House Calls For Hearing On Stock Market "Glitch" 180
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timothy
from the hands-on-the-tables-gentlemen dept.
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.'"
What glitch? (Score:4, Interesting)
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? (Score:5, Interesting)
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:Well... (Score:3, Interesting)
Who made the money? (Score:5, Interesting)
Re:Big Bank Conspiracy (Score:4, Interesting)
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
Re:Suggestion (Score:3, Interesting)
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:Jusy like supply and demand (Score:3, Interesting)
I am amused at the assumption of error... (Score:3, Interesting)
Re:The plunge (partly) explained (Score:1, Interesting)
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.
Re:What glitch? (Score:5, Interesting)
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.
To whoever can help me understand this (Score:4, Interesting)
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 (Score:4, Interesting)
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.
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.
Re:Suggestion (Score:3, Interesting)
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:Protection... (Score:2, Interesting)
And without resources, workers, producers, consumers, etc. there would be no economy to speak of too.
If there is a lesson to be learend from the recent civil uprising in Greece then it's that there is more to economics than investors.
Synchronous clocking scheme? (Score:3, Interesting)
I wonder whether the synchronous-counter approach would help reduce glitches here. In other words:
- at HH:MM:00 update the prices (and allow the change to propagate; everyone can put in their next trade order)
- at HH:MM:30 execute the trades (and then there are 30 seconds to decide on the new price before a value is propagated)
This is the way that synchronous logic works. The current model is more like hundreds of ripple-counters.
(It would also ensure slightly greater fairness by not giving an advantage to the person with the absolutely fastest network connection, and would slow down the cycles so that a market collapse took many minutes.)
Re:Protection... (Score:3, Interesting)
I agree 100%. However, one must acknowledge that Greece would not be in the pickle that it is today if it were not for multiple Grecian governments borrowing and spending money that they could not effectively repay. In other words, there wouldn't be any civil unrest if Greece had taken into account the long term consequences of the contracts it was entering into with investors.