Posts tagged 'Flash Crash'

Another day, another dollar (thrifty)

High-speed trading critics are abuzz this morning as an apparent mini-flash crash took place in shares of Dollar Thrifty Automotive Group. The car rental company fell as much as five per cent in matter of a minutes before recovering. Read more

An Indian flash crash

See if you can spot it (chart of the Nifty from Google Finance):

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Flash Gordon’s alive?!

Gordon Brown is set to ring the opening bell at the New York Stock Exchange on Tuesday.

Which makes it an almost perfect day to reveal that the Flash crash of May 6, 2010 may have had a European angle. Read more

The power of the dark inventory

FT Alphaville is reading Robert Harris’ The Fear Index at the moment, and would like to take this opportunity to recommend it as required reading for anyone who enjoys a good Jason Bourne style adventure, especially when set in the context of modern market meltdowns.

Though, it’s actually come to inspire the plot to our very own action-packed markets adventure, one we’re calling “Dark inventory: The ultimate financial frontier.” Read more

‘Flash crash’ facts

Via JPMorgan:

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HFT firms receive subpoenas over flash crash

US regulators investigating last year’s ‘flash crash’ and other market swings have sent subpoenas to firms that do high-frequency trading, the Wall Street Journal reports. In high-frequency trading, companies use computer algorithms to identify opportunities which can allow them to profit through rapid-fire trades often measured in milliseconds.  Some market participants believe these trading practices may have contributed to the May 6, 2010 flash crash, which saw the Dow Jones Industrial Average plunge 700 points in minutes. According to the WSJ, a report last year by the Securities and Exchange Commission and the Commodity Futures Trading Commission on the flash crash said, amid other factors, these traders’ moves helped fuel the day’s rapid selloff.  The WSJ says that at least some of the subpoenas have been sent since the start of the summer, though it isn’t known whether the subpoenas will result in any enforcement actions, since a subpoena doesn’t necessarily reflect a suspicion of wrongdoing. For more on how HFT traders are impacting the markets see FT Alphaville.

A REIT repo exposure

With the US debt ceiling debacle still in full play, anyone scouting for stress signals is very much tuned into developments in the US repo market.

Overnight general collateral rates are on the rise, as are MBS repo rates. That’s despite Sunday’s last-minute debt deal and Monday’s House voteRead more

Haldane on HFT’s market-making problem

Sharp thoughts on Friday from Andrew Haldane, executive director for financial stability at the Bank of England, on the changing topology of the market — including the rise of high-frequency trading.

Haldane — champion of the “we may have become too impatient” philosophy — wonders in a speech to the International Economic Association in Beijing, about a number of issues connected to the above. Read more

CFTC reveals day traders’ role in oil markets

The Commodity Futures Trading Commission has for the first time revealed that almost 95 per cent of US crude oil futures volume is generated by day trading or betting on arcane price relationships, the FT reports, suggesting long-term bets on whether prices will rise or fall have little effect on energy price volatility. The US regulator released data showing that only 5.5 per cent of crude trading volume on the New York Mercantile Exchange involved net changes in large traders’ stance on price direction, with similar patterns in other commodities and in financial futures markets. The day traders making up the balance include high frequency traders. The new volume data from the CFTC’s trader reporting system followed a review of the “flash crash” of May 6 2010, when stock and other markets momentarily plummeted.

Phantom indices

Themis Trading — ever-alert for structural weaknesses in markets — have a new paper.

It’s about ‘phantom indices’ — or the idea that widely-followed indices such as the S&P 500, the Dow Jones Industrial Average or the Nasdaq 100 don’t actually track all of the shares traded intraday. The discrepancy, Themis says, stems from the indices being calculated using only primary market data, in a world where a significant amount of trading has now moved off into non-primary spheres. Read more

The Sensex is bipolar

Joe Saluzzi of Themis Trading has spotted a sharp almost flash-crash like move in India’s Sensex index on Monday:

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Beware the ‘Splash Crash’

Introducing ‘the splash crash’.

Like the flash crash but worse because it involves the “flash” spreading cross-asset class to everything from forex to commodities. Read more

If algos can mis-value a book by $23.7m…

… how might they be mis-valuing equities?

So asks Themis Trading on Tuesday after discovering this curio of a story from CNN about algo-bots gone wild on Amazon. Read more

Flash crash flashback in cancelled ETF trades

Nasdaq OMX and NYSE cancelled trades in 10 exchange-traded funds after their prices plummeted in early trading on Thursday, raising questions about measures brought in after last year’s ‘flash crash’ to curb sudden price falls, the FT reports. Prices in 10 of 15 Focus Morningstar ETFs launched on Wednesday dropped by as much as 98 per cent after a human processing error at Knight Capital Americas, a market maker for the ETFs. While exchanges introduced trading curbs after the flash crash, the Focus ETFs were not included because they launched after these initial measures were rolled out.

New York markets cancel ETF trades

Nasdaq OMX and NYSE cancelled trades in 10 exchange-traded funds after their prices plummeted in early trading on Thursday, raising doubts about safeguards put in place against sharp market swings after last year’s “flash crash”, reports the FT. The exchanges cancelled certain trades that occurred in 10 of 15 Focus Morningstar ETFs that launched on Wednesday, said a spokesman for Scottrade, the ETFs’ sponsor. The trades occurred early in the session when prices dropped by as much as 98% after a human processing error at Knight Capital Americas, a market maker for the ETFs. The net asset values of the ETFs and the value of the underlying securities and shareholders were not affected, Scottrade said. Nasdaq said it cancelled trades in FocusShares ETFs executed between 9:54am and 9:56am that were more than 10% away from the day’s trade before the erroneous order or the previous close if no trades occurred prior.

S&P 500 curiosity, du jour

Given Monday’s mini flash crash in the SPY S&P 500 ETF — one of the most traded securities in the United States –we thought the following datapoint might be worth flagging up.

Via LPL Financial: Read more

The mutual fund in the ‘flash crash’

In the quest to find the culprit in the May 6 ‘flash crash,’ regulators have pointed the finger at a little-known mutual fund based in a nondescript office park outside Kansas City, reports the WSJ. But the fund in question—the $27bn Asset Strategy Fund — is no average mutual fund, according to the paper. Run by Waddell & Reed Financial Inc., the fund is bigger than most hedge funds and, by some measures, acts like one. It is part of a rapidly growing breed of US mutual funds that can trade in almost anything they want, including hedging during times of trouble.

Parsing the legacy of the flash crash

A recent report emphasising the role of a single trade in causing the May 6 stock market flash crash may have ignored the broader underlying causes behind volatility in the market, the WSJ reports. Market participants want more focus on data-feed issues, stub quote abuse, and algorithmic trading, the Journal adds. They might do better to focus on continued signs of mini flash crashes in the market — Monday’s mystery coming courtesy of a fast sudden drop in Century Aluminium, FT Alphaville notes — while observing that market-making desks as one broad factor in the market had little to do with May’s events.

The non-role of internalisers during the flash crash

Themis Trading’s Sal Arnuk picks up on a really important point from the SEC-CFTC’s joint flash crash report published last Friday.

That being: the clear and demonstrable non-role played by broker-dealer/large market maker internalisation desks on May 6. Read more

HFT debate intensifies

High-frequency trading firms that have come to dominate the US equity markets may be tempted to breathe a sigh of relief after a report by regulators on the causes of May’s “flash crash” that temporarily derailed trading. The SEC’s report found that a large order by a traditional investor was the trigger for the wild market swings, and not a high-speed trading firm. The danger for trading firms, says the FT, is that it may be premature to celebrate, as regulators are still deciding how to respond and restore confidence to US stock trading.

SEC: ‘quote-stuffing’ not responsible for the flash crash

A grateful tip of the hat to David Merkel of the excellent Aleph Blog, who left a comment in a previous post directing us to page 79 of the flash crash report.

We previously reported the findings of Nanex, which had attributed the crash in large part to quote-stuffing, a high-frequency trading strategy in which a massive number of buy and sell orders flood the market before immediately being canceled. High-frequency traders can then profit from the delays caused by the cancellations. Read more

SEC releases flash crash report

The anticipated SEC report on the May 6 flash crash is out. Here’s an excerpt:

At 2:32 p.m., against this backdrop of unusually high volatility and thinning liquidity, a large fundamental5 trader (a mutual fund complex) initiated a sell program to sell a total of 75,000 E- Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position. Read more

Market on edge after Apple drops like a stone

News of a big fall in the price of Apple shares at the open (on supposedly no news except, err, this) got the Twittersphere raging about the prospect of a mini flash crash in the making Tuesday:

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The apparent rise of the mini flash crash

Another mysterious ‘mini flash crash’ in global equity markets.

This time it occurred in the shares of Progress Energy. Read more

The annotated flash crash diagram

Can’t wait for the SEC’s flash crash report?

Then try this alternative, from data firm, Nanex. Read more

From heavy neutrinos to the flash crash

Gregg Berman once sifted through subatomic data during his doctoral studies as a physicist — skills that will come in handy as he leads the team who are probing the causes of the May 6 flash crash, the NYT reports. Berman, who will publish his study into the crash in a fortnight’s time, said he had not found evidence of deliberate manipulation in the run-up to the twenty minutes of extremely volatile trading on May 6. Instead, he warned that the report is set to show that the crash had specific but painfully complex causes. That may do little to reassure investors ahead of a further report from the SEC.

MOST: Why you should be buying dividend futures

FT Alphaville noted last week how dividend futures were still clawing back ground they’d lost on the back of the May 6 flash crash.

With this in mind, Graham Secker’s team at Morgan Stanley have put out a note suggesting there’s currently a strong investment case for index dividend futures or swaps. Read more

SEC signals equity market rules shake-up

A wide-ranging overhaul of the rules governing equity markets, including tougher controls on high-frequency traders, is being weighed by the Securities and Exchange Commission in the wake of the May 6 “flash crash”, SEC chair Mary Schapiro has said, according to the FT. HFT traders would be required to maintain liquidity in stocks, and quote-stuffing would be curbed. May’s fall exposed serious concerns in the transformation of equity markets’ structure, and was far from an aberration, Schapiro warned. That may be a sign at last that the SEC has grasped how badly investor trust has been damaged, notes the FT in a separate analysis.

Dividend Black Friday

By now, most investors the world over will be aware of the disruptive events that occurred on May 6 — a day that has come to be known as the ‘flash crash’.

What most investors might not be so well aware of, however, are the strange occurrences that transpired the day after in the fledgling exchange traded dividend futures market in Europe. Read more

SEC probes canceled trades, quote stuffing

The Securities and Exchange Commission is to take a closer look at the practice of so-called ‘quote stuffing’ in equity markets as part of its probe into the May 6 stock-market flash crash, the Wall Street Journal reports. The high-frequency strategy involves sending large amounts of orders to buy or sell stocks which are then immediately cancelled in a bid to crowd out, slow down or detect hidden liquidity in the the market. The Journal says the SEC is also looking into the practice of sub-pennying, which sees firms improve on bids and offers in increments as small as one-tenth of a cent on official exchanges, so as to attract trades that might otherwise be seen as off-market.