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House Calls For Hearing On Stock Market "Glitch"

timothy posted more than 4 years ago | from the hands-on-the-tables-gentlemen dept.

Bug 180

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.'"

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SEC to "investigate" (0)

Anonymous Coward | more than 4 years ago | (#32137742)

I'm sure the SEC will be closely examining all "footage"

Examination cancelled (1)

OeLeWaPpErKe (412765) | more than 4 years ago | (#32137872)

The SEC tried to get the guy who made the error to testify, but they'd already fired him, so he was not in the mood to cooperate.

In a statement the guy declared "I'm going into politics".

All's well that ends well.

Markets = buttoned up betting tables (2, Insightful)

h00manist (800926) | more than 4 years ago | (#32138318)

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.

Re:Markets = buttoned up betting tables (1)

CrankinOut (629561) | more than 4 years ago | (#32138972)

Every system can be "gamed," so get over that. However, to believe that a computer malfunction is conspiracy is itself a "naive belief."
Until you've been in a system with little or no liberties, and no ability to call someone on their errant behaviors, you do not know how good life is now.

So what's your point?

Its strange. (3, Insightful)

drolli (522659) | more than 4 years ago | (#32137744)

I mean.. they *have* the logs, i hope. I mean they *have* some software anyway which does data-mining to analyze for unusual things....

Re:Its strange. (0, Offtopic)

noddyxoi (1001532) | more than 4 years ago | (#32138136)

So they could analyse who short sold the airlines before 9/11 .

Re:Its strange. (2, Informative)

arthurpaliden (939626) | more than 4 years ago | (#32138226)

They did and it was the same people who always sold short at the end of the summer travel season.

Re:Its strange. (1)

drolli (522659) | more than 4 years ago | (#32138402)

For sure you are paid by the government that you give such an good sounding explanation!

Re:Its strange. (2, Funny)

OakDragon (885217) | more than 4 years ago | (#32138874)

I never did trust those guys.

Re:Its strange. (2, Insightful)

Sponge Bath (413667) | more than 4 years ago | (#32138140)

They have logs of transactions, but not the intent or trigger behind those transactions. That will take some investigation.

Well... (4, Insightful)

boliboboli (1447659) | more than 4 years ago | (#32137746)

It doesn't take a subcommittee hearing to figure out that people are finicky and the system is remarkably fragile.

Re:Well... (3, Interesting)

hemlock00 (1499033) | more than 4 years ago | (#32137848)

Are you suggesting we shouldn't have a hearing for it? Not really sure the benefit of *not* having a hearing would be. At the most, it draws more attention to the fragile system, and there would be a possibility of something being done about it. At the least, it would officially destroy the idiotic excuse that "someone hit b instead of m" story that some media has been circulating.

Re:Well... (3, Insightful)

Agarax (864558) | more than 4 years ago | (#32137936)

Are you suggesting we shouldn't have a hearing for it?

All hearings are these days is a convoluted way for politicos to take cheap shots at someone to boost their popularity at home.

Re:Well... (1)

zippthorne (748122) | more than 4 years ago | (#32138682)

And when weren't they?

This is a job for the executive branch. Actually.. maybe it's a job for *nobody* since it's likely that it was just automated trading triggers all got..triggered.. for some reason.

That suggests that the trading companies need to do failure analysis, not that the government needs to step in and do...something...

Re:Well... (1)

PopeRatzo (965947) | more than 4 years ago | (#32137942)

someone hit b instead of m

I haven't followed the story that closely. Why is this an "idiotic excuse".

So much of the trading is done automatically that seeing someone short a billion shares of a blue chip could make some big waves. But you'd think there'd be a prompt on the screen: "Are you sure? Y,N"

Re:Well... (1)

hemlock00 (1499033) | more than 4 years ago | (#32137998)

So in the years of trading thats been going on since they switched to computers, this is the first time an error like that occurred? doubtful.The way I understand it, you not only get a prompt, but a second one if you're trading in high enough values. And, on the unlikely event that it *is* true, its all the more reason to HAVE a hearing because anyone can legitimately crash the stock market by simply making a trade.

Re:Well... (1)

lastchance_000 (847415) | more than 4 years ago | (#32138410)

Who reads the prompts thrown up by software? The person hitting the button was probably used to them popping up and clicked through on autopilot.

Re:Well... (4, Funny)

PopeRatzo (965947) | more than 4 years ago | (#32138436)

I can see a trader missing two prompts in a row if they've snorted enough coke.

I used to work in the building that houses the Mercantile Exchange here in Chicago, and the traders on the floor seemed to be a pretty high-flying group, if you get my meaning.

Re:Well... (2, Insightful)

quanticle (843097) | more than 4 years ago | (#32139030)

And, on the unlikely event that it *is* true, its all the more reason to HAVE a hearing because anyone can legitimately crash the stock market by simply making a trade.

You seem to have a misconception as to what the market is. It is simply a room (either physical, electronic, or both) in which buyers and sellers make trades. That's all it is. So, saying its unreasonable for a single trade to crash the stock market is a bit like saying its unreasonable for a single command like "sudo rm -rf /" to crash your computer.

Re:Well... (2, Insightful)

CowboyBob500 (580695) | more than 4 years ago | (#32138152)

Exactly. Basically it seems to boil down to the fact that the traders don't actually have a clue how it all works. It's so computerised now with such complex algorithms, that if the market moves in anyway they all have to follow like sheep for fear of getting caught with their pants down. And things are getting worse.

I see two solutions:-

1) Go 100% computerised and just throw in the odd random factor to keep things moving. After all, it's all one big random gamble anyway, may as well just admit it.
2) Rip out all the computers and have the traders actually buy and sell real tangible things again.

Re:Well... (1)

mgpeter (132079) | more than 4 years ago | (#32138626)

However, they should have a "real investigation" to find out:

Why on earth did it rebound the way it did and remain stable the rest of the day ?

Why are their reports that traders were locked out their systems during the entire 10-15 minutes of the drop ?

What effects the "Working Group on Financial Markets" aka Plunge Protection Team have on the markets. This entity has absolutely no oversight and can pretty much manipulate the markets how it wishes. The "conspiracy theorist" in me think that they might have done this on purpose to send a message to certain Senators to drop support for the "Audit the Fed" Bill, which quite a few did shortly afterwards.

If it was caused by a typo, how can someone entering a "B"illion instead of a "M"illion cause this, normally wouldn't you have to enter 1,000,000,000 into the computer program instead of "Million" ? I guess unless they were using Microsoft Bob for Day Traders.

Anyway, that is my "Two Cents"

To whoever can help me understand this (3, Interesting)

ericlondaits (32714) | more than 4 years ago | (#32138652)

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?

Re:To whoever can help me understand this (3, Interesting)

russotto (537200) | more than 4 years ago | (#32138738)

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.

This sounds like the sort of apocryphal story someone made up meaning it sarcastically. ("WTF happened? Probably some moron hit 16 billion instead of 16 million!"). If there was a 16 billion dollar sell order, there's a record of it and it wouldn't still be speculation now.

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?

Some of the exchanges reversed those transactions on some of the stocks, but not all of them. Some people with existing limit orders probably did pretty darned good.

Yeah, yeah, yeah .... (2, Funny)

AnonymousClown (1788472) | more than 4 years ago | (#32137752)

Politicians grandstand.

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.

Re:Yeah, yeah, yeah .... (3, Insightful)

nschubach (922175) | more than 4 years ago | (#32138562)

It's something for the politicians to do to continue painting a big red X on Wall Street so they can take it over and control it themselves. I'm beginning to think Congress' job is to take over things and run them in a constant state of deficient funds.

Jusy like supply and demand (1)

fernlyn (1605871) | more than 4 years ago | (#32137762)

Seriously, I bet nothing went wrong. If there are more sellers in the market than buyers the price drops. Automated trading will dump stock into a falling market in a stop loss situation which is what is designed to do. Perhaps they want to go back to a paper based system where people have to place orders in person? Will this affect supply and demand?

Re:Jusy like supply and demand (1)

AnonymousClown (1788472) | more than 4 years ago | (#32137774)

Perhaps they want to go back to a paper based system where people have to place orders in person? Will this affect supply and demand?

*Organ music playing* *Announcer comes on*

Tune in next week when the Senator says, "You people on Wall Street are ruining the economy and cheating people!"

Wall Street Trader screams back : "No Sir! YOU POLITICIANS ARE RUINING THE ECONOMY!"

Re:Jusy like supply and demand (1, Insightful)

hedwards (940851) | more than 4 years ago | (#32138348)

Oddly enough, in this case the Politician would be on the right side. Wall street firms make most of their money by swindling. Excessive fees, buying/selling with knowledge of the future price, trading off market and sweet heart deals are rampant. It is oddly ironic that you still get the same idiots that decry anti-trust actions as being jealous of success when the success itself is based upon gaming the system in ways that aren't available to the general public and are indeed grossly anti-competitive.

Civil war II, CORPS vs GOVS (1)

h00manist (800926) | more than 4 years ago | (#32139168)

"You people on Wall Street are ruining the economy and cheating people!"

Wall Street Trader screams back : "No Sir! YOU POLITICIANS ARE RUINING THE ECONOMY!"

Wall st plots a failed coup attempting to bribe a few senators and spies. Congress shuts down several corporations, has police arrest executives, who mysteriously disappear the next day, as well as a few senators. Security contractors secure corporation offices, which return to functioning. Newspapers align with corporations and publish numerous humiliating stories of non-corporate senate and congress members in an attempt to discredit and force them out. National Guard barricade, corporate buildings, order military security contractors to stand down, unsuccessfully. Offshore tax haven nations accept executives request for asylum, offers citizenship, government positions and security. Barge with trucks loaded with helicopter parts and unspecified munitions seized by the Coast Guard departing from Florida, crew found to be employed by Lockheed Martin. Shots fired, two coast guard officers and four suspected corporate smugglers dead in the confrontation. Military contractors set up communications center in Union, NJ to coordinate media and security against terrorists, secure services of unnamed contractors, military helicopters observed on location daily. National Guard tear gas barricaded corporate "employees", find they are merely young people posing as employees, buildings are empty. National Guard, with Army reinforcements, takes over national communications infrastructure for emergency communications, announces curfew, warns population of rogue elements carrying weapons in workplaces in NY and NJ. Barricades are seen in tunnels and bridges. Markets fluctuate wildly, gaining and losing daily. Canada and Mexico send diplomatic teams to mediate conflict. "Missing Person" signs and stories begin to appear frequently, quickly addressed by both governments and corporations. Roads and airports out of the country are full. The United Nations sets up 'complementary' offices in Montreal, and meetings take place there. Manhattan's East Side becomes a ghost town. People trade underground newspapers and DVD's in cafes and street corners, with dozens of unconfirmed stories, such as distant government and corporate military bases, prisons, murders, disappearances. Some government and corporate offices are abandoned, some barricaded and off limits, some operate normally. Stories of terrorists attacking governments and corporations are always in the news. Culprits are always arrested quickly and confess. All are foreigners and operated alone or with foreign support. Washington DC and NYC have frequent subway and train maintenance

Re:Jusy like supply and demand (1)

fred911 (83970) | more than 4 years ago | (#32138008)

I dont understand either. Listed securities have 1 specialist making market. When there's a trade imbalance it's the specialists job to close the market and match buyers and sellers, or buy from his own account.

  So this order hits the desk and he doesn't stop trading??

Re:Jusy like supply and demand (2, Informative)

maxume (22995) | more than 4 years ago | (#32138042)

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.

Re:Jusy like supply and demand (2, Interesting)

jbengt (874751) | more than 4 years ago | (#32138114)

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.

Do you want to make this multi-billion $ trade? (5, Funny)

Anonymous Coward | more than 4 years ago | (#32137766)

Cancel or Allow?

Do you want to make this multi-billion $ profit? (-1, Redundant)

Anonymous Coward | more than 4 years ago | (#32137842)

Cancel or Allow ?

Should, would, could (1)

MRe_nl (306212) | more than 4 years ago | (#32137776)

"we should be able to make sure that our financial markets are effectively monitored and investors are protected".

New York, concrete jungle where dreams are Madoff.

inevitable (1, Funny)

Anonymous Coward | more than 4 years ago | (#32137788)

in b4 "socialism"

What glitch? (3, Interesting)

AHuxley (892839) | more than 4 years ago | (#32137798)

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 [zerohedge.com]
http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=C%3AUS&sid=agW5_B0D1z9M [bloomberg.com]
"CME Group Statement on Today's Market Activity:"
"does not appear to be irregular or unusual in light of market activity today"

Re:What glitch? (5, Interesting)

AnonymousClown (1788472) | more than 4 years ago | (#32137828)

From top liink:

After today investors will have little if any faith left in the US stocks, assuming they had any to begin with.

During the GM bankruptcy, I saw their common stock was still being traded on the pink sheets. That's when I realized that many traders have shit for brains.

When a company goes bankrupt, their equity gets wiped out. In other words, the traders were trading worthless pieces of paper. My father in law almost bought some thinking it was a great deal. I clued him into the idiocy.

Re:What glitch? (0)

Anonymous Coward | more than 4 years ago | (#32137994)

In other words, the traders were trading worthless pieces of paper.

I'd say "sort of like our fiat currency, then?" except that's worse than worthless since it's entirely based on debt, or negative worth.

Re:What glitch? (3, Informative)

khallow (566160) | more than 4 years ago | (#32138112)

During the GM bankruptcy, I saw their common stock was still being traded on the pink sheets. That's when I realized that many traders have shit for brains.

Bankruptcy does not always wipe out equity in Chapter 11 cases. Some people bet that the bad news isn't as bad as thought. Having said that, I went through a phase where I bet on bankrupt and near bankrupt companies with rather poor success. The thing I figured out later is that at very low share prices, a little too much optimism can pump up a stock quite a bit. So I was almost always paying a hidden premium on these companies even though they were near bankruptcy.

Re:What glitch? (4, Interesting)

ph1ll (587130) | more than 4 years ago | (#32138576)

Agreed. A friend of mine who is a lawyer for a well-known investment management firm was amazed when their traders were doing business with Lehman the day after it filed for bankruptcy.

When he asked them what the hell they were doing trading with a bankrupt, they told him "but the prices on the screen are amazing!"

He had to explain to them that the prices were amazing because they were unlikely to see the transaction completed by their counterparty. "Have you not been reading the papers?" he asked, exasperated. But all they could do was stare at the trading screen.

They just didn't get it. That's the thing about these so-called Masters of the Universe - they're not the best and the brightest despite what they think.

My friend then had to spend the next 36 hours working non-stop to close the positions his traders had taken as best he could. The really astonishing thing was that his boss reprimanded him for not explicitly telling the traders earlier not to trade with Lehman.

Re:What glitch? (0)

Anonymous Coward | more than 4 years ago | (#32139028)

Of course, blame the risk managers, lawyers and other people when there is a problem, and pay the traders when things work out.

Re:What glitch? (0)

Anonymous Coward | more than 4 years ago | (#32138800)

Of course businesses are traded while in bankruptcy. Many businesses have positive equity which means after all assets are sold off and liabilities repaid there is something left for shareholders. Usually it is a fraction of what is carried on the books, but at least its something.

Re:What glitch? (1)

quanticle (843097) | more than 4 years ago | (#32139124)

You have to note that General Motors entered Chapter 11 bankruptcy protection, rather than Chapter 7 bankruptcy liquidation. In Chapter 11, the company gets a court supervised reprieve from debt payments in order to renegotiate those payments with its suppliers and bondholders. Whether the shareholders get wiped out or not depends on whether the bondholders insist that they be wiped out.

If in another five years, GM is trading a lot higher than it did during Chapter 11, you should be ready to explain to your father in law why you advised against a great deal on depressed stock.

Re:What glitch? (0)

Anonymous Coward | more than 4 years ago | (#32137982)

They are lying threw their teeth if they say nothing unusual happened. I watched it on fold on my trading platform and it was like 1/2 the market just turned off while computerized trades relentlessly sold to the nonexistent buy side. In the end its likely that the only people who got hurt by this were retail investors who trade with stop-loss or trailing stop-loss orders. I have plenty of stocks that didn't drop more then 60% but most moved over 25% effectively stealing shares from every small investor who had trades execute that they probably never intended. Then many of these stocks recovered to only a few points down as the market makers walked everything back up.

Through a glitch/mistake (likely) or through a master organized plan (unlikely) the big financial players were able to shift around billions of dollars of wealth inside of 30 minutes.

The market needs a kill button that can go off automatically during drastic movement. The market should stay off for 30 to 60 minutes to ensure its functioning correctly. Then it can turn back on and repeat the cycle. If the market really needed to fall 1000 points it would still do it in a day but it would semi-controlled and because investors really believe it should go there.

Thursdays 1000 point drop was computer generated and it was absolute bullshit that cost retail investors dearly.

And for the record it didn't cost me much and I normally don't care about the average retail investor but even I have a soul and Thursday was 100% wrong and needs to be fixed.

Re:What glitch? (1)

je ne sais quoi (987177) | more than 4 years ago | (#32138244)

Thank you for that link. This being a side effect of rampant high frequency trading is the first explanation I've read that actually made any sense.

Re:What glitch? (1)

quanticle (843097) | more than 4 years ago | (#32139070)

The problem I have with the "blame high frequency trading" narrative is that it doesn't explain all the other times when high frequency trading could have done even more damage, but didn't. If these algorithms are so sensitive that a tiny fluctuation can set them off, then why didn't markets tank even harder in response to truly monumental events, like Lehman going bankrupt, or the House of Representatives' initial rejection of the TARP? I mean, you would have figured that the same algorithms would have kicked in for those events too.

Watch... (-1, Troll)

Anonymous Coward | more than 4 years ago | (#32137804)

$10 says they're running Vista

Protection... (3, Insightful)

noodler (724788) | more than 4 years ago | (#32137806)

"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.

Re:Protection... (0)

Anonymous Coward | more than 4 years ago | (#32138408)

This is a false dichotomy.

And since when has government "protection" of failing banks become a good thing?

Re:Protection... (1)

nschubach (922175) | more than 4 years ago | (#32138592)

Think of the children! Sorry...

I've seen a trend recently... and I think my sig says it best. (Rights are not Entitlements)

People somehow think that they should be immune to failure and the government should protect them from failing.

Re:Protection... (3, Insightful)

Richard_at_work (517087) | more than 4 years ago | (#32138548)

What do you think the economy is made up of? Investors aren't just the evil 'banker' - anyone holding a pension or a savings account is also an investor.

Re:Protection... (2, Informative)

quanticle (843097) | more than 4 years ago | (#32139148)

Hint: investors are the economy. Without investment and trade, there is no economy to speak of.

Suggestion (1)

moj0e (812361) | more than 4 years ago | (#32137820)

Brazil's market stock has a "kill switch" that turns off trading in cases such as these. If the stocks take a nose dive because of a computer glitch or
because of a human typo, the kill switch automatically closes the market for that day.

That would be a great feature to add to our stock markets here in the US.

Re:Suggestion (3, Informative)

vbraga (228124) | more than 4 years ago | (#32137884)

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 [huffingtonpost.com] .

Re:Suggestion (2, Interesting)

gyrogeerloose (849181) | more than 4 years ago | (#32138052)

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.

Re:Suggestion (3, Informative)

boombaard (1001577) | more than 4 years ago | (#32138144)

See here [seekingalpha.com]

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: [zerohedge.com]

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.

Re:Suggestion (1)

gyrogeerloose (849181) | more than 4 years ago | (#32138324)

That's all interesting, but none of it counts as actual evidence any more than my own speculation does.

Re:Suggestion (1)

russotto (537200) | more than 4 years ago | (#32138888)

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.

If the description of what happened is correct, it doesn't sound like a human intervention; the idea that there's one human who could simultaneously pull all the bids from every trader is ludicrous; it implies not just that the market is rigged, but that there's exactly one player rigging it. On the other hand, the idea that an event or events happened that would cause every program bid to disappear is a lot less unbelievable.

Re:Suggestion (1)

LaughingCoder (914424) | more than 4 years ago | (#32138298)

From what I have read, a big part of the problem is suspected to be those "circuit breakers". The US market is composed of more than 1 exchange, and each exchange has different rules for stopping trading. The computers would simply look for alternate means of trading through another affiliated exchange if the primary exchange was shut off. This dramatically affects the volume of shares available to trade, which in turn can result in wild swings in price. As an engineer I can certainly appreciate how difficult it would be to make such a fragmented system stable under all conditions. It seems as if we stumbled into a series of events that made it unstable for a period of time. There are some who suspect this was orchestrated (aren't there always conspiracy theorists).

And yes, per a poster above, the people that really got screwed were small (aka retail) investors who use stop losses and trailing stop losses, which are like safety nets put in place to protect you from steep drops (like October 1987 when the market went down 22%). Stop losses are usually set at a safe distance from the price (8% is a common number) so that they aren't triggered by daily fluctuations. A stock's beta is used to determine a safe stop loss limit. What happened yesterday is the market dropped 9% in 10 minutes, tripping most stop losses, and then it climbed back up 6% in the next 20 minutes. Effectively the shares were stolen ... transfered from the small investors who can't watch their stocks all day long, to the big institutional investors, hedge funds, and banks. I am one of those people. When I saw the DOW chart at the end of my work day my heart sank because I knew I had just been fleeced. Given that the market sold off again Friday, and if it continues to drop I suppose I may yet get the last laugh when prices finally end up below where all my stocks/ETFs sold, but for now I can't help but feel cheated.

Re:Suggestion (2, Interesting)

mrlibertarian (1150979) | more than 4 years ago | (#32138772)

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.

Re:Suggestion (1)

quanticle (843097) | more than 4 years ago | (#32139174)

Our markets had this feature (I believe its called a "circuit breaker") added after the massive crashes of the '80s. In this case, however, the price declines were not large enough in either velocity or magnitude to trip these automatic safeguards.

The plunge (partly) explained (3, Informative)

dollarwizard (1806856) | more than 4 years ago | (#32137826)

WSJ is reporting [wsj.com] 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 [reuters.com] 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 [blogspot.com] , 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.

Re:The plunge (partly) explained (1, Interesting)

Anonymous Coward | more than 4 years ago | (#32138494)

That P&G order may have set off some other things but it wasn't the trigger. The market was already in decline and it crossed some key points (and didn't recover) that should have taken a few more weeks to get to (the reasonable theory of that is because of all the ongoing global turmoil). That is what set off the P&G order and probably a bunch of other orders. Then everything started to tank because too many people were using the same signals. Then the real storm happened when the NYSE froze trading while everyone else kept going, this set off a massive number of signals and liquidity whet to zero in many areas.

The market was going to drop 700-800+ points anyway, it just should have taken longer, Signal convergence was the real cause. That isn't what needs to be fixed though. What needs to be fixed is the various market's circuit breakers.

You call it a glitch. I call it a successful test! (1)

gestalt_n_pepper (991155) | more than 4 years ago | (#32137856)

*Much* easier to buy on those dips when you can induce the dips with software. Shares dropped to a penny? I'll take a million please!

Re:You call it a glitch. I call it a successful te (1)

defaria (741527) | more than 4 years ago | (#32139006)

What if you did buy a bunch at an insanely cheap price, the stock bounces back up and you make a mint, then the regulators come in and say "Sorry we're canceling your order". I'd be pissed - and suing!

Re:You call it a glitch. I call it a successful te (1)

gestalt_n_pepper (991155) | more than 4 years ago | (#32139048)

If you were subtle about it, spreading out your trades and not hitting the ones with the highest differentials, you could exploit this hack for a long time.

cancelled orders more than 60% off (5, Insightful)

joostje (126457) | more than 4 years ago | (#32137858)

So NASDAQ cancelled all trades the more 60% off of the stock's price [cnn.com] .

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.

Re:cancelled orders more than 60% off (1)

TapeCutter (624760) | more than 4 years ago | (#32137974)

The board of NASDAQ decided to do that, most likley after consultation with the SEC. If a transaction was rolled back then all subsequent transactions of those shares would also have to be rolled back since the original sale "never happened". Presumably this is why they had to coordinate the action with other exchanges.

Re:cancelled orders more than 60% off (0)

Anonymous Coward | more than 4 years ago | (#32139084)

Umm...ok...and what happens to the investor that put on a long in NY and a short in, say, Toronto or Mexico? Are they going to coordinate with those jurisdictions?

Cancelling trades = Complete Total Bullshit, Period.

Re:cancelled orders more than 60% off (0, Redundant)

jchawk (127686) | more than 4 years ago | (#32137990)

*sorry for posting twice I forgot to login*

They are lying threw their teeth if they say nothing unusual happened. I watched it on fold on my trading platform and it was like 1/2 the market just turned off while computerized trades relentlessly sold to the nonexistent buy side. In the end its likely that the only people who got hurt by this were retail investors who trade with stop-loss or trailing stop-loss orders. I have plenty of stocks that didn't drop more then 60% but most moved over 25% effectively stealing shares from every small investor who had trades execute that they probably never intended. Then many of these stocks recovered to only a few points down as the market makers walked everything back up.

Through a glitch/mistake (likely) or through a master organized plan (unlikely) the big financial players were able to shift around billions of dollars of wealth inside of 30 minutes.

The market needs a kill button that can go off automatically during drastic movement. The market should stay off for 30 to 60 minutes to ensure its functioning correctly. Then it can turn back on and repeat the cycle. If the market really needed to fall 1000 points it would still do it in a day but it would semi-controlled and because investors really believe it should go there.

Thursdays 1000 point drop was computer generated and it was absolute bullshit that cost retail investors dearly.

And for the record it didn't cost me much and I normally don't care about the average retail investor but even I have a soul and Thursday was 100% wrong and needs to be fixed.

Re:cancelled orders more than 60% off (0)

Anonymous Coward | more than 4 years ago | (#32138234)

I agree it should not have happened as fast as it did. The market really was headed for a big dip though (completely expected if you look at the long-term charts). Maybe not 1000 points but easily 800 or so like in Jan/Feb of this year.

The problem is that it should have taken another 2 weeks or so to get to that level. What happened on Thursday is that a key signal was crossed too fast and then the market failed to recover above that (probably due to all the global crap going on; Greece, UK, unemployment, etc). Once that happened all hell broke loose just a few minutes later and there was zero liquidity (exacerbated by the NYSE stopping trading while everyone else kept going).

No glitches or errors per se and I believe everything was working the way it should. However, maybe the markets need to tighten their circuit breakers. What they should do is not allow the market to drop more than x in y number of minutes on a per-security basis. Instead the current system stops when the whole market drops x amount in a day which is too opaque and too long of a sample period. They also need to cooperate 100%, if one freezes then they all should freeze.

Re:cancelled orders more than 60% off (1)

jbengt (874751) | more than 4 years ago | (#32138146)

And what happens to a smart invester[sic] 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.

I agree that that would be unfair.
Perhaps, though not ideal, they could address that issue by forcing the original $0.01 trade at the $30 price.

Re:cancelled orders more than 60% off (1, Insightful)

Anonymous Coward | more than 4 years ago | (#32138404)

You are exactly right. The later sale would potentially NOT be cancelled if deemed "fair" and you would be left short from a horrible position. They will not "roll-back" subsequent transactions.

If you are fishing for out-of-market orders like that and think that they might be broken by the exchange then simply do not cover your position until a ruling is made. If you are buying at $0.01 then your downside is VERY limited. :) The exchanges only breaking trades that are 60% away or more is pretty lenient when the market was only (only being relative here) ~10% down during the worst part. However, it was also noted that the exchanges had discretion to break other trades that they felt were sufficiently out-of-market.

The real people who got screwed are the retail guys who had stop orders out there an got stopped out of positions are awful prices, only to have the market come right back up.

Re:cancelled orders more than 60% off (1)

drsquare (530038) | more than 4 years ago | (#32138442)

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.

My heart bleeds, maybe he could just get a job instead of trying to make money out of nothing.

Re:cancelled orders more than 60% off (0)

Anonymous Coward | more than 4 years ago | (#32138566)

A smart and experienced investor who buys a $40 stock at $0.01 is aware that the trade will probably be busted, and will hold on to the position until it clears, or take their chances with the short position.

Who made the money? (5, Interesting)

hairytomato (1807198) | more than 4 years ago | (#32137876)

Follow the money. SOMEONE made money, it sure as hell wasn't me.....

Big Bank Conspiracy (0)

Anonymous Coward | more than 4 years ago | (#32137956)

Is it mere coincidence that the Senate planned for a vote to break up the big banks on the same day?

Re:Big Bank Conspiracy (3, Interesting)

causality (777677) | more than 4 years ago | (#32138012)

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

Just a lttile reminder (0)

Anonymous Coward | more than 4 years ago | (#32137970)

This was just a little reminder than the "economy" is nothing more than a shared mass delusion. It has nothing to do with actual value or usefulness.

Wake up.

Re:Just a lttile reminder (1)

maxume (22995) | more than 4 years ago | (#32138078)

Except for the part where there are physical goods in stores and actual services are provided by many people working in the services sector.

force selling to catalyse volatility ? (0)

Anonymous Coward | more than 4 years ago | (#32138044)

The scenario: 1) The European markets were tanking, and also 2) Algorithms were running out of stocks to push higher.

Algorithms do something like pushing stocks with the higher betas ( more volatiles ). To influence the markets, algorithms must keep tracking and actuation constant across all the Markets. This means they can control Nasdaq (the rest of the markets will follow) via apple, therefore AAPL being pushed so higher lately, but this formula has become riskier since the price of AAPL is becoming riskier for investors. So the market manipulator(s) are thinking of new strategies to keep people safe buying stocks ( this is part of what they call "doing gods works" ).

My thesis is that there were too much people with long positions already and the markets became expensive. To keep markets going up it is needed a constant flow of buyers, and the VIX ( the index that measures market volatility ) was loosing steam, no one was buying stocks anymore. Also the responsible for this probably wanted to get rid of the pricey stocks it was holding (sell high), since it knowns that the stocks were being pushed by algorithms that runs on taxpayer money.

So these guys have to create risk and force people to sell, in order to maintain volatility and keep people coming. So what do they do ? they force stop loss positions all over the place. This forces people to sell, and make VIX go up alot. The excuses like the one of the fat finger pressing m / b , or others will give the clearance to people to re-buy they already expensive stocks.

Re:force selling to catalyse volatility ? (1)

khallow (566160) | more than 4 years ago | (#32138174)

they force stop loss positions all over the place. This forces people to sell, and make VIX go up alot.

To be blunt, no one forced those people to place stop orders. They willingly entered into the obligation. I see this sort of complaint as a desire to make the markets nicer and less dangerous than they can be. When you place a stop order, you need to keep in mind that the stop may execute for unintended reasons like some sort of error on the exchange or because someone is fishing (legally or otherwise) for stops.

Re:force selling to catalyse volatility ? (1)

zippthorne (748122) | more than 4 years ago | (#32138832)

No sympathy??

Stop-losses are a way for people with regular jobs to mitigate the risk of being in the market, so by having "no sympathy" for people doing their darndest hold on to their value is akin to saying they shouldn't have even been in the market in the first place.

Which brings us to the other problem. If you're not in the market (i.e. have your wealth invested in equity rather than in financial instruments) then you're going to be robbed by the Fed as it allows inflation to destroy your wealth at a rate that is convenient for the government. You can't even win by buying bonds: the returns are lower, there's still the risk of default, and if enough people relied on them, the Fed would just allow inflation to destroy their value as well.

So, please tell us, what course of action wouldn't result in your utter contempt?

Re:force selling to catalyse volatility ? (2, Insightful)

russotto (537200) | more than 4 years ago | (#32138954)

Stop-losses are a way for people with regular jobs to mitigate the risk of being in the market, so by having "no sympathy" for people doing their darndest hold on to their value is akin to saying they shouldn't have even been in the market in the first place.

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.

I guess I just don't see what the problem is (0, Flamebait)

DarkOx (621550) | more than 4 years ago | (#32138096)

So the argument being offered by or worthless President and his cohorts of blowhards on Capitol Hill appears to be something to the effect of:

The market should not move that fast because it means people are speculating on various herb behaviors and looking to turn quick profits by being on one side or the other of a brief out sized move; rather than speculating that a company has better ideas, management, and more desirable products then others and is more worthy of investment.

I have problems with this. Firstly nobody should have money in equities they can't afford to lose ever! Equities even by the definition Obama and friends seem to like are for growth; and growth almost always implies risk. Money you can't afford to lose belongs on deposit at an insured bank. The rest in dept instruments like bonds, which offer varying degrees of growth and risk and its usually possible to quantify the downside unless the government steps in and gives you a screw job. Remember the real criminals, the ones truly breaking the rules on Wall Street are in Washington. Equity investing is a gamble always has been and was always supposed to be.

Automated trading does not do anything humans did not do on paper before; going all the way back to when traders shouted at each other on soap boxed from the street corner swapping the certificates right there on the spot. It just does it much faster. People did program these rules you know the computers are just following them. The rules also make sense. If stock you own is tanking in way that it appears its headed for zero you very well might want to unload it while you can. This happened in the old days too; there are plenty of wood cuts depicting the frenzy on the corner of Wall Street.

The market can shed eight or ten percent and gain it all back in the course of a few weeks; most don't complain when that happens.
   

Re:I guess I just don't see what the problem is (1)

noddyxoi (1001532) | more than 4 years ago | (#32138160)

Money in the bank just means they invest it for you. This inability to manage your money may mean a worst case scenario of the bank short selling your own company.

Jews (-1, Troll)

Anonymous Coward | more than 4 years ago | (#32138102)

n/c

It shows that stock and market are unlinked (1)

Opportunist (166417) | more than 4 years ago | (#32138192)

Let's be sensible here. Stock should (big should) represent the value of a company based on its market value. If a company's doing good, its stock should be valuable because it's backed by the market strength of the company represented.

Thus such a "glitch" should have little effect. But it has incredible effect. Why? Because stock values are horribly inflated. Still, even after the bubble allegedly popped. We're still heaps over value. Have been for quite a while now.

I am amused at the assumption of error... (2, Interesting)

ibsteve2u (1184603) | more than 4 years ago | (#32138214)

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"?

"Damn those computoor guys!" (0)

Anonymous Coward | more than 4 years ago | (#32138250)

This is unacceptable. In this day and age and with the use of such complex technology, we should be able to [yadda yadda]

Well, if the technology wasn't complex at all, there would hardly be room for errors such as this, now would it?

Dry run? (0)

Anonymous Coward | more than 4 years ago | (#32138262)

It should be interesting to see what the result of the inquiry might be. It seems to me that the trading system was designed principally to assure fidelity in tracking the monetary transactions and far less so to secure the system. It's quite plausible that the "glitch" was an intentional manipulation of the market as a "proof of concept". Forget nuking New York, if you could effectively render the financial markets inoperable, or even more subtly manipulate them, you'd have a lot more control over the now largely corporate US government.

oh, the poor daytraders (1)

memnock (466995) | more than 4 years ago | (#32138264)

from the little bit i know about investing, the big picture is intended to be a long-term, i.e. year-long or decade-long, activity. one high volatility event that lasted for a few hours should barely be an asterisk.

It costs money (1)

Vermyndax (126974) | more than 4 years ago | (#32138468)

I suspect this is another one of those cases where the customer (government) wanted all kinds of features and monitoring but started to cut corners when it came with a price tag. It's amazing how little gets accomplished when the customer wants the pie in the sky features and doesn't realize it costs money.

Yes, I realize this works both ways. It could be that the requested monitoring and features were priced outlandishly by the contractor. In the end, everybody loses. All in all, I'm not going to hold my breath that whatever "technological error" produced this situation will get corrected. I fully expect it to be swept under the rug.

Re:It costs money (1)

viralMeme (1461143) | more than 4 years ago | (#32138914)

Yea, the ecompmy would run perfectly if the big bad Government didn't interfere ...

What goes down, must come up (0)

Anonymous Coward | more than 4 years ago | (#32138470)

How come nobody complains when the market makes a dramatic rise? People just always want someone to blame when things go bad (someone other than themselves). I can't wait to see the senate hearings /insert sarcasm here/ and watch the senators huff and puff and act like they actually know something about finance.

Grandstanding as usual. (1)

BCW2 (168187) | more than 4 years ago | (#32138656)

Is there a single member of Congress with a Finance degree? Do any of them have a clue how the market is supposed to work? Are they going to do something that will have a positive influence?
Of course not!

Just a way to look like they are doing something in an election year.
If they were serious about the real problem they would balance the budget.

Ok have more computers monitor..... (1)

3seas (184403) | more than 4 years ago | (#32139044)

Oh wait, there already doing that with humans ready to sell and buy ...... but who wants you to know that?

http://www.spiegel.de/international/europe/0,1518,676634,00.html [spiegel.de]

http://www.pbs.org/wgbh/nova/transcripts/2704stockmarket.html [pbs.org]

Officer B. Madoff will show up if you call 911 about it.

Latency (1)

lexcyber (133454) | more than 4 years ago | (#32139118)

Just put in XX hours of lag on the trading on stocks. The daytrading bring nothing positive to the companies.

Complete bullshit (1)

sp3d2orbit (81173) | more than 4 years ago | (#32139152)

This is just a diversion so that those with money invested have time to get that money out before the majority of investors wake up and realize there are huge real problems. The Greek economic crisis is just a taste of the problems to come as developed economies have taken dangerously high proportions of debt to bail out their banks.

The bankers run everything. /paranoid rant

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