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CME Refutes SEC's Entire 104 Page W&R Scapegoating Drivel In Two Simple Paragraphs

Tyler Durden's picture


We couldn't have said it better ourselves. From the CME:

Futures and options markets are hedging and risk transfer markets.
 The report references a series of bona fide hedging transactions,
totaling 75,000 contracts, entered into by an institutional asset
manager to hedge a portion of the risk in its $75 billion investment
portfolio in response to global economic events and the fundamentally
deteriorating market conditions that day. The 75,000 contracts
represented 1.3% of the total E-Mini volume of 5.7 million contracts on
May 6 and less than 9% of the volume during the time period in which the
orders were executed
.  The prevailing market sentiment was evident well
before these orders were placed, and the orders, as well as the manner
in which they were entered, were both legitimate and consistent with
market practices.  
These hedging orders were entered in relatively small
quantities and in a manner designed to dynamically adapt to market
liquidity by participating in a target percentage of 9% of the volume
executed in the market.  As a result of the significant volumes traded
in the market, the hedge was completed in approximately twenty minutes
with more than half of the participant's volume executed as the market
rallied – not as the market declined
.  Additionally, the aggregate size
of this participant's orders was not known to other market participants.

Additionally, the most precipitous period of market decline in the
E-Mini S&P 500 futures on May 6 occurred during the 3½ minute period
immediately preceding the market bottom that was established at
13:45:28. During that period, the participant hedging its portfolio
represented less than 5% of the total volume of sales in the market.

Now the only question is, when does Waddell and Reed sue Mary Schapiro for slander and defamation, or, if they decide to keep quiet about all these baseless allegations, pehaps some aspiring investigative reporters can uncover how much in taxpayer-funded "damages" the SEC may have awarded the Kansas firm in advance of the report publication.


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Fri, 10/01/2010 - 15:39 | 619056 VK
VK's picture

Long live the farce! 

Ps - Stop trading these markets, get out!!

Fri, 10/01/2010 - 15:40 | 619060 -1Delta
-1Delta's picture

IS CFTC  COT data working today?

Fri, 10/01/2010 - 15:42 | 619067 orangedrinkandchips
orangedrinkandchips's picture

panic managers...why in the hell is that fuck doing it? at the bottom....wait til it gets horrible and THEN hedge yourself you W&R shmuck.

Sat, 10/02/2010 - 09:37 | 620697 kato
kato's picture

it was not a panic manager you dumb fuck they executed an order. it happened to have been bigger than the one lots you diddle with.

Sat, 10/02/2010 - 17:47 | 621322 ZeroPower
ZeroPower's picture

Lol, said strongly, but correct.

Fri, 10/01/2010 - 15:43 | 619071 SheepDog-One
SheepDog-One's picture

SEC... what a bunch of lying imbeciles!

Fri, 10/01/2010 - 15:48 | 619092 Commander Cody
Commander Cody's picture

The SEC provides comedic relief while the Fed transfers all wealth to the corporate oligarchs with Congress' blessing.  Serfs up!

Sat, 10/02/2010 - 01:02 | 620406 euclidean
euclidean's picture

This response from CME is not unexpected since they are the providers of E-minis via Globex. But also what is not known by many including myself are the members of the Joint committee -

SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler are the co-chairs of the Joint Committee. Other members of the Joint Committee named last week:

·         Brooksley Born — Former Chair of the CFTC

·         Jack Brennan — Former Chief Executive Officer and Chairman, Vanguard

·         Robert Engle — Michael Armellino Professor of Finance at the NYU Stern School of Business

·         Richard Ketchum — Chairman and Chief Executive Officer, FINRA

·         Maureen O'Hara — Professor of Management, Professor of Finance, Cornell University

·         Susan Phillips — Dean and Professor of Finance, The George Washington University School of Business

·         David Ruder — William W. Gurley Memorial Professor of Law Emeritus, Northwestern University School of Law; Former Chair of the SEC

·         Professor Joseph Stiglitz, Nobel Laureate and Columbia Business School


I figured Brooksley Born as no idiot, and yet has allowed this report to be issued under the following preamble - "The Commissions have expressed no view regarding the analysis, findings or conclusions contained herein.". So the purpose of this report is what??

--------- and the report has failed to address this statement - "Over 20,000 trades across more than 300 securities were executed at prices more than 60% away from their values just moments before. Moreover, many of these trades were executed at prices of a penny or less, or as high as $100,000, before prices of those securities returned to their “pre-crash” levels."

... even after having received statements from DEShaw and Co that say -

Statement of Dr. Anoop Prasad, of DE Shaw & Co

(emphasis mine)

"First, we want to emphasize that financial market trading does not take place in a vacuum. The day of May 6th began dramatically, with enormous volatility experienced in interest rate and currency markets as the world watched Europe’s credit troubles unfold, dramatized by the riots in the streets of Athens on every trading floor’s TV screens, well before and seemingly far removed from later dislocations in the U.S. equity markets. These events called into question the global economic recovery and exacerbated the skittishness of markets against the backdrop of heated Congressional debates on a new regulatory landscape."

"Through the afternoon trading volumes grew and price and execution data feeds from some venues began to get delayed. At the same time trading was slowed at the NYSE. As a result, liquidity supply at that venue became largely unavailable, while liquidity demanders simply flooded alternate venues, leading to a temporary but systematic supply/demand imbalance. The combination of delayed and unreliable quote and execution data combined with inconsistent policies at different trading venues and an ecosystem that includes market orders, stop loss orders and other order types resulted in rather perverse dynamics in the limit order books of a number of stocks and ETFs, including quotes and executions at unrealistic prices. Another factor, or perhaps an alternative interpretation, was that bad data as well as other events drove the typically matched timescales for liquidity provision and liquidity demands out of alignment."


It is obvious even to a layman that such a concise singular yet innocuous action such as the selling E-mini's brings about such widespread and disproportionate chaos. No provision of formal conclusion by this report is an indictment on the ineptitude and lack of understanding of other very plausible and more maligned market operations.


Fri, 10/01/2010 - 15:47 | 619080 Ragnarok
Ragnarok's picture

Concierge:  Hello, you've got Chez Satan, how may I help you?

SEC Assistant: Yes, Id' like to confirm that a "special place" has been reserved for Miss Schapiro.

Fri, 10/01/2010 - 20:55 | 619947 WaterWings
WaterWings's picture

The Brimstone Suite

Fri, 10/01/2010 - 21:38 | 620065 New_Meat
New_Meat's picture

she's been doin' this a while, does she it...?

- Ned

Fri, 10/01/2010 - 21:40 | 620069 New_Meat
New_Meat's picture

idiot captcha mask thingie, but it finally works, guess I'm just a little porcine and nay machine nor too stupid to count on my ... hey, ... I ain't got no fingers to count on ;-(

Fri, 10/01/2010 - 15:46 | 619082 molecool
molecool's picture

Those SEC clowns who produced that report may be better off going back to browsing p0rn.

Fri, 10/01/2010 - 15:50 | 619100 freshman
freshman's picture

They never stopped that. That explained why the report is what it is.

Fri, 10/01/2010 - 16:03 | 619155 EscapeKey
EscapeKey's picture

Instead of releasing this report, they should just have compiled a list of their favorite porn sites. If they had, I might actually have read it, unlike this giant piece of poo.

Fri, 10/01/2010 - 16:07 | 619169 LeBalance
LeBalance's picture


Fri, 10/01/2010 - 16:22 | 619216 MsCreant
MsCreant's picture

I don't know if you should mix porn and "rimshots" in the same thread. The dialog could get really pun-ishing around here. Just sayin'.

Fri, 10/01/2010 - 17:06 | 619357 hedgeless_horseman
hedgeless_horseman's picture

We do like to get our licks in.

Fri, 10/01/2010 - 17:52 | 619498 faustian bargain
faustian bargain's picture

ouch, that was painful.

Fri, 10/01/2010 - 19:04 | 619685 Rasna
Rasna's picture

Excellent... That was great!

Fri, 10/01/2010 - 19:39 | 619781 tip e. canoe
tip e. canoe's picture

and considering it was tranny porn, i'm sure they enjoy being the butt of our jokes.

Fri, 10/01/2010 - 20:00 | 619850 MsCreant
MsCreant's picture

The rimshot made me wonder if the Trannies wore pearl necklaces? 

Fri, 10/01/2010 - 20:06 | 619863 tip e. canoe
tip e. canoe's picture

maybe they gave them instead?

Fri, 10/01/2010 - 21:42 | 620076 New_Meat
New_Meat's picture

I'm peeing my pen here.

Sat, 10/02/2010 - 10:10 | 620721 MsCreant
MsCreant's picture

Did you record and post it to a porn site? SEC is into that too.

Fri, 10/01/2010 - 15:47 | 619084 Rick64
Rick64's picture

 Lets see if this gets as much publicity as the SEC garbage report.

Fri, 10/01/2010 - 15:48 | 619089 midtowng
midtowng's picture

I don't understand. How can the SEC possibly be wrong?

Fri, 10/01/2010 - 15:49 | 619094 SheepDog-One
SheepDog-One's picture

I agree with the conclusion, no doubt W&R was offered a few billion $ and a month free no peeking trading freedom to do as they please.

Fri, 10/01/2010 - 18:42 | 619630 Rainman
Rainman's picture

....or more likely a refund of W&R's last trading fine of $77 million. A past sin gets forgiven and all is cool.  

Fri, 10/01/2010 - 15:50 | 619101 cossack55
cossack55's picture

Flash Crash = stuxcrash  or maybe stuxflash.  Who is behind it?

Which ethnic/religious/national/creed/race can we blame it on in order to open the 2nd Front.  The whole southwest Asia scene is so old hat. 

Fri, 10/01/2010 - 16:08 | 619176 Mad Max
Mad Max's picture

I vote Borneo.

For too long have we tolerated Borneo's devious and destructive ways, their attempts to control the world, and their cunning deceit.  Borneo is clearly the most dangerous threat in the world today, a threat to the very existence of "Truth," "Justice," and the American Way of Life.  Nuke Borneo.

Fri, 10/01/2010 - 15:51 | 619103 Greater Fool
Greater Fool's picture

I still want to know what Waddell and Reed did to piss off the SEC and CFTC so much.

Fri, 10/01/2010 - 15:51 | 619104 Rusty Shorts
Rusty Shorts's picture

HA, yahoo report on W&R...


One large trader led to May 6 stock market plunge

Fri, 10/01/2010 - 16:25 | 619224 MsCreant
MsCreant's picture

One large traitor led to May 6 stock market plunge

Rusty, let me copy edit your stuff if you are going to make errors like that, K?

Sat, 10/02/2010 - 03:18 | 620500 Rusty Shorts
Rusty Shorts's picture

MsCreant, love you babe, but no, you will not be able to make errors like that.

Fri, 10/01/2010 - 16:56 | 619321 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture


Sat, 10/02/2010 - 14:56 | 621109 Hephasteus
Hephasteus's picture

The Hunt for Dead October

A rogue gay trader falls in love a submarine commander and explores the darker side of financial and nuclear blackmail and terroism. Rated R for too real to handle.

Fri, 10/01/2010 - 15:53 | 619115 MarketFox
MarketFox's picture


There's WMD in Iraq as well....

Look....the SEC is what it is....a stepping stone to "real paying" jobs on the private side....The SEC will never change....until the SEC is eliminated....and replaced by an entity that really has the proper structure....


Just expect more of the same.....

Fri, 10/01/2010 - 17:17 | 619226 MsCreant
MsCreant's picture

Would you actually hire anyone who had worked there? Talk about a stain on your record...heh, heh, heh.

Fri, 10/01/2010 - 19:53 | 619834 MsCreant
MsCreant's picture

Come on folks, how did the stain get on the record???? I'm waiting....

Fri, 10/01/2010 - 20:04 | 619860 Sisyphus
Sisyphus's picture


Sat, 10/02/2010 - 10:12 | 620723 MsCreant
MsCreant's picture

Boy do I want to know what you deleted. Bet it was funny sick.

Fri, 10/01/2010 - 21:44 | 620080 New_Meat
New_Meat's picture

takes time darlin' to work the thought through - Ned

Sat, 10/02/2010 - 10:15 | 620727 MsCreant
MsCreant's picture

It's at least double if not a triple. If you apply anywhere, there are tranny porn jokes to live down, then there is the bad job of enforcement, and then there are actual, you know, stains. Nasty, sticky, stains...

But if you have to explain a joke, I suppose it isn't very good, is it Ned?

Fri, 10/01/2010 - 15:54 | 619118 unum mountaineer
unum mountaineer's picture's friday. first one to come up with the most innovative and succinct market commentary for this past week in 3 words or less without using the vowel "o" gets some gold chocolate coins. c'mon, make it interesting too..calling all english and journalism majors.

Fri, 10/01/2010 - 15:59 | 619134 Greater Fool
Greater Fool's picture

Flat is fun!

Fri, 10/01/2010 - 16:00 | 619142 MaxVernon
MaxVernon's picture

"fucked, fucked, fucked"?

Fri, 10/01/2010 - 16:01 | 619147 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture


Fri, 10/01/2010 - 16:05 | 619160 RedMeansGo
RedMeansGo's picture

suck me sideways

Fri, 10/01/2010 - 16:16 | 619197 faustian bargain
faustian bargain's picture

fascism marches unabated

Fri, 10/01/2010 - 16:19 | 619207 EscapeKey
EscapeKey's picture

free capital markets (*)

(*) I might be fibbing here.

Fri, 10/01/2010 - 16:29 | 619234 Kilgore Trout
Kilgore Trout's picture

Kudlow's pinky ring.

Fri, 10/01/2010 - 16:33 | 619244 MsCreant
MsCreant's picture

Hair Trigger Stampeding

Fri, 10/01/2010 - 16:59 | 619337 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Liar, liar, liar.

Fri, 10/01/2010 - 17:09 | 619366 hedgeless_horseman
hedgeless_horseman's picture

We were warned.

Fri, 10/01/2010 - 17:15 | 619384 Tom Servo
Tom Servo's picture

Rigged. Market. Capitalism.  (ht max k.)

Fri, 10/01/2010 - 17:46 | 619474 MichaelG
MichaelG's picture

To be honest, I think this was won yesterday in an original post. Two words, one paragraph, no 4th vowel.

Fri, 10/01/2010 - 19:55 | 619837 MsCreant
MsCreant's picture


Fri, 10/01/2010 - 19:42 | 619796 tip e. canoe
tip e. canoe's picture

jump u fuckers

Fri, 10/01/2010 - 15:56 | 619122 themosmitsos
themosmitsos's picture

Tyler, how come noone ever calls for the simple adaption of Futures regs into the NYSE which would kill this whole HFT/Algo bullshit?

Fri, 10/01/2010 - 15:56 | 619123 bobcat
bobcat's picture

So let me get this straight: less than 5% of the order was done BEFORE the market made its low.  That is SO SCARY!  That is also the time that I was trying to enter MARKET BUY ORDERS at Fidelity and their system  

Fri, 10/01/2010 - 18:33 | 619613 unununium
unununium's picture

I learned to love my GTC limit orders that day.

Fri, 10/01/2010 - 15:57 | 619124 spartan117
spartan117's picture

So why wasn't the CME paid off as well? 

Fri, 10/01/2010 - 15:58 | 619127 Greater Fool
Greater Fool's picture


Fri, 10/01/2010 - 15:58 | 619131 molecool
molecool's picture

CME to SEC: You clowns have no clue as to what you're talking about!

Fri, 10/01/2010 - 17:02 | 619346 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

SEC to CME: We are driving the bus and we make and interpret the rules...We are also in charge of our own checks-and-balances.  You clowns get to scratch your heads and write white papers about it!

(we are so post-normal)

Fri, 10/01/2010 - 16:01 | 619148 gwar5
gwar5's picture

Who is driving the clown car at the SEC?

Fri, 10/01/2010 - 18:02 | 619501 MichaelG
MichaelG's picture

They traded that in under Cash-for-Clunkers.

PS Sorry - junked you by mistake. Fat finger! Thank chuff the markets are closed or I'd be doing the perpwalk alongside Messrs Waddell & Reed...

Edit: Oh, hey, you appear to have no junk! (Er, not literally.) Great stuff - although this does of course mean I can't even make errors properly, so I think my only option now is to run for Congress.

Fri, 10/01/2010 - 16:06 | 619150 Conrad Murray
Conrad Murray's picture


Fri, 10/01/2010 - 20:58 | 619954 WaterWings
WaterWings's picture


Fri, 10/01/2010 - 16:02 | 619152 SRV - ES339
SRV - ES339's picture

Funny how they (and everyone else for that matter) ignore the "coincidence" of the Senate Finance Committee voting on key elements of Fin Reg that day... after the crash, the Volker Rule was severely watered down and eventually became the "toothless tiger" it is today.

Fri, 10/01/2010 - 16:28 | 619230 ElCapitanNemo
ElCapitanNemo's picture

Bingo, I was on the phone with my senators office when this thing hit telling them to get some balls and have some honor and not water that bill down.  When I got off the phone and saw this I deduced that the powers that be did this to threaten those senators that were sitting on the fence and it worked.... 

Fri, 10/01/2010 - 16:49 | 619298 Milton Waddams
Milton Waddams's picture

Same tired playbook, over and over and over again. Doable only because society is purposely conditioned to, on a near daily basis, drive around in circles chasing ever-devaluing pieces of paper. Sadly, most seem to enjoy this reality rather than the ghastly alternative - exercising that gray matter and begin taking the steps toward, gasp!, independent thought..


Louis Rukeyser: Steve you mention that Wall Street's tolerance was not unlimited in these economic areas. The old story is with a mule you start by hitting him with a two by four to get its' attention. Do we have the government's attention?

Steven G. Einhorn (Co-Chairman, Investment Policy Comm. Goldman, Sachs & Co. Inc): I think absolutely. I think it is no surprise after a five hundred point decline on Monday that President Reagan for the first time opens up the opportunity for tax increases to help narrow the budget deficit. It's no surprise after a day like Monday that the West German finance minister and central bankers allow for lower interest rates. No surprise that Alan Greenspan suggests that he will provide all the liquidity the system needs to grow. We have the attention now of the policy makers.

Fri, 10/01/2010 - 16:03 | 619156 jason4u
jason4u's picture

Incredible...W&R will be compensated one way or the other...but the bigger picture is this market is DEAD...RIP!

Fri, 10/01/2010 - 16:06 | 619166 John McCloy
John McCloy's picture

Flash Crash was engineered to move political legislation and that is all there is to it. Case closed.

Just like the digital nukes used when the TARP program did not pass the first time around. With a gun to their own head  Blazing Saddles style the lords of the universe said, "Give us what we want wether it is money or laws that are not applicable to our lifestyle or the markets get it"

See no need for 104 pages just follow the money and study history. Who wins? Who loses? Suddenly predicting the future becomes less difficult.Will the middle class get raped by QE2 further?? Yes

Will banks make more money if QE2 appears? Yes

Will there be QE2, 3 or 12 if necessary? You can bet your khakis on it.

Charmin Ben will not stop until there is a fresh new Stay Puft Bubble.

Fri, 10/01/2010 - 16:19 | 619206 Hansel
Hansel's picture

I was especially sickened by the Goldman lawsuit that appeared just as FinReg was starting to be pushed, and then settled on the day of the FinReg vote, but Paulson's TARP extortion ranks supreme on the scale of corruption.

Fri, 10/01/2010 - 16:22 | 619215 John McCloy
John McCloy's picture

  Yeah shame on me also for believing that the President was actually putting pressure on the criminals since he knew that there was absolutely no chance for him to be re-elected unless banks were broken up and and THE FIRST of many indictments came streaming down. I actually thought the GS fraud suit was the small thread which when pulled would undo the entire sweater.

I have obviously learned nothing in my year at Zero Hedge. The change will never occur from the top down.

Fri, 10/01/2010 - 18:02 | 619247 Widowmaker
Widowmaker's picture

W Bush is a criminal, why no one saw a Connecticut-poser (insult to every Texan) with a bullshit swagger full of anything but truth is all but amazing.

The only thing more amazing is our inability to govern ourselves and having to compete with corporate machines in politics to do so.

Big business will be the downfall of the US double-crossing its own people through their politics of socialized rewards for corporate failure and systemic political corruption.  Nowhere is this proven otherwise.

2500 years of tyrants and oppressors are laughing at the US for giving the keys of personal and political freedoms to a bank.

I guess when you're a new nation founded on radical principles no one is looking for the oldest mistakes in the history of mankind.

No one saw it on the boomer clock either and like it or not they crash first.

Change doesn't happen from the top down when dealing with organized crime, which occurs from the bottom up (hence organized).

Every politician taking bribes ("political contributions") from a corporation should be tried for treason.   Don't let the corruption on the US Supreme Court bench lead you to believe otherwise, money does not equal free speech.  What was affirmed that day was that Constitutional freedoms are for sale (sadly).



Fri, 10/01/2010 - 16:07 | 619170 knukles
knukles's picture

Boy oh, boy.  Somebody at Waddell and Reed really pissed somebody in the US Gubamnit off right and big for this shit.  Wherefore art thou, SEC when inquiring into events?  Ever think of talking with the CME or dealing with fact based, non-judgemental inputs?  

Truly tragic.
End of Game.

Fri, 10/01/2010 - 16:08 | 619174 rubearish10
rubearish10's picture

SOP for any "conservative" order strategy is 10% of the volume for any period. What bullshit sheeple can swallow.

Fri, 10/01/2010 - 16:31 | 619238 outamyeffinway
outamyeffinway's picture

If this bitch ever goes Mad Max the public sector better run for goddam cover! Fukkers.

Fri, 10/01/2010 - 16:37 | 619256 taraxias
taraxias's picture

Remind me again, who appointed Mary Schapiro?


(or, a better question yet would be, who appointed Barack Obama?)

Fri, 10/01/2010 - 16:42 | 619281 tom
tom's picture

Well, at least the SEC report has provoked CME into explaining what really happened. So W&R were not quite country bumpkins, they were performing a kind of algo trading themselves, but they obviously didn't realize how their algo would get slaughtered by the HFTs.

So W&R ran an algo to sell up to 9% of volume at market price, the HFTs responded by churning the volume way way way up, W&R's algo responded by dumping 9% of the HFT-way-way-way-exaggerated volume? Is it that simple?

If that's what happened, how can the SEC be saying that HFTs didn't cause the crash? If not for HFTs, is there any reason to think W&R's algo wouldn't have worked like it was supposed to and dribble out the sales over time in quantities that the market could have easily absorbed without crashing?

The SEC's message to the market seems to be: if you place any kind of sizable market order, and you fail to anticipate how HFTs can pounce on and slaughter it, then you deserve to get slaughtered, and any collateral damage to others just comes with the territory. How confidence inspiring.

And I have a couple other questions.

What happened to the information leaked over the summer that W&R gave a big market sell order to MS? It seemed to jibe with what we heard on the audio recording of the CME pit, roughly, "here comes Morgan with a lot of paper".

Why did the selling stop one handle over the stop limit? Were the HFTs programmed to stop churning at that point? Did W&R program their algo that way (which would be weird)?

Fri, 10/01/2010 - 17:11 | 619372 Greater Fool
Greater Fool's picture

My understanding of the SEC's explanation is that the big order at 9% of volume under that day's market circumstances was enough to trigger the flash crash.

CME points out that more than half of their fill was on the way back up.

If both are correct, then this is fantastic news. It really is possible to drop a big-ish market order, scare away enough bids to cause massive overshoot, and then just buy on the way back up.

Think I'll try that with AAPL on Monday. Surely I'll be the first....

Fri, 10/01/2010 - 18:09 | 619539 tom
tom's picture

Yes that's the SEC's explanation, but if you dig deeper in the report, you find that those "market circumstances" were HFTs swapping positions with each other and massively exaggerating volume. The SEC never spells this out in so many words, but from all the info it provides it's obvious that the W&R sell algo provoked HFT activity which in turn provoked the W&R sell algo into selling faster than W&R intended.

Fri, 10/01/2010 - 21:51 | 620094 New_Meat
New_Meat's picture

the concept of VWAP takes on a whole new meaning under these "unusual" circumstances, n'est ce pas? - Ned

Fri, 10/01/2010 - 17:52 | 619492 TraderTimm
TraderTimm's picture

I'd take into consideration that this analysis (while I do believe not ONE firm caused anything) is coming from the CME, a bastion of futures-trading that seemingly can't keep their 'test' orders from being crossed on a production platform.

Wouldn't it be ironic if it were their systems that helped magnify the time-arb delay in the futures? Who knows, we won't be getting the straight answer from these guys, that is for sure. I'm sure their offerings for HFT co-location are purely coincidental and not full of moral hazard at all.


Fri, 10/01/2010 - 17:52 | 619496 Steve Dallas
Steve Dallas's picture

This is, by far, the best thing I've read all day. I'm going to apply for a job at W&R and call it solidarity.

Fri, 10/01/2010 - 18:48 | 619640 subversive
subversive's picture

What I love was the conclusion I heard on the news was that the stocks were plunging, but after a couple of minutes, when the traders figured out what had happened, they started buying again, recovering the losses.  RIIIIIIGHT!  Because in five minutes time, the traders put two and two together and figured out what the SEC took 6 months to "figure out" and gained all their confidence back.  More like, after a couple of minutes of stocks plunging the PPT went into overtime to make sure we didn't have a down day on the market.

Fri, 10/01/2010 - 18:55 | 619657 Mentaliusanything
Mentaliusanything's picture

I can't believe it. I read the whole 'padded bra'



HFT unstable

HFT dangerous to wealth

HFT susceptible to manipulation.

HFT is hidden behind a very safe curtain 

Solution: Carry on nothing to be alarmed over. SEC continues to see nothing wrong nor will it offer any fix to the obvious faults. Who is paying these breath users of precious oxygen. 

Sat, 10/02/2010 - 03:52 | 620510 revolutionnot
revolutionnot's picture

You mean High Frequency Trading Trend Injection Attacks?


Ya.  Humans should not be in these markets at all with these robots running around.  The only safe things are real things that these robots can't touch.

Fri, 10/01/2010 - 18:57 | 619665 Paul Bogdanich
Paul Bogdanich's picture

"pehaps some aspiring investigative reporters can uncover how much in taxpayer-funded "damages" the SEC may have awarded the Kansas firm in advance of the report publication."


Only if said reporter wants to finish out his career waiting tables.  It's a rigged game.  If you do a stroy like that and push it's you last story unless it's McClatchy.  Any of the major media firms and you're gone. 

Fri, 10/01/2010 - 21:53 | 620101 New_Meat
New_Meat's picture

"... do a stroy..."

yep, destroy in the future.

Fri, 10/01/2010 - 20:37 | 619899 Terra-Firma
Terra-Firma's picture

I will introduce an alternative hypothesis for the cause of the flash crash. Please accept my apologies if this duplicates an existing hypothesis on the site

Hypothesis: The flash crash was an act of war by an aggressor - Russia, Iran or maybe a really good hacker with some inside help.

Evidence: US attacks Iranian targets using the internet. Program trading.  Being able to identify and predict program trading patterns.

Test: If the US can attack Iranian targets electronically using the Internet, why can't US assets be attacked likewise? If an aggressor had indepth knowledge of program trading patterns imagine what a program designed to exploit such programs could cause; without anyone knowing.

Conclusion: The US is under attack by unknown forces or groups. To reveal this to the public would result in a loss of confidence in government and military. Therefore, it's in the public and security interest of the US to hide the truth. The alternative would be a run for the doors.

Other similar vulnerabilities exist in all the electronic infrastructure of the US from the timing of street lights to factory Just-in-time production systems. Given SAP type systems are common, a good programmer with some inside help could jeopardize the US. WWI was men in trenches 150 yards apart. WWII was about the use of air power. This war is for our minds.

Fri, 10/01/2010 - 23:05 | 620219 TraderTimm
TraderTimm's picture

Occams razor. The simplest reason is that fundamental structure has changed. Volume components point to High Frequency Trading. Whether there are over-arching plans are beside the point, honestly. Systemic risk has infected the market, and we are about to see what happens when you QA your algorithm out 'in the wild' without proper oversight or understanding.

Complexity (good and bad) arises from simple mechanisms, or new feedback loops.


Sat, 10/02/2010 - 00:10 | 620327 Saxxon
Saxxon's picture

This is PERFECT if you are Machivellian bureaucrats like the SEC, only concerned with staying employed and not stepping on any big chicken feathers along the way.

The SEC is an owned bitch.

You blame someone too small to mount a fight back; your explanation is so confusing that an already attention deficit-addled public will just glaze their eyes over and look away.

Your blame game is too lame to really do more than spray liquid shit on the innocent.

You are a Fed entity and untouchable.

You are ratfuckers but do not give a damn.

SEC; suck my ass.

Sat, 10/02/2010 - 00:44 | 620382 Amygdala
Amygdala's picture

Interesting simple perspective from Waddell & Reed:  Causes of Market Downturns:

Causes of Market Downturns

Real estate, commodities and technology have historically been areas of the economy that have triggered an outbreak of the worst aspects of a persistent element of human behavior - greed.

Too much borrowing, followed by a credit crunch
Buying stocks on margin with no money down helped cause the Great Depression. Buying houses with little or no money down has been a major factor in causing the nation’s subprime mortgage debt woes and housing price debacle.

Lack of regulatory safeguards or enforcement
With each financial or economic crisis, new government and/or industry rules are typically put in place after a public outcry. Historically, someone has figured out a way to get around the new rules, or government has begun to look the other way when the public clamor subsides.

When market conditions appear to turn unfavorable, or there’s very unsettling news, an emotional response may set in. Uncertainty prompts some investors to head for the exit and ask questions later.


Sat, 10/02/2010 - 12:05 | 620857 Paolo Alto
Paolo Alto's picture

The SEC report does not address the serious questions raised in the 9/27 Nanex analysis ( ). For example: Was it really a coincidence that less than half a second before a few large eMini and ETF sell orders, a quote saturation attack was launched, causing quote delays to appear immediately after the sales, driving prices down? Was W&R also responsible on April 28th when a nearly identical sequence took place?

Until the Flash Crash has been fully explained, no regulatory changes will convince investors that the markets are fair and orderly.

Sat, 10/02/2010 - 12:34 | 620919 Grand Supercycle
Grand Supercycle's picture

Updated GOLD monthly chart:

Sat, 10/02/2010 - 13:34 | 620997 glassline
glassline's picture

I know it's fun to have a scapegoat, but doesn't the SEC report basically confirm the thesis that HFT algos were the cause of the flash crash?  What are you guys going on about?

Sat, 10/02/2010 - 22:29 | 621633 Tipo anónimo
Tipo anónimo's picture

Kudos to the CME, and of course ZH for printing it!

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