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

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Yen Cross's picture

 Getgo made out

 Getgo hosed themselves

 

Remington IV's picture

Giving a Machine Gun to a  MONKEY

Yen Cross's picture

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

GetZeeGold's picture

 

 

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

malikai's picture

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

Slow it the fuck down!

francis_sawyer's picture

Waddell & Reed wish you a Happy Festivus...

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.

Jack of All Trades's picture

Just testing a new algo . . .

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?

HedgeAccordingly's picture

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

kliguy38's picture

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

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...

Everyman's picture

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

"Uh oh, it tasted long burning!"

 

 

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

 

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.

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.

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.

Jafo's picture

Shades of William Gibson:- Welcom to AlgoWars

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."

Yen Cross's picture

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

Yen Cross's picture

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

buzzsaw99's picture

Hello Yen,

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

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

Jafo's picture

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

blunderdog's picture

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

nmewn's picture

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

Thanks Tyler.

Sathington Willougby's picture

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

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!

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...

RockyRacoon's picture

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

Kobe Beef's picture

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

Kobe Beef's picture

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

jedimarkus's picture

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

80miltrustfundkid's picture

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

BlueStreet's picture

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

asteroids's picture

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

holdbuysell's picture

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

Tombstone's picture

A preview of things to come.

fuu's picture

Thanks Nanex. You give the best chart.

CharliePrince's picture

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

Yen Cross's picture

 Where's AKAK?  I love that guy.

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.

Jafo's picture

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

ActionFive's picture

Looks like any trading day in gold or silver.

We need to get serious about the ES/sarc

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.

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.