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Questioning The Competency Of The SEC Report's Authors
The fundamental premise behind the entire SEC report is that the accelerated sale of an "outsized" ES block (of 75,000 contracts) caused an avalanche that wiped out $1 trillion in market cap in five minutes. Which very well may have been the case... if the block was indeed big. Below we present the average volume of the front month (on the run) ES traded on a daily basis since the beginning of the year: it average to around 2 million contracts a day. In fact, in the days preceding the flash crash (during which incidentally saw a surge in ES trading to almost 6 million contracts), daily volume was around 3 million contracts. Let's do the math: 75,000 of 3,000,000 is 2.5%! The SEC expects the naive sheeple to believe that a block that was VWAPed (and not slammed on the bid) and accounted for around 2.5% of recent daily volume caused the flash crash??? And that the HFts, who were supposed to provide all this massive liquidity in ES and everywhere else, but decided to shut down, and take away all liquidity, were merely an innocent bystander who gut hurt by W&R's recklessness? Good luck with that. Next week - 22 consecutive outflows from equity mutual funds. Oh, and if the statement in the report: "At the same time, HFTs traded nearly 140,000 E-Mini contracts or over 33% of the total trading volume" is indicative of the competency of the porn addict or porn addicts who wrote this report, we are all doomed.
And here is what 75,000 contracts look like scaled to the previous day's volume of around 3 million ES contracts.
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LOL! NICE visual!
+1 HAHAHAHAAHAHAHAAAAAA!
I honestly cannot imagine a world without ZeroHedge. God bless you, "Tyler".
CNBS has replaced this story twice due to the reply section heckling and now apparently has negative response filter set at full retard.
Wait, so is HFT causing what would otherwise be a perfectly normal market to flash crash?
Or is HFT just the latest way to cash in on a broken market--broken by, say, fundamentals, incessant central bank manipulations, the plunge into the Greater Depression, etc?
Just askin'
I think it was just insiders dumping coordinated with FED covering their sells, huge loss to the taxpayer and now its brushed off and blamed on some firm in Kansas no one ever heard of.
lets be honest here..
if you are working at the SEC... you are not an expert. Cause if you were an expert, you'd be making a lot more money somewhere else.
figuring out what really occurred is an expert topic.
so a FAIL is to be expected.
So is ridicule!
Retards bitchez!
Tyler,
You should send the link of this post to SEC. If they're morons, at least we should make them know there are people out there aware of their stupidity.
Trust me. The SEC reads everything TD says.
Actually, someone should send this link to W&R for the law suit they should be filing for misrepresentation on the part of the SEC. Maybe W&R should make a large donation to Tyler and ZH crew.
You sure SEC's not too busy with the porn to read ZH?
Previous Day ES Volume graphic should be shaped like a penis. It's quite dramatic as it is, but a small graphic change could help garner the SEC's attention and perhaps they'll get the point.
When they're finished rubbing their junk, they come here and 'flag as'.
Note to SEC: Never go full retard, like this.
That's all it takes to move the markets a 1,000 Dow points? 75k e-mini's? Tempting...
good point +++
Indeed, I had the same thought...this "report" by the SEC seems more like an unintentional challenge.
If you can't beat em, join em:
https://platinumtradingsolutions.com/contact_us.php
Algorithms Bitchez!
Then why don't we all go short on Preparation H.
See what kind of shock wave we can send through the market.
I have a question (!!!) :
WTF is going on with futures market?!?
I dont know, what do you mean?
Food related are down by 3% on average, Energy & Metals are up. Looks like a massive re-balancing or an explosion of a commodity fund.
I might be off, jumpy too much caffeine :)
Could well be, heck at this point I wouldnt be surprised by anything at all!
Civilian govermnent employees fill me with pride.
CASE CLOSED
http://williambanzai7.blogspot.com/2010/10/case-closed.html
Thank you for the outstanding analysis - its a shame that there isn't some means to contrive this issue politically - Mary Shapiro should be convicted of FRAUD & given two (2) additional years for incompetence...ohhh wait, if that were to happen she would be promoted to Larry Summer's old role -
I know someone who was working with the SEC last year as a consultant- not sure if he's still there. A lawyer - nice, smart guy, but didn't seem to have a clue about how the financial markets really worked based on the conversation I had with him.
Full disclosure: it was actually me who caused the May 6 Flash Crash that saw the stock market lose 1 trillion dollars in five minutes before rebounding. I was in New Orleans, on the laptop trying to move money from savings to my checking account to free up cash for a few more HUGE ASS BEERS, and one wrong move. . . Voila. Total meltdown
They are depressingly inept, the SEC. Another bunch of overpaid muppets.
Tyler - you know it wasn't VWAP, right? The SEC even told you that in the report:
"This large fundamental trader chose to execute this sell program via an automated execution algorithm (“Sell Algorithm”) that was programmed to feed orders into the June 2010 E-Mini market to target an execution rate set to 9% of the trading volume calculated over the previous minute, but without regard to price or time."
Surely you understand the problem with a "% of Volume" algo when there's no liquidity? It tries to be a percentage of the volume, then tries to catch up when it falls behind, and basically, yes - like you said (actually, like you said it did NOT do - you seem to think it was a VWAP order) - keeps hitting bids in an attempt to catch up. Of course, that creates more volume, which requires more sell orders. Rinse, repeat. When liquidity dries up even temporarily, effects can be great and spiral quickly.
What would have been most useful in this report, and is thus why it is not included, is to see how many times since May 9 we have had identical or comparable algo executions that DID NOT result in a catastrophic collapse, and why not.
You obviously know that 99 times out of 100 (actually, probably much more than that), this order type wouldn't cause a problem. You had the perfect storm of a market that had just ripped 15% in a straight line up over 12 weeks for no good reason whatsoever, which created ansty longs, and when liquidity dried up even temporarily, given today's fragmented market structure, it didn't take much to set the whole thing ablaze.
I think the biggest battle to fight is the canceled trades one. Why are trades canceled evevery day for no good reason? LQD today definitely doesn't look like algos gone wild to me - it looks like real sellers did a crappy job executing their orders. They should pay the price.
The harder question is how much pain to we expect retail schmucks to take when they ignorantly enter bad orders.
I'm still wondering if there was a temporary pause in liquidity... where were the liquidity providers?
HFTs claim they provide liquidity. Where were they when liquidity dried up? Perhaps they provide only liquidity when it's most convenient...
This sounds like an incident of a bad trade being executed in bad market structure-- and getting very bad results. The SEC's solution, it appears, is to get rid of the bad trades.
Brilliant.
(comment deleted)
The algos that execute this type of order subtract out their size from the previous volume traded and thus their own volume is NOT calculated into the equation. A method set up in the manner you have listed above won't even work on a simulator let alone in real life. 2x check your facts plz
didn't mean to create confusion - %Vol algos volume results in a feedback loop between other %Vol algos. In any case, the missed volume still needs to be "made up" and results in greater selling pressure into an absence of bids.
Questioning SEC competency? In what?
Their job is to manufacture plausible deniability. Granted, you make the plausibility part of it more difficult for them to obtain, but that just means they will have to deny even harder, which they seem to have no problem with.
The SEC has one job -- protect the central bank grifters and control the financial producers. Really just goons, so of course they're idiots, which also explains why they have so much free time on their hands.
It is probably very scary how thin the fabric is that holds the markets together. As Tyler points out on a very daily basis of individual flash crashes, a few of which are detected and posted, are just the cusp of the precipice we are headed towards. Although I also agree with the consensus that this robbery must end, it will most probably end badly.
"And here is what 75,000 contracts look like scaled to the previous day's volume of around 3 million ES contracts."
Tyler, that is one of the funniest things I've seen on ZeroHedge yet! Brilliant!
"At the same time, HFTs traded nearly 140,000 E-Mini contracts or over 33% of the total trading volume"
Yes, I wondered about that bit as well when I read your earlier posting about it.
I wonder what W&R have to say about being tarred as the instigator of the Flash Crash?
DavidC
Im sure W&R were offered a deal to take the heat for this and the FED will hand them $5 billion and a months free trading to do as they please.
WTF, get on it Chuck ...
Flash Crashor or stash cash? Why even waste your breath on the SEC or its explanation? Just a misfire by some HFTer who was setting up his "get out of Dodge" escape pod. If he could screw up the market that much, then just think how quickly the market could vaporize if the HFTers push the eject button en mass! All together now on Goldman Sach's signal.
I'm starting to think that they are saying that human interaction in the market caused the crash. Ergo that if we just let the algos massage it up and scalp mutual funds and pensions all will be well.
New market requirement that would flush every criminal practice out of the market in 1 hour-
Institute 'Captcha' on every buy and sell trade.
If I had enough trailing zeros in my account, I would IMMEDIATELY sell 75,000 contracts. And when the market did NOTHING, or even POPPED UP after my shorting, I'd send the documentary evidence with my account statement to the WSJ, CNBC, and all the other clueless fools.
Oh, I guess the SEC too - but they'll just find out about it when the CNBC news ticker carries it across whatever tranny porn feed they happen to be rubbing one out to.
Well, I never thought a long blue line could ever make me laugh so much!
I'm still trying to figure out what the report really reports....
So far, my conclusion is:
In the afternoon of May 6th all the money (liquidity) in the US stock market suddenly dissapeared for some reason, and after about 20 minutes it suddenly re-appeared, for some reason...
Have I overlooked something?