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House Calls For Hearing On Stock Market "Glitch" 180

Posted by timothy
from the hands-on-the-tables-gentlemen dept.
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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House Calls For Hearing On Stock Market "Glitch"

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  • by dollarwizard (1806856) on Saturday May 08, 2010 @07:41AM (#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:Suggestion (Score:4, Informative)

    by vbraga (228124) on Saturday May 08, 2010 @07:52AM (#32137884) Journal

    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].

  • by maxume (22995) on Saturday May 08, 2010 @08:22AM (#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:What glitch? (Score:4, Informative)

    by khallow (566160) on Saturday May 08, 2010 @08:32AM (#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:Suggestion (Score:4, Informative)

    by boombaard (1001577) on Saturday May 08, 2010 @08:41AM (#32138144) Journal
    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:Its strange. (Score:3, Informative)

    by arthurpaliden (939626) on Saturday May 08, 2010 @08:55AM (#32138226)
    They did and it was the same people who always sold short at the end of the summer travel season.
  • Re:Protection... (Score:3, Informative)

    by quanticle (843097) on Saturday May 08, 2010 @10:55AM (#32139148) Homepage

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

Power corrupts. And atomic power corrupts atomically.

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