This page has been archived and commenting is disabled.

How 10,000 Contracts Crashed The Market: A Visual Deconstruction Of Last Night's E-Mini Flash Crash

Tyler Durden's picture




 

Via Nanex:

On December 20, 2012, there was an Event in the eMini futures at 20:18:40 ET. The data exhibits many hallmarks of a HFT (High Frequency Trader) market maker absorbing sell orders up to their limit, and then turning around and dumping those contracts as fast as possible. Exactly what happened in the Flash Crash on May 6, 2010 (this documentary on youtube has a great explanation). Only in this case, the original seller appears to be much more aggressive than Waddell & Reed's algorithm. The drop came in 2 seconds, and halted trading for 10 seconds. The flash crash halted eMini trading for just 5 seconds. A mere 10,000 contracts (or $700mm notional) was enough to do all that damage - enjoy.

First 6 charts show our depth maps of the ES.H13 (March 2013 S&P 500) Futures Contract.

1. Close-up of drop, illustration the 10 second gap - when CME stop logic kicked in. Note flash crash only halted for 5 seconds.



2. Overview, showing scale of the drop.

 



3. Large seller may have started at 20:00 (8pm) EST.

 



4. Large Sell orders chase market down.

 



5. Just before 1st big drop, large buy orders get filled, and immediately, large sell orders appear.

 



6. Continuation of Chart 5, more large buy orders filled, and large sell orders start chaising market down.



7. Depth Map of ES.Z12 (December 2012 S&P 500) Futures Contract just before drop exhibits same trading patterns as the March 2013 contract.

 



8. Depth Map of ES.Z12 (December 2012 S&P 500) Futures Contract. Trading in this contract was not halted.

 



9. Depth Map of TF.H13 (March 2013 Russell 2000) Futures contract. Trading in this contract was not halted.

 



10. YM.H13 (March 2013 Dow Jones $5 E-MINI) Futures Contract from 20:17:00-20:21:30

 



11. 100ms Resolution of All futures from 20:18:10-20:20:00 ET

 



Nanex Research

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 12/21/2012 - 20:00 | 3088804 Yen Cross
Yen Cross's picture

 Getgo made out

 Getgo hosed themselves

 

Fri, 12/21/2012 - 20:40 | 3088886 Remington IV
Remington IV's picture

Giving a Machine Gun to a  MONKEY

Sat, 12/22/2012 - 02:14 | 3088914 Yen Cross
Yen Cross's picture

  Literally/ ( loaded with blanks) . Only the Monkey knows he's shooting bids/blanks.

Sat, 12/22/2012 - 08:50 | 3089541 GetZeeGold
GetZeeGold's picture

 

 

It's always funny until the monkey learns how to jimmy the lock to the armory.

Fri, 12/21/2012 - 20:54 | 3088916 malikai
malikai's picture

Only a minute to get in on that. What shit.

Slow it the fuck down!

Fri, 12/21/2012 - 20:02 | 3088810 francis_sawyer
francis_sawyer's picture

Waddell & Reed wish you a Happy Festivus...

Sat, 12/22/2012 - 10:22 | 3089542 GetZeeGold
GetZeeGold's picture

 

 

Oh look.....our popcorn tins from Enron and Lehman has arrived.....finally!

 

......and the boyz from J.T. Marlin wish you a happy New Year.

Fri, 12/21/2012 - 20:04 | 3088813 Jack of All Trades
Jack of All Trades's picture

Just testing a new algo . . .

Sat, 12/22/2012 - 10:17 | 3089589 jerry_theking_lawler
jerry_theking_lawler's picture

EXACTLY! are they testing this 'babies' to ensure the right algo is place to steal everything when the time is right?

Fri, 12/21/2012 - 20:07 | 3088819 HedgeAccordingly
HedgeAccordingly's picture

The initial 32 handle drop took 16 seconds to execute .. no humans allowed - http://hedge.ly/WvDk7M

Fri, 12/21/2012 - 20:08 | 3088820 kliguy38
kliguy38's picture

Depth charge for effect now........target terminated.....poof

Fri, 12/21/2012 - 20:10 | 3088823 HD
HD's picture

Personally, I could do with a few more flash crashes. Only seems fair the algos crush the longs every one in a while...

Fri, 12/21/2012 - 20:41 | 3088887 Everyman
Everyman's picture

Maybe the algos are "learning" they can make money on the flash crash side?

"Uh oh, it tasted long burning!"

 

 

Fri, 12/21/2012 - 22:36 | 3089167 Rogue Trooper
Rogue Trooper's picture

Well they can read the news so why would they stop experimenting and learning.  I'm guessing they will learn that shorting the market and then discussing/negotiating with the robotic 'comrades' in the DoD or elsewhere that they should set off an EMP? It's all about logic.....

/Skynet

Logically pursing the profitability targets for our 'Masters'TM

 

Sat, 12/22/2012 - 11:33 | 3089648 Kobe Beef
Kobe Beef's picture

From a sci-fi perspective, this scenario of sentient machines is quite interesting.

As for the present time, I wonder if we are seeing a "weaponized algorithm" at work, and wonder further who is hunting whom.

Fri, 12/21/2012 - 22:55 | 3089197 mkkby
mkkby's picture

Sad thing is some newbie trader at a small broker will probably get scape goated...  and the sad part is sheeple will believe it.

Sat, 12/22/2012 - 22:56 | 3090711 Iam_Silverman
Iam_Silverman's picture

"Sad thing is some newbie trader at a small broker will probably get scape goated...  and the sad part is sheeple will believe it."  Yup, this poor traders face will be on the telescreen for our Two Minutes of Hate next week.  Poor bastard.

Sat, 12/22/2012 - 10:39 | 3089608 Jafo
Jafo's picture

Shades of William Gibson:- Welcom to AlgoWars

Fri, 12/21/2012 - 20:12 | 3088829 disabledvet
disabledvet's picture

The King of Freqeu Shows just bought the New York Stock Exchange so obviously "spooling up trading" like one would "spool up a film" is...how shall we say it..."de regueur." I would expect there to be a "control" of some type...something that says "our expectation of the trade is to proceed thusly"...and then a ".exe" in which the "spool" is run. Afterwards comes an "after action review" and the "banking of said moolah." Sorry but this is why i believe in efficient market theory: so much is in fact "known" now...and needless to say "all is knowable" given the entire Planet is now one big "surveillance station" (just find the right freque and you're good to go, right?) it's really hard to be able to have an original idea and have it have any meaning (financial or otherwise) since all that "is" can be plagiarized before you even pick up a pencil. (God help you if you do that as well.) In short "he who controls the network wins." i still own an "odd lot" of Comcast from when AT&T owned them http://seekingalpha.com/symbol/cmcsa/ as you can see this equity has been on a TEAR higher. "they're the evil genius" and unless and until Governments start getting serious about "putting a lid on our minds" i think dark days are ahead for humanity. these folks simply have too much money...and this operation is the ultimate in "bread a circus management."

Fri, 12/21/2012 - 20:34 | 3088874 blunderdog
blunderdog's picture

¿Cómo?

Fri, 12/21/2012 - 20:15 | 3088842 Yen Cross
Yen Cross's picture

 That last chart looks like the EKG, of a mouse. ---^---<---v_________________

Fri, 12/21/2012 - 20:22 | 3088855 buzzsaw99
buzzsaw99's picture

pure ponzi

Fri, 12/21/2012 - 20:27 | 3088857 Yen Cross
Yen Cross's picture

100% ponzi.  I guess the ALGOS handle [due diligence] over at Getgo...

Fri, 12/21/2012 - 20:44 | 3088893 buzzsaw99
buzzsaw99's picture

Hello Yen,

$700M notional in trading moves a supposedly highly liquid $12T+ market cap index -2%. What a joke!

Fri, 12/21/2012 - 20:57 | 3088907 Yen Cross
Yen Cross's picture

 Notional ghost bids, that never get filled, and create hypothetical liquidity/

I have listened to Tyler on his HFT posts. I have listened to EKM and some other smart Z/H posters on this matter.

I'm just a beginner, but I love to learn! 

  What I'm learning isn't pretty. The SEC and CFTC are way behind the ( 8) ball.     

 Good post buzz

Fri, 12/21/2012 - 23:41 | 3089247 mvsjcl
mvsjcl's picture

Way behind the cue ball.

Sat, 12/22/2012 - 02:10 | 3089363 Yen Cross
Yen Cross's picture

Just like you?

Sat, 12/22/2012 - 10:44 | 3089616 Jafo
Jafo's picture

Thats only 17.1:1 - what are you bitchin' about?

Fri, 12/21/2012 - 20:35 | 3088877 blunderdog
blunderdog's picture

Well, I guess it'll all turn out pretty cool as long as no one tries to regulate this shit.

Fri, 12/21/2012 - 20:54 | 3088913 nmewn
nmewn's picture

"Exactly what happened in the Flash Crash on May 6, 2010 (this documentary on youtube has a great explanation)."

Thanks Tyler.

Fri, 12/21/2012 - 21:04 | 3088932 Sathington Willougby
Sathington Willougby's picture

Doesn't make a hill of beans what papering nonsense goes on.  Get over yourself Fiatnation.  

Fri, 12/21/2012 - 21:21 | 3088992 Yen Cross
Yen Cross's picture

Like those [banksters in London ] that wash all those petrol$'s every night?  Like those small Asian sovereigns that wash their inflation every night in London vs USD?

  You are a fucking hypocrite!  Fuck off you limey bastard!

Fri, 12/21/2012 - 21:06 | 3088935 magne13
magne13's picture

When and only when the CFTC, SEC and every other regulator out there gets their head out of their rears will this facade of a marketplace begin to show some normalcy.  This is why I do not trade with stops, this is why relative value will always beat any algo and this is why all markets are fake and manipulated.  Anyone that thinks they can actual trade this market are sorely mistaken.  All electronic trading does is it allows predator liquidity stealers to make a mockery of a real market.  Back in the old SP pit, this would have never happened.  This is why all electronic trading needs to be banned, it is illegal and all markets are rigged and not open to real auctions.  The CME is also a large contributor to this nonsense.  If someone wanted to make some real money they would reopen a floor based trading operation that does not allow any elecronic access or cross market orders from any other exchanges.  What a joke, I was long 1420 puts and didn't have the balls to work a 1400 bid 40 handles away from settle, oh well doubled up on em anyway...

Fri, 12/21/2012 - 21:45 | 3089053 RockyRacoon
RockyRacoon's picture

Markets are illegal and rigged... you complain, yet there you are in the thick of it.  How smart is that? 

Sat, 12/22/2012 - 12:08 | 3089671 Kobe Beef
Kobe Beef's picture

He's got a point, though. Open outcry markets would mean more American jobs & less computer-addled fraud perhaps.

Sun, 12/23/2012 - 12:48 | 3091424 Kobe Beef
Kobe Beef's picture

-1 I junked you, Beef. Fuck American jobs. More computer fraud.

Fri, 12/21/2012 - 21:19 | 3088986 jedimarkus
jedimarkus's picture

How ironic I sold my CME seat/membership today after 18 years.  Good luck suckers!

Sun, 12/23/2012 - 00:02 | 3090803 80miltrustfundkid
80miltrustfundkid's picture

How much did you end up selling it for, or did they match you with a buyer? 

Fri, 12/21/2012 - 21:34 | 3089025 BlueStreet
BlueStreet's picture

And here I thought it was Cliff Kringle delivering an early gift to the shorts.  

Fri, 12/21/2012 - 22:05 | 3089119 asteroids
asteroids's picture

What happened last night was very very bad! Will is lead to more sellling in the near future. I hope so!

Fri, 12/21/2012 - 22:23 | 3089150 holdbuysell
holdbuysell's picture

I'm quite sure there will be plenty more of this to come.

Fri, 12/21/2012 - 22:51 | 3089191 Tombstone
Tombstone's picture

A preview of things to come.

Fri, 12/21/2012 - 23:02 | 3089204 fuu
fuu's picture

Thanks Nanex. You give the best chart.

Fri, 12/21/2012 - 23:21 | 3089222 CharliePrince
CharliePrince's picture

TIME TO START CONSIDERING FLASH CRASHES AT EVERY SHAKY POINT...budget bs   war threats  etc

Fri, 12/21/2012 - 23:33 | 3089233 Yen Cross
Yen Cross's picture

 Where's AKAK?  I love that guy.

Sat, 12/22/2012 - 00:19 | 3089275 Radical Marijuana
Radical Marijuana's picture

The markets have become legalized fraud, operated with impunity.

HFT has become more automated fraud, at near the speed of light.

Sat, 12/22/2012 - 10:53 | 3089626 Jafo
Jafo's picture

I'm waiting for a flash crash in the weed market.  Now, that would be awesome!!!

Sat, 12/22/2012 - 00:34 | 3089294 ActionFive
ActionFive's picture

Looks like any trading day in gold or silver.

We need to get serious about the ES/sarc

Sat, 12/22/2012 - 00:42 | 3089301 Theos
Theos's picture

If im reading #2 correctly: the moment shit goes south, all liqutiidty runs away leaving a very suseptable "blue" market?

 

gee i feel confident.

Sat, 12/22/2012 - 02:48 | 3089385 UGrev
UGrev's picture

As a software devleoper, it makes me want to kick the teeth in of the developers that wrote the logic for this.  I had been contacted regarding a job for writing HFT software in NYC (company called Lab49) in 2010 and I told them to fuck off.. quite literally.  

To me, it's like asking a metal smith to forge a weapon that could be used to destroy himself. Some people say "Holy shit, the money is so good that I can live like a king for a while before they get to use it on me"... and that they accept this is beyond my comprehension. 

Sat, 12/22/2012 - 11:47 | 3089657 Vendetta
Vendetta's picture

I'm sure the software folks in bangalore won't mind doing it for cheap

Sat, 12/22/2012 - 18:15 | 3090108 UGrev
UGrev's picture

I bet they would. More power to them. Good luck finding good bangies. Software dev is so saturated over there that finding a good dev is nearly impossible. Everyone wants to be a manager. 

Sun, 12/23/2012 - 03:03 | 3090942 Double.Eagle.Gold
Double.Eagle.Gold's picture

I've worked with them, they are dumber than niggers

Sun, 12/23/2012 - 13:53 | 3091509 UGrev
UGrev's picture

I have had the displeasure of receiving some of their "completed works" and I use the term "completed" as in "not nearly close to spec and written so poorly that I wondered if they used crayons to write it out on paper first that it would actually work better". There is no refactoring their shit. It's rewritten and the cost of their services is either disputed or written off as a loss. 

Sat, 12/22/2012 - 13:50 | 3089763 ToNYC
ToNYC's picture

First order thinking may not suffice here, when the creative destruction of HFT is most keenly needed to kill the fragmentation gene disestablishing market discovery.

Sat, 12/22/2012 - 18:14 | 3090106 UGrev
UGrev's picture

Not interested. This is not creative destruction.. this is just fraud.

Sat, 12/22/2012 - 23:02 | 3090722 Iam_Silverman
Iam_Silverman's picture

""Holy shit, the money is so good that I can live like a king for a while before they get to use it on me"... and that they accept this is beyond my comprehension."

 

Another way to look at it is that they provided the customer with a crappy product for a whole buncha beans....  That set of Algo-driven trades didn't look too well thought out, did it?  Maybe they sold them a sword they knew couldn't be controlled and would eventually kill the end user.

Sat, 12/22/2012 - 05:35 | 3089477 saturn
saturn's picture

Insight you'll see nowhere else, thanks to ZeroHedge and Nanex. Thanks!

Sat, 12/22/2012 - 10:16 | 3089588 ReactionToClose...
ReactionToClosedMinds's picture

great catch & posting ... thanks Nanex & ZH.   unreal ....   reread Singer's comments posted by ZH a few weeks back.   The 'speed' of the next knock-down will be stunning ....

Sat, 12/22/2012 - 11:16 | 3089639 comrade rally monkey
comrade rally monkey's picture

i see no problem here.  Human traders would have the same outcome, but take longer. This is clearly more effiecient.

 

Sat, 12/22/2012 - 14:40 | 3089811 kevinearick
kevinearick's picture

HFT is already slo-mow

Sat, 12/22/2012 - 17:13 | 3089997 Pejorative Requiem
Pejorative Requiem's picture

Just probing the perimeter...... seeing what works, what doesn't.

Sat, 12/22/2012 - 17:30 | 3090026 godzila
godzila's picture

I might be missing something here but dumping 10'000 E-mini like that in the night session seems a pretty good way to obtain this effect, HFT or not. I don't see what the fuss is all about ?

Sun, 12/23/2012 - 12:01 | 3091361 sablya
sablya's picture

Who in their right mind dumps 10K contracts of anything?  It's not rational to do that, assuming you want to get the most value for your position.

Sat, 12/22/2012 - 21:40 | 3090490 nathan1234
nathan1234's picture

Gary Gensler the CFTC Chairman deserves the firing squad for his actions/non action.

I pray the Good Lord renders justice.

Sat, 12/22/2012 - 23:55 | 3090794 80miltrustfundkid
80miltrustfundkid's picture

not wydell & reed! they tested the algo on anything with $YEN prior! 

Sun, 12/23/2012 - 03:46 | 3090968 CharliePrince
CharliePrince's picture

if i short the es from now on ...ill put in my stop and a one tic higher than  limit down order.  hopefully they dont start doing flash upsides

Sun, 12/23/2012 - 11:41 | 3091327 1eyedman
1eyedman's picture

c'mon, flash crash in the o/n makes it easy to btfd, end the day session 'off the lows', and further give the appearence an up market while it bleeds a 100 points in 10 days....sets up an up January, and "as Jan goes, so does the year", buys 6weeks for the primary dlrs to off load equities and buy the 'everyone knows rates are going X' treasuries.  

down fast, up slow, makes sheeple think mkt rising when its lower/weakening.....when they panic, they sell everything, including PM..

Sat, 12/29/2012 - 23:36 | 3105930 BehavEconFindex
BehavEconFindex's picture

There is a stock price formula for high frequency trading that predicts almost all the results reported. See http://www.moneyscience.com/pg/newsfeeds/moneyscience/item/241165/wjt-hi...

Do NOT follow this link or you will be banned from the site!