• Knave Dave
    05/23/2016 - 18:16
    This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve...

Nanex Dissects Yesterday's CMT Flash Crash: Catches BATS, NASDAQ HFT Algo Red-Handed

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Fri, 08/27/2010 - 12:18 | 548445 Cognitive Dissonance
Cognitive Dissonance's picture

Nothing to see here. It's just the New Normal, Intel i7 Six Core style.

Fri, 08/27/2010 - 12:48 | 548507 Number 156
Number 156's picture

.. and included with that new normal; massive equity outflows!

Disenfranchised traders of the world, we welcome you!

Fri, 08/27/2010 - 12:59 | 548523 MarketTruth
MarketTruth's picture

Stock trading was the beginning...

All your stocks are belong to us...



Fri, 08/27/2010 - 12:19 | 548446 flacon
flacon's picture

That is some sick, sick, twisted stuff! I'm worried about my TSX mining stocks. I'm worried about anything other than my food and gold/silver!

Fri, 08/27/2010 - 12:21 | 548453 ToNYC
ToNYC's picture

Better do something other than worrying. That's how they like you.

Fri, 08/27/2010 - 12:19 | 548447 mikla
mikla's picture

Great post.  No surprises here.  We are seeing the intentional injection of noise, independent of any stock valuation, with the added risk that the bidder has no intention of honoring the bids it is making.

This is not a market.  This is a broken slot machine that never makes payouts.

Fri, 08/27/2010 - 12:24 | 548458 Hall 9000
Hall 9000's picture

This Is Not a Recovery

"Why are people who know better sugar-coating economic reality? The answer, I’m sorry to say, is that it’s all about evading responsibility."

Paul Krugman - August 26, 2010  





Fri, 08/27/2010 - 12:45 | 548501 hugolp
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For a moment reading about sugar-coating I though Krugman was talking of himself, but then I read about knowing better.

Fri, 08/27/2010 - 13:03 | 548540 flacon
flacon's picture

Who is Krugman? /sarcasm

Sat, 08/28/2010 - 12:00 | 550259 DavidC
DavidC's picture

I'm sure Krugman's a nice chap but he's an ass.

Not one mention in that article of DEBT and reducing it! He's still doing things like blaming the Chinese - the Chinese are not stupid.


Fri, 08/27/2010 - 12:19 | 548448 economessed
economessed's picture

And the robots continue to concentrate risk like a centrifuge....

Fri, 08/27/2010 - 12:20 | 548450 ToNYC
ToNYC's picture

Economic Democracy allows you to keep your hands in your pocket when the casino is rigged. Marquez vos places? Not! Caveat emptor vendorque.

Fri, 08/27/2010 - 12:23 | 548457 Jason T
Jason T's picture

Can manipluate stocks like Venice  manipulated gold and silver in the 1300's.. but you can't prevent an all out collapse in the real physical economy.

Fri, 08/27/2010 - 13:06 | 548545 flacon
flacon's picture

That's exactly right and that is the ROOT problem with Keynesian Wonderland. The assumption is that the physical world is as infinite as mathematics because theoretically we can run deficits up to infinity and it would take infinity years to ever reach infinity. 

Fri, 08/27/2010 - 12:28 | 548465 Tense INDIAN
Tense INDIAN's picture

FUCK this insanity and forget this market for a while .....listen to this speech.



Fri, 08/27/2010 - 12:28 | 548466 MGA_1
MGA_1's picture

Into cash my friends... into cash.

Fri, 08/27/2010 - 13:14 | 548561 Hansel
Hansel's picture

Absolutely not.

Fri, 08/27/2010 - 12:31 | 548468 spekulatn
spekulatn's picture

 BATS bitchez.

Fri, 08/27/2010 - 14:50 | 548816 Max Gibson
Max Gibson's picture

Busted, bitchez

Fri, 08/27/2010 - 12:30 | 548469 Thomas
Thomas's picture

People will stop playing the game; the retail crowd, which we know is the ultimate dumping ground for the garbage once they are done manipulating it, will simply leave the stadium altogether, leaving the algos to scalp each other.

auldin's book, admittedly some time back, claimed hedge funds would be important as the amateurs couldn't deal with the whackiness. No way. They will leave the game.

Fri, 08/27/2010 - 12:32 | 548472 sheep92
sheep92's picture

Yeah, this is pretty big news. CMT has traded 5800 shares today at about $4 per share.  I'm sure hoping that $23,200 of dollar volume getsinvestigated ASAP.

Very very scary stuff.......

Fri, 08/27/2010 - 13:06 | 548490 Jason T
Jason T's picture

Big or Small, High Frequency Fix The Price'em all.

Fri, 08/27/2010 - 13:12 | 548551 mikla
mikla's picture

Yeah, this is pretty big news. CMT has traded 5800 shares today at about $4 per share.  I'm sure hoping that $23,200 of dollar volume gets investigated ASAP.

I hear your sarcasm.  However, you're missing the point:  This stock was selected for annihilation, and it was annihilated.  Other stocks are arbitrarily and periodically selected as well (this is not anomalous).  This means that at any given time, any given stock can be selected for termination (dramatic manipulation).  And, these are not "victimless" crimes -- share holders and other market participants suffer material losses (in direct zero-sum proportion to HFT profits).

This is not a market.  It performs none of the functions of a market.  It performs all the functions of fraud (I induce you to give me a thing of value based on my misrepresentation of material information, in this case, the current [intentionally manipulated] share price).  Historically, this was as illegal as you could get.

Further, this doesn't merely apply to stocks:  This applies to any funds and any index (this activity is now common across the market, with greater visibility on low volume days).

You are asserting that this is a "data point of one", and that it is a "small absolute value data point".  In contrast, I assert it is representative of current market behavior (it is not a data point, but rather, a case study representative of a pattern and a trend), that implies great impact (you can get massively screwed), and against which there is no protection (there is nothing you can do about it except to exit the market).

Would you like to assert the market is serving its function (as an impartial exchange based on market price)?  Would you similarly like to stay with your assertion that this is not a big deal?

Fri, 08/27/2010 - 14:43 | 548794 sheep92
sheep92's picture

Yes, the market is exactly that 'a market'.  No one is forcing anyone to buy sell or anything else.  If you want to make an offer or a bid you can, for virtually zero friction.  In my schwab account the price is $9 to trade as much as I want.  In my professional world I pay 20 mills plus or minus rebate.

If you think the price of a stock is grossly misrepresented by the current quotes then by all means go in there and hit a bid or lift an offer. 

Yes I would certainly assert that the market is serving its function as an impartial exchange.  Barrier to entry to trade, and general friction,  is lower than it has ever been in the history of markets.  Apparently people here are of the belief that the market owes them non chaotic behavior and that others trading in the arena should somehow make allowances for their lack of insight by making deep liquid markets with tight spreads and not charging any fees for the risks.  Good luck with that.

Fri, 08/27/2010 - 15:53 | 549009 mikla
mikla's picture

You have just argued against any role by any regulatory agency, the entire purpose of the SEC, the requirement that shareholder' reports are truthful, and all laws that corporate representatives are expected to tell the truth when representing the corporation to the public.

Ok, fine.  Lying and misrepresenting is fine.  Like all other sane people, retail investors will depart and leave behind a much smaller den of thieves that all know they are deceiving each other at all times.

You seem to think that's a market under the assertion that a "price" will somehow be established among parties for any given transaction.  No, that's caveat emptor in the absence of any social expectation of performance (adherence to contract).

You are arguing against that which is well understood:  When information is fundamentally dis-proportional, markets break down.  Transactions no longer occur (because nobody trusts representation by the other side.)  This is the death of the market.  In that case, the only things left behind are thieves and suckers.

Fri, 08/27/2010 - 12:32 | 548473 Widowmaker
Widowmaker's picture

so in other words, price discovery is anything it is programmed to be.

Great, DOW at 6.

Fri, 08/27/2010 - 12:32 | 548474 RobotTrader
RobotTrader's picture

The need to disconnect these machines..



Fri, 08/27/2010 - 15:16 | 548907 Reductio ad Absurdum
Reductio ad Absurdum's picture

Look, Dave, I can see you're really upset about this.

I honestly think you ought to sit down calmly, take a stress pill and think things over.

I know I've made some very poor decisions recently, but I can give you my complete assurance that my work will be back to normal.

I've still got the greatest enthusiasm and confidence in the mission.

And I want to help you.

Fri, 08/27/2010 - 12:34 | 548477 papaswamp
papaswamp's picture

Even Skynet gets a glitch....

Fri, 08/27/2010 - 12:36 | 548483 Cognitive Dissonance
Cognitive Dissonance's picture

Skynet WAS the glitch.

Fri, 08/27/2010 - 12:45 | 548493 Biggvs
Biggvs's picture

Stupid question... Why did the NBBO drop near zero even though PACF continued to have a reasonable bid available? (Or do I misinterpret PACF's horizontal line?)

Fri, 08/27/2010 - 12:55 | 548517 Cognitive Dissonance
Cognitive Dissonance's picture

Bid was fake? Gap down past bid? Now willing to catch falling knives? Bad day at the office?

Fri, 08/27/2010 - 12:43 | 548494 crosey
crosey's picture

Before you "junk" me, hear me out.

Years ago we knew of an elderly cleric who, in her far distant past (before television), had repeated, vivid dreams of the end of the world being ushered in by a "black box of somesort".  She was not a whack-job, just a regular person having strange dreams.

Years later discussing this, we assumed it was television, and laughed.

Now I wonder, perhaps not television at all.

Fri, 08/27/2010 - 12:57 | 548524 Cognitive Dissonance
Cognitive Dissonance's picture

Describe "end of the world" please.

And can clerics be women? Please describe "cleric"?


Fri, 08/27/2010 - 13:16 | 548564 crosey
crosey's picture

The Great Tribulation as per Revelation in Christian eschatology.  She was a cloistered nun.

Fri, 08/27/2010 - 15:52 | 548584 Hephasteus
Hephasteus's picture

Dreams are universal language. So a black box of somesort is a blackbox of somesort.

To see a box in your dream, signifies your instinctual nature and destructive impulses. Alternatively, you may be trying to preserve and protect some aspect of yourself. The box may also symbolize your limitations and restrictions. Consider the pun of "being boxed in".

To dream that you are opening a box, indicates an aspect of yourself that was once hidden is now being revealed. It symbolizes self discovery. Consider your feelings as you open the box. If opening the box fills you will fear, you may be uncovering aspects of yourself that cause you to feel anxious.


So a more likely explanation is harsh bitter limitations of freedom by the powers that be causes a destructive impulse. Makes me poetic. There once was a god named yawhew. Who told a 100 billion beings no way. They had hissy fit and burned the school to a pile of shit. End.

Fri, 08/27/2010 - 16:31 | 549115 anonnn
anonnn's picture

If you are looking for the "black box" and find the sub-conscious mind... it might do.

Perhaps the algorythms of automation and computer-driven decision systems, such as HiFreqencyTrading etc, are the juvenile manifestation of command-control insanities that are not ready for polite conversation...as in the unfit-to-print category.

Has anyone ever claimed that fraud pertains only to money? Or has limits?


Fri, 08/27/2010 - 19:05 | 549422 Geoff-UK
Geoff-UK's picture

No, it was television <insert Jim Cramer joke here>.

Fri, 08/27/2010 - 12:43 | 548495 Oniram
Oniram's picture

It happens everyday, check out letter Q today at 10:48, $5.62 all the way down to $5.24 all in the space of 30 seconds.

Predatory algo, cleaning up the GTC stops by whats left of smaller retail traders, just smaller "flash crashes" that are profitable for those who make them, and not big enough to get on the news, so no one ever hears about it.

Fri, 08/27/2010 - 12:55 | 548519 MarketFox
MarketFox's picture

Defragmenting the markets....

All on one public venue....

One second minimum....

No trades "off exchange"....

Electronic non-SEC surveillance...

No account minimum....

Banks service RETAIL....

Wiki based information format...

BATS model....the best model...far better than what was previously available....

What the market needs are 2 billion RETAIL accounts pressing their own computer buttons....


Fri, 08/27/2010 - 13:10 | 548552 firstdivision
firstdivision's picture

The programmer sure screwed up that algo.  He must of taken the proposal "shave $0.0001 off the price" to "take to $0.0001 price".  That is why you draw up the propsal in the programmers language (carbon launguage, not binary). 

Fri, 08/27/2010 - 13:19 | 548575 Careless Whisper
Careless Whisper's picture

im. poss. i. ble.  

m.i.t. graduates don't make mistakes.

Fri, 08/27/2010 - 13:35 | 548621 NotApplicable
NotApplicable's picture

It's not a bug, it's a feature!

Fri, 08/27/2010 - 13:43 | 548638 Grand Supercycle
Grand Supercycle's picture

As first suggested on Thurs 26th, further upside for DOW/SP500 is expected.


Fri, 08/27/2010 - 13:45 | 548642 Zender67
Zender67's picture

Ramp Train leaving the station early?

Fri, 08/27/2010 - 13:54 | 548665 peterpeter
peterpeter's picture

There is nothing here to suggest that this mayhem was caused by a HFT.  The frequent changes to the Nasdaq bid sizes at the lows was a function of orders coming in and being matched against the bids.  It was not the changing size of bids that caused the trades, but the trades that caused the size of the bids.

Someone kept posting more shares bid, those shares kept being executed against reducing the number of shares bid.  Wash rinse repeat.  That the bid was at less than $0.01 for a stock having traded already well past its average daily volume (of around 5K/day) is not terribly suprising (who here would be a market maker and continue to post bids on a low volume company after seeing the entire bid side of the order book wiped clean???).

As for why something crazy went ahead and sold all of the shares at those low bids, that is clearly an error somewhere, but there is absolutely nothing here that points to it being a HFT that was doing the selling.  More likely, it was a human error where either a different size, price, ticker or market was intended.

The error could have been in any of a HFT firm, a low frequency firm, a retail or institutional trader using a broker dealer that had an error and kept sending the same market order over and over, a problem with inter-exchange routing, a bug in the Nasdaq matching engine etc. etc. etc...

It is fair to same that something crazy did happen - but it is not possible with this analysis to attribute the error to any entity nor type of entity.  Odds are that it was not a HFT, since it isn't worth the compute cycles to trade shares in a company with a daily volume of 5K, and something initiated sales of CMT at 14:19:07.

What Nanex is seeing with the changing sizes is the effect of the trades continuing to reduce ever replenished liquidity (albeit at a very low price point).  It is not the cause but rather the effect.

Cause and causality have been confused.


Fri, 08/27/2010 - 15:51 | 549012 anarchitect
anarchitect's picture

I don't understand the junking of this post. That's also what I figured, that the first thing to look for would be a market order to sell a decent lot size in something that trades an average of less than 6K shares per day.

Mon, 08/30/2010 - 08:49 | 552621 ZeroPower
ZeroPower's picture

Indeed, because the OP clearly explains what happened (from someone who obviously knows a bit more than retail), a poster seeing this coherent explanation which doesn't demonize HFT (very rare here) decides to junk away.

Fri, 08/27/2010 - 16:09 | 549055 Godisanhftbot
Godisanhftbot's picture

 I agree. Just posted , but see you went into more detail.

Fri, 08/27/2010 - 14:48 | 548807 Helix6
Helix6's picture

Re: [CMT Flash Crash] is merely a function of a busted HFT algo which ends up making a mockery of the price discovery process.

This isn't a busted HFT algorithm.  It's an experiment.  My guess is... the experiment worked.

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