immediate comment on whether it would cancel or adjust trades. Two major futures trading firms said CME had given no notice that trades would be broken.
A source said it is likely options trades based on the equities trades that were canceled would be "adjusted, not busted."
At least one high-frequency trading firm said it stopped trading during the worst of the selloff, raising questions about the reliability of the all-electronic market-makers that provide much liquidity in today's markets.
No comments:
Post a Comment