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SEC Releases Final Flash Crash Report - Waddell And Reed Blamed As Selling Catalyst

Tyler Durden's picture


100+ pages of garbage, and yes, Waddell and Reed, and their destructive hedging trade of 75,000 e-minis is the culprit that apparently set everything off: "At 2:32 p.m., against this backdrop of unusually high volatility and thinning liquidity, a large fundamental trader (a mutual fund complex) [ZH: Waddell and Reed] initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position." Apparently, its was all evil W&R's fault who traded in conjunction with an even more evil VWAP algo: "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. However, on May 6, when markets were already under stress, the Sell Algorithm chosen by the large trader to only target trading volume, and neither price nor time, executed the sell program extremely rapidly in just 20 minutes." In other words, there never was, is and never will be any liquidity in the allegedly most liquid market - ES. Good luck to all those who hope to sell the second there is a second flash crash.

And here is the initial mention of HFTs:

HFTs and intermediaries were the likely buyers of the initial batch of orders submitted by the Sell Algorithm, and, as a result, these buyers built up temporary long positions. Specifically, HFTs accumulated a net long position of about 3,300 contracts. However, between 2:41 p.m. and 2:44 p.m., HFTs aggressively sold about 2,000 E-Mini contracts in order to reduce their temporary long positions. At the same time, HFTs traded nearly 140,000 E-Mini contracts or over 33% of the total trading volume. This is consistent with the HFTs’ typical practice of trading a very large number of contracts, but not accumulating an aggregate inventory beyond three to four thousand contracts in either direction. What happened next is best described in terms of two liquidity crises – one at the broad index level in the E-Mini, the other with respect to individual stocks.

Here is the SEC's justification for why HFT-Stop is now a prevalent phenomenon that can occur whenever and wherever the computer participants who account for 70% of the market so desire:

Based on their respective individual risk assessments, some market makers and other liquidity providers widened their quote spreads, others reduced offered liquidity, and a significant number withdrew completely from the markets. Some fell back to manual trading but had to limit their focus to only a subset of securities as they were not able to keep up with the nearly ten-fold increase in volume that occurred as prices in many securities rapidly declined.

HFTs in the equity markets, who normally both provide and take liquidity as part of their strategies, traded proportionally more as volume increased, and overall were net sellers in the rapidly declining broad market along with most other participants. Some of these firms continued to trade as the broad indices began to recover and individual securities started to experience severe price dislocations, whereas others reduced or halted trading completely.

In other words, nothing new, and the primary reason for ongoing market instability: HFT's dominance in the market and its  ability to pull all bids whenever desired, will lead to ever more market crashes. Furthermore, HFTs were merely innocent bystanders in an evil ploy concocted by W&R and VWAP algos which incidentally have worked perfectly trilions of times before, but failed on this one occasions.

And yes, it is nobody's fault really. Here is how the SEC completely ignores the Nanex data that showed quote stuffing (wether involuntary or malicious) was a critical component of the crash.

Some market participants and firms in the market data business have analyzed the CTS and CQS data delays of May 6, as well as the quoting patterns observed on a variety of other days. It has been hypothesized that these delays are due to a manipulative practice called “quote-stuffing” in which high volumes of quotes are purposely sent to exchanges in order to create data delays that would afford the firm sending these quotes a trading advantage.

Our investigation to date reveals that the largest and most erratic price moves observed on May 6 were caused by withdrawals of liquidity and the subsequent execution of trades at stub quotes. We have interviewed many of the participants who withdrew their liquidity, including those who were party to significant numbers of buys and sells that occurred at stub quote prices. As described throughout this report each market participant had many and varied reasons for its specific actions and decisions on May 6. For the subset of those liquidity providers who rely on CTS and CQS data for trading decisions or data- integrity checks, delays in those feeds would have influenced their actions. However, the evidence does not support the hypothesis that delays in the CTS and CQS feeds triggered or otherwise caused the extreme volatility in security prices observed that day.

Nevertheless, as discussed in the Executive Summary, the events of May 6 clearly demonstrate the importance of data in today’s world of fully-automated trading strategies and systems. The SEC staff will therefore be working closely with the market centers to help ensure the integrity and reliability of their data processes, especially those that involve the publication of trades and quotes to the consolidated tape. In addition, the SEC staff will be working with the market centers in exploring their members’ trading practices to identify any unintentional or potentially abusive or manipulative conduct that may cause such system delays that inhibit the ability of market participants to engage in a fair and orderly process of price discovery.

There is no point to event comment on the preceding. By that we mean your confidence in stocks should now be back at 10 out of 10. Maybe even 11 out of 10.

Also, there is absolutely no explanation of why there was "buy side interest" to reappear at the very bottom. And yes, confidence is surging back.


We are currently going through the full report below (pdf).


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Fri, 10/01/2010 - 12:37 | 618533 quasimodo
quasimodo's picture

Phew! Glad they have that problem taken care of.

Pass me the pipe Doc

Fri, 10/01/2010 - 14:19 | 618809 midtowng
midtowng's picture

So, no solutions? No changes? Nothing done to reassure retail investors?

Fri, 10/01/2010 - 22:09 | 620119 euclidean
euclidean's picture

No need to, there's nothing wrong here. So move along people. Boy am I looking forward to the SPX geting back to 1500 and USD back to $1.00 on the back of some good ol' home grown American honesty. There is no conspiracy that complicit incompetence can't make a false pretense of. Onwards and upwards!

The score so far - Congress 12 Sheeple 0. We'll call this half time.

HFS = high frequency sarcasm <off>


Fri, 10/01/2010 - 12:43 | 618547 Bam_Man
Bam_Man's picture

Waddell and Reed kidnapped the Lindbergh baby.

Fri, 10/01/2010 - 13:06 | 618620 faustian bargain
faustian bargain's picture

I heard that Waddell and Reed demolished the WTC. Also they caused the Eyjafjallajokull eruption.

Fri, 10/01/2010 - 13:40 | 618708 unwashedmass
unwashedmass's picture

busy guys. i thought they took out kennedy.

Fri, 10/01/2010 - 13:46 | 618727 Apocalicious
Apocalicious's picture

Waddell & Reed is responsible for global warming.

Mon, 10/04/2010 - 20:01 | 624723 sethco
sethco's picture

They killed Kennedy

Fri, 10/01/2010 - 13:43 | 618721 goldmiddelfinger
goldmiddelfinger's picture

For once Bush gets a break

Fri, 10/01/2010 - 13:47 | 618728 Apocalicious
Apocalicious's picture

Waddell & Reed got Bush elected.

Fri, 10/01/2010 - 13:55 | 618743 knukles
knukles's picture

And now we find that there really is no Waddell and Reed, but for a shell corporation established at yesteryear's Bilderberg conference and chartered under the auspices of the Council on Foreign Relations.


Fri, 10/01/2010 - 14:52 | 618919 sgt_doom
sgt_doom's picture

Hell, faustian, Waddell and Reed are the very culprits who gave that frigging Icelandic volcano it's screwy name.

(Actually, I speak a bit of Icelandic and managed to pick up a babe in a bar as I was the only guy there who could pronounce it!)

Fri, 10/01/2010 - 12:43 | 618548 plocequ1
plocequ1's picture

I have a theory. Being that this market is so fake, Maybe the Dow isn't really green. Maybe it's red, But it's showing green. Maybe the index is not real.

Fri, 10/01/2010 - 12:46 | 618556 Tyler Durden
Tyler Durden's picture

Amusingly, that is precisely what happened in March 2007 when the Dow saw a delayed reindexation and was really down 600 points instead of just 300. Since you may not have been on a trading desk that day, the panic that ensued the second the latency caught up was a sight to behold.

Fri, 10/01/2010 - 13:32 | 618673 traderjoe
traderjoe's picture

Your final comment in the story is the money shot. By blaming the Flash Crash on something so simple as a large (but not out-sized) sell order, they've placed it well within the realm of an any day possibility. Hell, it perhaps would have been better if they blamed it on aliens (do they really only mess with nukes?) or a rare solar flare (Art Cashin tracks the planets).

If all it takes to send the Dow down 1,000 points is a 75k e-mini contract sell order, well how many hundreds/thousands of players are capable of that sort of order? What 10% margin (?) - maybe a $500 million commitment? Governments (terrorists?), hedge funds, mutual funds, etc., etc. Anyone could take the market down. Send out an e-mail to all e*trade customers to sell one contract at 10:01 AM on Monday, becomes insta-flash crash. 

Once again, in the attempt to hide the truth they distance themselves from a solution and guarantee the eventual reset will be that much more abrupt. 

Fri, 10/01/2010 - 15:44 | 619072 Xedus129
Xedus129's picture

If thats true, one could potentially make a TON of money...  Sell, then short the living daylights out of the market and watch the fireworks.

Fri, 10/01/2010 - 14:01 | 618757 Kayman
Kayman's picture

Maybe we're all color blind now...

Fri, 10/01/2010 - 18:11 | 619542 morkov
morkov's picture

trading points are the new devaluation??

Sat, 10/02/2010 - 17:10 | 621253 ZeroPower
ZeroPower's picture

"Since you may not have been on a trading desk that day, the panic that ensued the second the latency caught up was a sight to behold."



Fri, 10/01/2010 - 12:44 | 618550 Bruno the Bear
Bruno the Bear's picture



Just don't do it real, real fast and you are good to go.

Fri, 10/01/2010 - 15:06 | 618964 MarketTruth
MarketTruth's picture

Here is an idea:

GS, JPM and many others trade a large volume of stock at the same time. Think of it like a DOS attack on a website server. Massive shorts and massive longs and if you play it right, then free money for all participants.

Fri, 10/01/2010 - 12:44 | 618553 Fidel Sarcastro
Fidel Sarcastro's picture

Gimme a f*cking break!  75,000 contracts was only about 2.5 to 4% of the TOTAL volume before the crash.  Volume was already good in the ES.

Fri, 10/01/2010 - 12:55 | 618589 -1Delta
-1Delta's picture

I pretty sure i sold 50,000 on the ES two days before the crash- thank god im not being blamed- phew!

Fri, 10/01/2010 - 13:24 | 618660 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

About that....

Fri, 10/01/2010 - 13:26 | 618664 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

About that....

Fri, 10/01/2010 - 12:45 | 618554 HarryWanger
HarryWanger's picture

Thank god that's over with. Fire up those algos and let's get this party started again!

Fri, 10/01/2010 - 12:57 | 618594 Spalding_Smailes
Spalding_Smailes's picture

Can you help me move some of the deck chairs ....

Fri, 10/01/2010 - 13:42 | 618720 frankTHE COIN
frankTHE COIN's picture

Cant right now, the band needs me acapella.

Fri, 10/01/2010 - 12:45 | 618555 Dixie Normous
Dixie Normous's picture

I know for a fact it wasn't WDR.


Fri, 10/01/2010 - 12:51 | 618577 HelluvaEngineer
HelluvaEngineer's picture

Careful - you don't want to get "Chumba'd"

Fri, 10/01/2010 - 13:41 | 618711 Bob
Bob's picture

Gitmo, you think?

Sat, 10/02/2010 - 17:26 | 621283 ZeroPower
ZeroPower's picture


Fri, 10/01/2010 - 12:49 | 618567 SheepDog-One
SheepDog-One's picture

Damn you Waddel and Reid damn youuuuuuuuuuuu!!!

Fri, 10/01/2010 - 12:49 | 618569 medbow
medbow's picture

w&r were on the grassy knoll

Fri, 10/01/2010 - 12:51 | 618578 turds in the pu...
turds in the punchbowl's picture

yeah and e-minis ≈ boxcutters

Fri, 10/01/2010 - 12:55 | 618590 Dr. No
Dr. No's picture

No;  W&R are Lee Harvey O.  The second gunman on the grassy knoll was never found - and nobody wanted to find him.

Fri, 10/01/2010 - 15:59 | 619136 Gwynplaine (not verified)
Gwynplaine's picture

I was reading a summary of this story over on Marketwatch.   The key quote they featured from the SEC report was "There is no smoking gun." 

Well, I feel more than a little cheated.  I expected at least some "magic bullet" theory.

Fri, 10/01/2010 - 12:49 | 618570 Cecil Rhodes
Cecil Rhodes's picture

Who, that little guy? I wouldn't worry about that little guy...

Fri, 10/01/2010 - 12:57 | 618595 Quinvarius
Quinvarius's picture

An underlying problem to our new system is that 12-15 people have all the US wealth concentrated beneath them.  They didn't earn it.  They stole it.  But, they can't make a move without bring down a company, a market, or even a country.  JPM's coal trades and silver trades are a prime example.  They don't even understand how huge they are.  When they get involved in a market, they end up wearing it around like raccoon with its' head stuck in a peanut butter jar.

Fri, 10/01/2010 - 13:21 | 618655 MsCreant
MsCreant's picture

Add in that they set the computers on auto pilot so they can go out and play.

Fri, 10/01/2010 - 14:04 | 618767 Kayman
Kayman's picture

Behind every great fortune is a great time...

Fri, 10/01/2010 - 12:57 | 618597 chinaboy
chinaboy's picture

Waddell and Reed certainly is NOT responsible for mini crashes we have experienced on daily basis.

If the SEC assigns the blame wrong, it helps the real culprit under the cover and keep causing problems.

Fri, 10/01/2010 - 12:57 | 618598 Alex Ljungberg
Alex Ljungberg's picture

This is just a diversion.

I don't think it's a coincidence that Sanders agreed to a watered down version of the Audit the Fed bill on that same day:

The Fed or its operatives sent a message that they did want to be messed with.

Why hasn't this connection been investigated thoroughly?

What did "Deep Throat" say during the investigation into Watergate: "Follow the money?"

Where are Woodward and Bernstein when we need them?


Fri, 10/01/2010 - 12:58 | 618599 Milton Waddams
Milton Waddams's picture

Shhhhh... don't tell anyone that when agenda (asset re-inflation) takes precedent over price discovery you get wild volatility, especially when the former steps aside to determine if it is all clear to return to the latter. Fixed market versus free market. The ruse of the machines.

Fri, 10/01/2010 - 13:00 | 618604 Buttcathead
Buttcathead's picture

I aint buy'n Nuttin.  It's all fake.

Fri, 10/01/2010 - 13:50 | 618740 mule65
mule65's picture

I was never real.  Ever.

Fri, 10/01/2010 - 13:00 | 618606 Bearsharktopus
Bearsharktopus's picture

Kahnnnnnnnnnnnnnnnnnnnnnnnnnnn....... oops I mean Waddel and Reidddddddddd

Fri, 10/01/2010 - 13:01 | 618608 cswjr
cswjr's picture

How cathartic.  I was beginning to doubt our shadowy overlords, but now my full faith [and credit] has been reinvigorated.

Fri, 10/01/2010 - 13:03 | 618614 Fidel Sarcastro
Fidel Sarcastro's picture

Is this for real? "At the same time, HFTs traded nearly 140,000 E-Mini contracts or over 33% of the total trading volume."

140k is not even close to 33% of the total daily trading volume.  These people are idiots.

Fri, 10/01/2010 - 13:34 | 618677 mikla
mikla's picture


We have interviewed many of the participants who withdrew their liquidity, including those who were party to significant numbers of buys and sells that occurred at stub quote prices.

They assure us it wasn't them.

Um, yeah.  Good job.

Fri, 10/01/2010 - 13:04 | 618616 Miss Expectations
Miss Expectations's picture

SEC blows its Waddell.  News at 11.

Fri, 10/01/2010 - 13:58 | 618756 knukles
knukles's picture

Waddell rumored to refuse to buy tranny porn for SEC.  More on Action News as it Squirts.

Fri, 10/01/2010 - 13:04 | 618617 Yellow_Paul_Fra...
Yellow_Paul_Frank_Monkeys's picture

I rarely have to call shenanigans, but this is total garbage.  Not that I care anymore, but at the time I remember I had a copy of 5x5 bid & ask for that total time period.

It was as low as 5 contracts on each side if I remember correctly.  Normally, it is somewhere around 500++ on each side + hidden liquidity each tick under the next best bid or ask.

I also made an equi-volume chart of the ES that day, it is broken up into 75,000 contracts each.  It pretty much confirms this is total bullshit.  If anyone is interested still here you go.  Hopefully the link still works for everyone as I personally do not have my Sierra Charts account anymore.

If for some reason it doesn't work and you are still interested I can just copy and paste the image or something.

Fri, 10/01/2010 - 15:09 | 618979 walküre
walküre's picture

your chart shows volume 75,000

that's the same number as the e-mini contracts W&R is accused of causing the GFC.


Fri, 10/01/2010 - 17:35 | 619439 Yellow_Paul_Fra...
Yellow_Paul_Frank_Monkeys's picture

I should have clarified, my fault.

Back when this originally happened the rumor was 75,000 contracts in the ES crashed the market.  I created this chart that very day, all based off of this same bullshit rumor.

I thought that was total bullshit, so I created an equi-volume chart to take a look at.  Turns out it was indeed total bullshit as you can see where I have clearly delineated how many contracts traded during that whole timeframe.

I'm not sure who they thought was going to be buying into their facade.  I would really like to hear what the people in the pits in the CME had to say as well as the brokers on the floor the NYSE.

Fri, 10/01/2010 - 13:05 | 618618 tahoebumsmith
tahoebumsmith's picture

I'll make sure to Waddell over to the toilet before I Reed any of this shit the SEC is trying to dump on us. At least I will have something fluffy to wipe my ass with. It gives bullshit a whole new meaning.

Fri, 10/01/2010 - 13:06 | 618621 NotApplicable
NotApplicable's picture

...traded proportionally more as volume increased...

That's awesome! Cannibalized HFTs indeed!

Can someone explain the rationale behind blaming the stub quotes? Or are they merely scape-goating those lucky ones who profited from crash?

Fri, 10/01/2010 - 13:06 | 618622 TradingJoe
TradingJoe's picture

And Bloomberg is already "on it", Jesus, nothing is holy anymore! I wish for Benjie to pay for this shit he keeps doing! I am certain, at the right time, he will be The ScapeGoat to all this nonsense! I for once, will pull out, slowly, just leave gold and silver running for a little while longer then get out all together and stay out, in physical stuff you know...! Disgusting how far we've gotten, in the name of MONEY/GREED and POWER! I strongly advise anyone with a second passport to LEAVE! I WILL!

Fri, 10/01/2010 - 14:01 | 618760 knukles
knukles's picture

Not only is Bloomberg carrying the SEC line on Waddell, but this morning they had a recap of TARP, showing some body's claim that virtually all TARP outlays had been repaid in whole, in good shape and on a timely basis.

Happy, happy, joy, joy.  Ren.........


Fri, 10/01/2010 - 14:09 | 618784 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Scapegoat for sure!  TIME cover decrees it.

Fri, 10/01/2010 - 13:06 | 618623 What_Me_Worry
What_Me_Worry's picture

So buying $4.1B of e-minis would make the market go up by 1000 pts?

Fri, 10/01/2010 - 13:41 | 618710 Boilermaker
Boilermaker's picture

You would have to buy it really really fast like.

Fri, 10/01/2010 - 13:08 | 618626 SheepDog-One
SheepDog-One's picture

Wow! After reading this 'baffle em with BS' report I have a sudden strong urge to go buy a bunch of equity stocks!! Is that what theyre trying for? 

Fri, 10/01/2010 - 13:09 | 618628 JohnKing
JohnKing's picture

No, we have more bananas.

Fri, 10/01/2010 - 13:16 | 618643 DonS
DonS's picture

CNBS has the breaking news up and the story had multiple replies calling out the bullshit, so they replaced the article 2 twice and deleted the replies....   media cartel unreal

Fri, 10/01/2010 - 13:17 | 618645 Marc45
Marc45's picture

The obvious simple solution is to install a 1/10th second delay for every quote and trade.

Fri, 10/01/2010 - 13:30 | 618668 tjmc
tjmc's picture

That and/or take away colocation.

Fri, 10/01/2010 - 13:24 | 618659 Bankster T Cubed
Bankster T Cubed's picture

the SEC is complicit in the criminality of our markets

more blatantly obvious every day since they nailed that 14 year old kid in NJ for touting stocks online back in 1999

the whole thing is such a fucking joke - as it must be if goldman effin suchs is going to get away with their daily rape and pillage routine

Fri, 10/01/2010 - 13:31 | 618671 Yellow_Paul_Fra...
Yellow_Paul_Frank_Monkeys's picture

What are you referring to in 1999?  I don't remember that.

Fri, 10/01/2010 - 16:48 | 619293 MichaelG
MichaelG's picture

He now works for Brian Sack.

Fri, 10/01/2010 - 13:30 | 618669 Hype Alert
Hype Alert's picture

" It has been hypothesized that these delays are due to a manipulative practice called “quote-stuffing” in which high volumes of quotes are purposely sent to exchanges in order to create data delays that would afford the firm sending these quotes a trading advantage."

"As described throughout this report each market participant had many and varied reasons for its specific actions and decisions on May 6."

 manipulative practice called “quote-stuffing”

 manipulative practice called “quote-stuffing”

 manipulative practice called “quote-stuffing”

 manipulative practice called “quote-stuffing”






Fri, 10/01/2010 - 13:32 | 618670 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Jones acts like he has never seen Fight Club, calls TD "Durgen".  Also, on the Keiser Report the other day, Stacy dropped multiple articles from here on their news, never saying Zerohedge, instead referring to it as "The Site".  Does Jones get off on a technicality @ 7:11?

The first rule of Fight Club is you do not talk about Fight Club......

Fri, 10/01/2010 - 13:32 | 618675 bugs_
bugs_'s picture

Blamestorm or Blamestuffing? LOL

Fri, 10/01/2010 - 13:33 | 618676 RobotTrader
RobotTrader's picture

Michelle "C-Squared" is sporting some nice cleavage today.

Poor Erin Burnett.

Fri, 10/01/2010 - 13:51 | 618724 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Who cares.  They are both idiots and neither are even remotely attractive at a level that constitutes attention.

Fri, 10/01/2010 - 14:17 | 618807 SheepDog-One
SheepDog-One's picture

Yea really, bunch of pancake makeup whores on CNBS who would never even get noticed otherwise out on the street. $20 whores at best.

Fri, 10/01/2010 - 13:33 | 618678 Gordon Freeman
Gordon Freeman's picture

Chilton's on CNBC right now.  What's up with the dude's hair??

Fri, 10/01/2010 - 13:41 | 618688 virgilcaine
virgilcaine's picture

  Hal runs the show now.  Open the pod bay doors Hal.

Fri, 10/01/2010 - 13:55 | 618746 Apocalicious
Apocalicious's picture

I'm afraid I can't do that, Dave. Waddell & Reed won't let me.

Fri, 10/01/2010 - 14:33 | 618847 faustian bargain
faustian bargain's picture

LOL...the SEC is really a Scientology field office.

Fri, 10/01/2010 - 15:04 | 618959 knukles
knukles's picture

Hur-ray, hur-ray, hur-ray step rideup getchore implants 'ere, git 'em whil'ere hot.  Wachat tranny porn all day long rite dere in yer liddle ol' brain, hard wired, hur-ray.....

New dimension in the Circus portion of the equation.

Fri, 10/01/2010 - 13:51 | 618741 AnonymousMonetarist
AnonymousMonetarist's picture

And Barclays breathes a sigh of relief...

'Universa placed their order on Barclays trading desks, Barclays was selling hard, and a market data feed at Barclays that delivers data on "buy" and "sell" orders went down, although a backup data system purportedly went 'immediately online'...'

Fri, 10/01/2010 - 13:55 | 618747 contrabandista13
contrabandista13's picture

It's all Bull Shit, you know it, I know it, and they know it, al least I hope they do, because if they don't, then we're really in deep shit.....

Fri, 10/01/2010 - 13:56 | 618750 f16hoser
f16hoser's picture

SEC = Island of Misfit Toys. Isn't it time for Mary and the rest of the misfits to go work for GS and JPM?

Fri, 10/01/2010 - 13:57 | 618753 f16hoser
f16hoser's picture

I'll bet Mary was really "something" before electricity!

Fri, 10/01/2010 - 14:04 | 618771 gwar5
gwar5's picture

Let's ask them to do an audit of Porn sites and see how they do. These are the same guys who let Bernie Madoff wander around bilking billions under their noses while alarm bells were going off. 

No wonder these guys want exemption from the FOIA. Porn is serious business and not to be interrupted.

Fri, 10/01/2010 - 14:07 | 618779 f16hoser
f16hoser's picture

Wait abou 6 weeks. SEC will go back and quietly change their story to GS caused the May 26th crash while they try to hide it on page 18D of the WSJ. MSM/Government Regulators do it all the time! Why should this be any different? In 6 weeks this will be all forgotton anyway and the Obama Administration can claim credit for another "job well done!" "See, we caught them and have fixed the problem." "Nothing more to see here!" "Move along sheeple." "OOP's, I mean people."



Fri, 10/01/2010 - 14:12 | 618791 gwar5
gwar5's picture

Right now, CNBC is debating if the USA is a rich, or poor, as a nation. Erin Burnette is treating this as a serious debate.....

Robert Kessler wants to create a class of Federal bonds to sell to the public to fix our debt problem. Offer it, or make them buy it? Upshot is to make Americans buy their own debt, since nobody else wants it. Guess that means we're poor, debate over.

Alternative is to just confiscate money through debasement.


Fri, 10/01/2010 - 14:16 | 618801 Lets Hang Parliament
Lets Hang Parliament's picture

Oh the Infamy! The Infamy! The SEC have got it in for me! Well for W&R anyway. Let's hope their clients understand the complete bollocks that is the SEC report and that they dont lose any (clients not bollocks). Cos that would be criminal.

Fri, 10/01/2010 - 14:28 | 618828 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

Yes it was Waddle & Reed...

  on the grassy knoll

  in space ships over our nukes

  who know where Hoffa is

  who killed Elvis,, Ms Monroe and Mr. Dean

  Behind the waredrobe malfunction at the superbowl

  who put to cocaine in Ms Hitlon's purse

  who is to blame for FinReg, Healthcare, poor poll numbers

  tea party

  the internet porn sites changing from net 30 to pre pay for all SEC Employees- W&R run those sites as a front to hide their seedy side, e-mini investing.

 the blue dress with the "stain"

  missing trillions...

    missing credibility

and the itch on my ass.

The other sensation down there is uncle Ben doing it to me one more time. 

Fri, 10/01/2010 - 14:33 | 618844 j0sh1130
j0sh1130's picture

Tyler: You guys need to get together with some of your large wall street friends that are just as upset as you are and sue the living shit out of the SEC. Sue them for a few trillion dollars and raise some hell. Fuck these guys and this bullshit investigation. Shove it up their ass.

Sat, 10/02/2010 - 17:31 | 621290 ZeroPower
ZeroPower's picture

Sue the SEC? Haha.

Fri, 10/01/2010 - 14:57 | 618934 sgt_doom
sgt_doom's picture

This is exactly what we've all been expecting.

The predictable result from watching too much low-grade porn.

With quality porn, comes quality reports.

If only those guys at the SEC had listened to my advice.

This is truly a sad day for quality porn.

Oh well, back to the q-stuff....

Fri, 10/01/2010 - 15:14 | 618972 knukles
knukles's picture

It's over.
And the joke's on us.

Fri, 10/01/2010 - 15:13 | 618994 walküre
walküre's picture

The new SEC is the old SEC.

But better! Casino stays open. Thank you SEC, we can all be millionaires - again.


Fri, 10/01/2010 - 15:22 | 619014 br0930
br0930's picture

Even if you make the ridiculous assumption that Waddell and Reed's trade of 75,000 e-minis was something that lots of other participants reacted to in a dangerous fashion, pointing to that event as being the important factor in the Flash Crash is beyond ludicrous.

It would be like pointing to a single snowflake at the top of a mountain that tumbled downhill and saying that it caused an avalanche.  In some (very tenuous) sense this might be true, but it was the structure and arrangement of all the snow below that made the avalanche possible.  Single snowflakes get yanked downward by gravity routinely; what matters (and distinguishes the causing of an avalanche with just another snowflake saltating downhill) is the arrangment of the rest of the snow down below.

So too with the market.  It doesn't even pass the basic sniff test:  Could Waddell and Reed's do exactly what they did 100 times in a sane market and not 'cause' a cataclysm?  Of course they could.  So even if you accept the outrageous premise that their action started the ball rolling, you have to totally ignore everything else that actually matters (like how unsupervised machines are trading these days) to come up with this utter crap.

Fri, 10/01/2010 - 15:33 | 619039 walküre
walküre's picture

The 2008 crash was fabricated. We will never hear the truth about the billions of dollars in redemptions. This was a single indvidiual or a group of individuals who colluded to withdraw the funds and flush the markets. In time for the elections.

Flash Crash occured during Senate hearings on financial reform. GS was under lots of scrutiny.

Whatever. It's better to know where they're coming from and just deal with it. Of course its rigged and the SEC is a facilitator disguised as the sherriff.

Fri, 10/01/2010 - 15:26 | 619021 trav7777
trav7777's picture

I can't understand why everyone is taking exception with the SEC's appears to me to be literally true.

However, acceptance of it requires you to make some deductive inferences, the largest of which is that almost all of the trading volume in the ES is bogus.  There IS no real liquidity, there is only algo trading back and forth.  There aren't any real buyers.

So when W&R came in with an ACTUAL sell order of some size, it blew the fucking market up like you would see in any thinly-traded issue for which there was a paper thin bid stack.

Once confronted with any kind of actual sell volume, the HFTs all got the fuck out of the way.  The liquidity that appears to be there in the form of decreasing trading volume is illusory.  The volume is illusory.  In reality, the market is effectively NO BID for any sale of any size, because the HFT algos have chased real liquidity the fuck out of the market by conducting arb spreads against market makers and neutrals.

This is the only way what the SEC says can be true...the but/for cause was W&R's sell, but obviously, the proximate cause was not. Algos have fluffed this market up FAR above what a REAL buyer would be interested in W&R's ES block at.  There certainly were some buyers in size 1000 DOW points down, and maybe some more 1000 below that.  That is where the real, bona fide bids are located.  Between that and where the market sits now is algorithmic vapor quote stuffs.

If ANYONE attempts to sell into this market in size at this price, the market will crash because it is not in any way fairly valued as defined by actual bidders buying actual shares at an actual price.  The algos will see the block and get out of its way, just as they're programmed to do.  They're not interesting in buying anything to hold, just buying it if some arb sale can be done somewhere else immediately.  If that ask doesn't exist or is illusory, the HFT won't buy at bid.

Consequently, they CANNOT back out HFT now because they know that the S&P would likely halve in very short order and that headline number is "suboptimal" for reelection prospects.

Fri, 10/01/2010 - 15:57 | 619125 MsCreant
MsCreant's picture

This sounds plausible. 

Fri, 10/01/2010 - 16:10 | 619184 mikla
mikla's picture

There IS no real liquidity, there is only algo trading back and forth.  There aren't any real buyers. <snip>,


Algos have fluffed this market up FAR above what a REAL buyer would be interested in W&R's ES block at.

I *completely* agree with your analysis.  However, IMHO the SEC should be spanked (hard) for this report:  They fundamentally miss the problem, and they fail in their job to ensure transparency and prosecute fraud.

My complaints with the SEC report is that it asserts the problem was a single big "sell" order (no, root cause is the algos that forced the upward price drift to the point where we have no buyers and no liquidity), and that it has NO recommendations to resolve the issue.  It doesn't even talk about that drift (including fraudulent front-running, and the difference between promoting volume and promoting liquidity).  That's insane:  The powder keg gets bigger by the day.

This is truly a "miss the forest for the trees" report.

Fri, 10/01/2010 - 15:27 | 619026 50-50 with an o...
50-50 with an overlay's picture


The Flash Crash Video Replay Is Fun to Watch:




Fri, 10/01/2010 - 15:50 | 619099 tom
tom's picture

I'm sensing some pent up frustration here Tyler. Maybe you'd like to talk about how you really feel.

Sat, 10/02/2010 - 17:55 | 621345 ZeroPower
ZeroPower's picture

What part exactly do you disagree with?

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