How Friday's Flash Crash In Plantronics Happened Despite Useless Circuit Breakers

Core Molding, Nucor Steel, and now Plantronics. Individual flash crashes have become such a daily occurrence that they are expected, in fact hoped for, if merely to confirm that nobody but a bunch of deranged robots is left trading stocks. While you won't hear about it on CNBC, as it may go just a little against the station's puff piece on how HFT is not, like, really all that bad, on Friday, just after 2 pm, the stock price of Plantronics (PLT) plunged from $31 to $24 in the span of milliseconds. And most amusingly, not a single circuit breaker was triggered in the plunge! The reason - the SEC's panacea to SkyNet, which incidentally is never proactive and always reactive, the contraption known as circuit breakers, is only applicable to Russell 1000 stocks. PLT, however, with a 'modest' market cap of $1.5 billion belongs only in the Russell 2000 index, which doesn't have any single-stock circuit breakers tied to it. The result: a whole lot of trades that should have cost the rampant algo millions in losses. But never fear: the Nasdaq steps in and makes life for its clients all peachy (while spitting in the faces of everyone else), DKing all the "clearly erroneous" trades, once again confirming that any price discovery that occurs not in compliance with what the exchanges believe is a fair and honest price have no chance in hell of standing. After all, the ponzi monster must be fed with ever increasing stock "prices" even if such prices are merely in the eye of the beholder, the exchange, and the several robots that do all the trading which #Ref out the second there is a pronounced downtick.

More from Dow Jones:

Trades made in shares of Plantronics (PLT) shortly after 2 p.m. on Friday were broken after several stock exchange operators deemed them erroneous.

Exactly one minute of trading in the audio communications company was deemed "clearly erroneous," a Nasdaq OMX Group (NDAQ) spokesman said. Trades executed between 2:06:00 p.m. and 2:07:00 p.m. at or below the price of 29.71 will be broken, according to a statement from Direct Edge.

At 2:06:42, the New York Stock Exchange received a large order to sell shares of Plantronics , sending its stock price to 30.59, from 31.28, according to a NYSE statement. That movement triggered the exchange's liquidity replenishment point system, which slows NYSE-listed stocks at times of heavy market volatility. Meanwhile, on other exchanges, the share price fell to as low as 24.44, according to NYSE. Nasdaq officials declined to comment further. Plantronics wasn't available for comment.

Plantronics ' drop of nearly 28% would have triggered a circuit-breaker if the stock belonged within the Russell 1000 index. With a market capitalization of under $1.5 billion as of Thursday, Plantronics is within the Russell 2000 index of small-capitalization stocks, which currently doesn't have any single-stock circuit breakers tied to it.

Yet another visual presentation of broken markets:

Comments

[HelluvaEngineer]

POMO sure is working well today. I'll be covering all shorts tomorrow after the FOMC

[firstdivision]

Who cares, the NBER just announced the recession ended in June 2009.  Rally on folks.

[George Costanza]

the are clearly bugs in the algos, and that incompetence SHOULD result in money losing trades.  But the incompetent are protected.   Atlas just shrugged again.   Increasingly in our economy, the wealth generating people are disengaging.

[MarketFox]

Remove MM's stub quotes...

And then THESE go away.....

THIS is a MARKET MAKER PROBLEM .....

.......................................

Putting in token stub quotes to satisfy MM legal status is the issue....does not a market make....

[Bearster]

Come on Tyler...  You are enough of an Austrian to understand that in times of crisis it is the **BID** which is withdrawn.  Never the offer.

This would be happening whether we were forced to trade in slow motion using guys screaming at the tops of their lungs waving scraps of paper over the heads, or at high speed using millisecond computers.

As you have done a great job documenting, the market structure is broken and people continue to withdraw their marbles to find another sandbox to play in...

[tmosley]

You've obviously never heard of Zimbabwe.

Gold has been no offer there for years, among other things.

[Ted K]

Don't worry about HFT, just buy NYSE stocks.  FINRA is policing trades on NYSE now, so no worries.  FINRA always has small investors at heart.  After all FINRA is not just there to fuck small traders on a roughly 1/4 of a point on the buy and 1/4 of a point on the sale.  FINRA is there to make sure ALL investors have "liquidity".

 Same with hedge funds, and derivatives, they mainly exist for "liquidity"---but that goes without saying of course.

[Grand Supercycle]

DOW weekly chart shows key resistance around 10,700

http://stockmarket618.wordpress.com

[jmc8888]

There seems to be a malfunction with the AE-35 unit. 

HAL

[b_thunder]

your stop-loss orders are now oficially useless.  it's a matter of time until they will be "picked up"  at 50% off the previous tick's price.

[Reductio ad Absurdum]

Another incident from a couple weeks ago:

http://www.cnbc.com/id/38990098/Mattel_Shares_Plunge_Briefly_Before_Mark...

Mattel shares abruptly fell nearly 22 percent in premarket trading Friday [Sept. 3] for unclear reasons before recovering an hour later.

In a five-second burst beginning at 7:49 EDT (1149 GMT), 23 trades involving 8,000 shares were made at a price of around $16.98, or $4.68 below Thursday's closing price of $21.66.

[Hunch Trader]

Soon you will not get out of your positions anymore because they will be deemed 'erroneous' because they caused the market to go lower.

So tomorrow you will have your stocks back, which you thought you sold...and you sell them again, like thousands or even millions of others, and the market plunges again, and your sales are reversed again...

No way out.

[reading]

http://www.youtube.com/watch?v=1ygI3BZxdCY

[working class dog]

I wish the maintenance man for the robots would open the engine hood and pour ice cold salt water on to the hot engine block, than we can watch all the king's horses and all the kings men try to put Humpty Dumpty back together again, LOL

[Ray Pellecchia]

Tyler -- I haven't seen the Dow Jones piece (anyone have a link?), but I think the NYSE statement it refers to is our blog:

http://exchanges.nyse.com/archives/2010/09/how_nyse_dampens_volatility_an_example_from_todays_trading.php

Excerpt:

Today at 2:06:42, NYSE received a large sell sweeping order in stock PLT (Plantronics Inc.) that traded from 31.28 to 30.59, triggered the LRP. This created a slow event that allowed the DMM (designated market maker) to price the imbalance and seek contra side interest. The DMM was able to locate contra side and at 2:07:22 traded 16,600 (shares) at 30.81. Meanwhile the stock continued to trade during this time period down to 24.44 in away markets. The stock quickly reverted back to the price where the NYSE was quoting at 30.89. Since this stock is not in the Russell 1000 but rather in the Russell 2000, no Volatility Trading Pause was triggered.

The other exchanges subsequently announced they would break any trades between 14:06:00 and 14:07:00 ET today, at or below the price of 29.71. On NYSE, customers never traded at bad prices.

People sometimes ask why NYSE has a trading floor, or what it means to have market makers with real obligations to make a fair and orderly market, or why we have LRPs. This example is the best possible answer to those questions.

 Thanks, Tyler.