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The Nasdaq's Totally Arbitrary "Flash Crash" Cutoff For DKing Trades Of 15% From NBBO Provides A Great Arb Opportunity

Tyler Durden's picture




 

Now that the PGN crash is done and over with, we decided to look at just what shares the NASDAQ decided to DK (in other words deem invalid), and which would stay. Assuming a fair and efficient market would mean all trades should stay, and the algos that were pushing the offer all the way to $4 should eat their losses, just as those who bought at $4 should keep their profits. On the other hand, assuming the whole episode was seen as one big error, then any trades that diverged from the prevailing NBBO before the crash of around $44, should be DKed. To our astonishment, the NASDAQ picked the totally arbitrary number of 15% to set as a threshold on DKing, meaning that any trades executed above $38.10 would stay, while every trade at $38.10 and below would be cancelled. As there were thousands of shares changing hands above this cut off, we are confident that many people will be very, very pissed, especially if they sold at the last accepted price of $38.38/share (see chart below). We urge if any readers traded PGN, or know of people who sold above this threshold, or, even worse, were stopped out and now see their trades stand, to immediately i) write us and describe their situation, and ii) to contact legal counsel and sue the NASDAQ for damages for setting a completely arbitrary cut off on what the exchange deems valid HFT manipulation, as opposed to outright insane. And much more importantly for everyone else: immediately set limit buy orders at 15% below the NBBO in eacn and every stock, with a subsequent sell limit the second stocks are unhalted. This will guarantee you that each and every time there is an HFT flash crash you will make lots and lots of money, courtesy of a market so broken, now apparently even the aliens are coming to help us.

 

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Mon, 09/27/2010 - 16:45 | 608167 Everyman
Everyman's picture

There was also a "Flash Crash in the ^RIFIN today as the "days range showed 778 to 439.  This is getting a bit out of hand.

ANYONE got a Chart?

The markets are going VERY UNSATBLE!

 

Instability, Bitchez!

Mon, 09/27/2010 - 18:23 | 608414 overbet
overbet's picture

The SEC wants market participants in there daily providing liquidity to prevent these kinds of crashes, but there is no point to that.

When the exchanges have no set rules and randomly break trades why would I risk my money providing liquidity. Exchanges are discouraging liquidity providers. They only get to keep the bad fills. Im not doing that.

 

Bring your algo into the market that fires orders out like a gattling gun and if you screw up we'll bail you out. What a sweet deal.

Look at this one from a few days ago where they busted the trades as close as 3.5%

10:42 AM 09/15/2010
Market Operations Update
CEE Review Initiated for NWI PRC
The NYSE has determined to cancel all trades in NUVEEN MARYLAND
DIVIDEND ADVANTAGE MUNICIPAL FUND 3 (NWI PRC), executed at or above
$10.65 between 09:48:05 am and 09:50:52 am ET today.

This decision is not appealable.

 

This thing was trading at $10.25 a share and they bust everything over $10.65 and it does hardly any volume. Are you kidding?

Here is one where the trades actually stood, but they still reviewed it and considered busting them. This god damn thing is a < $1.00 a share pharma stock and they reviewed trades and considered busting them up 50%....its the most volatile type of stock i know of, how can they consider busting these.

The NYSE / NYSE Amex has reviewed executions in CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, (KUN) between 12:04:38 and 12:08:09 ET today.

These executions will stand. This decision is not subject to appeal.

 

I bought RMBS the most recent time it plummitted intraday (yes its happened more than once). I stepped in and caught a falling knife in a stock that was tanking hard and then it recovered miraculously within a few minutes. I sold my shares and then they busted the buy so now im illegally short and losing a buck on my illegal short cause the stock rallied more from where i sold it. I was risking my own capital to stop an out of control algo and i get punished.

 

Obama we need some of that special change you sold us on over here in our markets.

 

 

 

 

Mon, 09/27/2010 - 19:05 | 608487 Gold...Bitches
Gold...Bitches's picture

The SEC wants market participants in there daily providing liquidity

Hey now, come on.  Someone didnt get the message - HFT's just provide needed liquidity.

Tue, 09/28/2010 - 05:07 | 609451 ZeroPower
ZeroPower's picture

You don't trade the RIFIN so your point is moot.

Mon, 09/27/2010 - 16:48 | 608183 Magua
Magua's picture

Not so sure there will be a chance to make money on it, as software engineers at HFT firms everywhere are writing it into code tonite. Any bet that "flash crash" stocks drop 15% in a nanosecond only to stop, and move back in a flash.

Just to let you know, they have bigger computers than you..

Mon, 09/27/2010 - 16:49 | 608185 Mongo
Mongo's picture

Alien crash, now that would be something!

Mon, 09/27/2010 - 16:53 | 608195 MiguelitoRaton
MiguelitoRaton's picture

That 15% cut-off is superfluous since the trading is halted at a 10% loss...ooops.

Mon, 09/27/2010 - 16:55 | 608198 Tyler Durden
Tyler Durden's picture

Except when it isn't, like in this case. Stuxnet4eva!

Mon, 09/27/2010 - 17:01 | 608209 Careless Whisper
Careless Whisper's picture

gangsta government, meet, we the people

35,000 views in one week:

http://www.youtube.com/watch?v=AmBjG7ALvjc

 

Mon, 09/27/2010 - 17:10 | 608231 faustian bargain
faustian bargain's picture

That's pretty sweet. First Keynes vs Hayek, now this.

Mon, 09/27/2010 - 18:35 | 608432 PuppetRepubl1c
PuppetRepubl1c's picture

awesome video thanks!  :)

Mon, 09/27/2010 - 19:02 | 608481 Conrad Murray
Conrad Murray's picture

Thank you for that.

Mon, 09/27/2010 - 17:04 | 608214 Pining for the ...
Pining for the Fjords's picture

OK, that's it.  I'm taking whatever hit I have to on my 401k and getting out.  This insanity will not end well.

Plus, once the Fed announces QE2 the 6-month clock is ticking on Tyler's financial pockly-clipse.  I'm outta here...

Mon, 09/27/2010 - 17:05 | 608218 Miramanee
Miramanee's picture

The best part remains that everyone in my small town still "thinks" that the economy is recovering because the the DOW is up. HFT + PPT + a little hydrocodone = Economic Recovery 2010.

Mon, 09/27/2010 - 17:05 | 608219 NumberNone
NumberNone's picture

That's been my concern all along.  15% is a bullshit, picked-out-of-the-air number.  Skynet will quickly figure this out and soon we'll see deliberate HFT crashes to pocket that 15%...if we are not already.

Mon, 09/27/2010 - 17:10 | 608230 Careless Whisper
Careless Whisper's picture

soon we'll see deliberate HFT crashes to pocket that 15%

correction: 14.999999999999999999999999999 %


Mon, 09/27/2010 - 17:45 | 608315 NumberNone
NumberNone's picture

It's even more fucking devious than I thought.  Those bastards!!

Mon, 09/27/2010 - 17:09 | 608228 ArsoN
ArsoN's picture

I guarantee that if they made the trades stand couple of times you wouldn't see this nonsense going forward.   

Mon, 09/27/2010 - 17:19 | 608249 Id fight Gandhi
Id fight Gandhi's picture

I agree on that.

Mon, 09/27/2010 - 17:10 | 608232 anonnn
anonnn's picture

DK + deemed cancekled?

A 2-minute GOOGLE search finds no use of DK wit this meaning.

Are you an insider who does not want others to understand?

Mon, 09/27/2010 - 17:11 | 608234 ArsoN
ArsoN's picture

don't know

Mon, 09/27/2010 - 19:06 | 608494 Conrad Murray
Conrad Murray's picture

A "0.11 second" Google search, producing 15,800,000 results, netted this as the top result:

http://www.investopedia.com/terms/d/dk.asp

Mon, 09/27/2010 - 19:20 | 608511 Missing_Link
Missing_Link's picture

Donkey Kong.

Barrel-smashed.

Mon, 09/27/2010 - 17:11 | 608233 goldmiddelfinger
goldmiddelfinger's picture

I'd be pissed if my BUY were filled at $4, $5, $6 and cancelled ! However, If anyone carbon based has a stop loss set NINTEY PERCENT BELOW market, please, please, sue your broker and then get out of the market entirely.

Mon, 09/27/2010 - 17:31 | 608278 Dixie Normous
Dixie Normous's picture

What if you are short (and still alive) and like to put in ridiculously low GTC orders?

Mon, 09/27/2010 - 17:25 | 608266 Id fight Gandhi
Id fight Gandhi's picture

They need to cut the shit and fix this. Nobody wants to trade or hold in a marketplace that is falling apart.

How will they prevent a big flash crash with hundreds or thousands doing this at the same time?

Mon, 09/27/2010 - 17:32 | 608282 tmosley
tmosley's picture

Oh boy, now we're gonna have flash crashes every day.  Next it will be one an hour, then one every five minutes, then all traded stocks will have continuous flash crash cycles with a period of 20 nanoseconds.

This is the definition of moral hazard.  Awesome.

Mon, 09/27/2010 - 17:57 | 608364 Quicksilver
Quicksilver's picture

Maybe this is what they are hoping for. By setting a 15% cut off retail investors are encouraged to put orders in about 15% below market value, which gives the algos something to fight over and builds a bit of depth in the market, making the next flash crash a lot less noticeable. The market is still broken, but this could be trying to mask the problem.

Mon, 09/27/2010 - 18:01 | 608372 whereismyorange
whereismyorange's picture

How come we only see downcrashes, and never upcrashes where stocks go to infinity?

Mon, 09/27/2010 - 18:23 | 608415 Tortfeasor
Tortfeasor's picture

You have to have infinite money in your acct to make the trade

Mon, 09/27/2010 - 19:06 | 608492 dukeness
dukeness's picture

Give Ben time.  He's printing as fast as he can.

Mon, 09/27/2010 - 18:36 | 608437 cocoablini
cocoablini's picture

I knew it.

Just put stink bids on a variety of stocks. Somewhere near 75%. Then when the HFT machines are crashing the stock to collect it cheap, you can ride the wave back up.

100% asset valuation by FIAT. The stock can never go down.

These crashes are probes.

Even Cramer(Crymore) has stink bids on stocks to collect on the crash and miracle recovery.

The SEC, which should be investigating this totally rigged system to recapitalize bank reserves by making up "money" on events like this, is mandated to ignore all this.

The banks have to recapitalize their reserves. The only way to make money is not LEND but to play the ponies, arbitrage, pick pocket and make up phoney values. This is just part of the scam.

Mon, 09/27/2010 - 18:51 | 608458 godzila
godzila's picture

Not a lawyer but isn't the NASDAQ allowed to decided of those cut off limits at it's sole discretion (as per it's own market regulations) ?

 

Mon, 09/27/2010 - 19:05 | 608482 dukeness
dukeness's picture

Hit the etrade baby's stocks and he'll crap a pantload.

Mon, 09/27/2010 - 19:04 | 608488 jrh80
jrh80's picture

@orange have you seen OPEN?  :)

@godzila if you can prove negligence I don't think the Nasdaq 'rules' matter.  Not a lawyer either... 

Mon, 09/27/2010 - 19:19 | 608509 Missing_Link
Missing_Link's picture

Set at 14% below the NBBO, just to be on the safe side.

Mon, 09/27/2010 - 21:57 | 608811 williambanzai7
williambanzai7's picture

This is really scandalous. It's like having a mugger tell you I keep 15% after you catch him holding your wallet.

I can't understand how the regulatory people can be so short sighted.

Mon, 09/27/2010 - 23:29 | 608976 Occams Parsimony
Occams Parsimony's picture

I think these flash crashes may be a bit more then you think. It is possible that they are engineered much like currency intervention to test the resiliency of the market. If it is resilient enough Ben and Timmy can use this to offset the federal debt. He just needs collution with the TBTF's (seriously like that would be difficult) and I am quite sure a one time future tax on Banks and Corporations that are hmmm holding a great deal of cash for ...... what purpose?

Let the hedge funds eat each other alive there is no question at all in my mind that there is a plan here.

 I am sitting here balancing my kids college funds with 1/3 QID and 2/3 dividend stocks. This has held up pretty well so far as everytime I but another dividend stock I also rebalance QID.

 

Tue, 09/28/2010 - 09:15 | 609705 Hunch Trader
Hunch Trader's picture

Since there are much more long only investors than ones ready to short, Benny and the boys should just short the living daylights out of the market, collect a cool few trillions and then ride the flash-crash speed recovery back up.

I'm sure the exchange operators would understand to NOT reverse their trades, now that all the rest of the market participants have been conditioned to expect trade cancellations upon flash crashes...

 

Mon, 09/27/2010 - 23:29 | 608990 Godisanhftbot
Godisanhftbot's picture

 I like take these opportunites to wax nostalgic about the time I bought 99 shares of a $20 stock for 1 cent each.

 

 Trade went unnoticed and stood.

 

 The good old days.

Tue, 09/28/2010 - 01:40 | 609213 Grand Supercycle
Grand Supercycle's picture

S&P 500 FINANCIALS INDEX - an important chart:

http://stockmarket618.wordpress.com

Tue, 09/28/2010 - 02:40 | 609264 Mentaliusanything
Mentaliusanything's picture

15% off is a fair Trade but not a penny more.

By extension all stocks that trade on the Nasdaq are 15% over quoted

the Dow 15%

S&P 15%

But first you have to remove all the POMO lipstick and the fake tits to find unadulterated stock prices then you may have your 15% off.

Where are the arrests for the criminal activities/ corruption. Surely they have painted themselves into a corner.

 

Tue, 09/28/2010 - 09:19 | 609714 Hunch Trader
Hunch Trader's picture

This is closer and closer to Pakistan where shares are not allowed to go down anymore, unless you burn the exchange.

 

Tue, 11/16/2010 - 10:50 | 730664 daniel
daniel's picture

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