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As Monday Looms, Experts Warn Japan's Half-Trillion Dollar Fat-Finger-Trade "Could Absolutely Happen" In The US

Tyler Durden's picture




 

Just over a week ago, the Japanese stock market participants were stunned when stock orders amounting to a whopping $617 billion (yes Billion with a B) - more than the size of Sweden’s economy - were canceled for reasons still unknown in what was one of the biggest 'fat finger' trading errors of all time. Since then, US equity markets have suddenly become notably more volatile - and fallen significantly, VIX has seen odd intraday 'spikes', S&P futures saw the very odd 'satan signal', and USDJPY has suffered its worst losses in 3 years. This raises the question of whether US market microstructure is any better than Michael Lewis' Flash Boys' book describes.. (as we head into a bond market holiday, dismal liquidity, and a potential Black Monday), “That could absolutely happen here,” Tabb Group's Larry Tabb warns Bloomberg.

 

A week ago, this happened... (From Bloomberg)

At 9:25 a.m. Tokyo time, orders for shares in 42 companies totaling 67.78 trillion yen ($617 billion) were canceled, according to data compiled by Bloomberg from the Japan Securities Dealers Association. A representative at the organization wasn’t immediately available to comment.

 

The biggest order was for 1.96 billion shares of Toyota Motor Corp., or 57 percent of outstanding shares at the world’s biggest carmaker, for 12.68 trillion yen through an off-exchange transaction. Toyota declined to comment. Other stocks with scrapped transactions included Honda Motor Co. (7267), Canon Inc., Sony Corp. and Nomura Holdings Inc.

 

“Fat finger” trading mistakes occur periodically. In 2009, UBS AG mistakenly ordered 3 trillion yen of Capcom Co. convertible bonds. Still, today’s scrapped trades were of a different magnitude.

 

“I’ve never heard of orders this big being canceled before,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which oversees about $474 billion in assets. “There must have been an error.”

 

While no harm’s been done because the orders were canceled, there should be an explanation to alleviate concerns, Sera said.

 

“It’s not rocket science that there was a fat finger here, but it reopens the question about accountability,” said Gavin Parry, managing director at Hong Kong-based brokerage Parry International Trading Ltd.

It may not be rocket science, but one wonders: just who has the potential to trade over half a trillion in market orders, let alone screw it up?

*  *  *

And since then..VIX Spikes have been frequent - and unexplained (as Nanex showed in the past)

Recently there have been frequent spikes in the VIX index such as the ones shown in the 1 minute chart below. We drilled down to the underlying data (option prices) used in calculating the VIX and found that almost all the quotes in the near term options used in the VIX calculation suddenly widened which causes the spike. Why this happens is unknown...

Stocks have dropped notably with very high intraday volatility, and USDJPY has collapsed...

 

*  *  *

And ahead of Monday's open, with the bond-market closed (and liquidity likely extremely low), market infrastructure experts raise a red flag...

A funny thing happened after Michael Lewis’s book “Flash Boys” put the structure of the U.S. stock market under a microscope in March: The whole system ran pretty smoothly, at least compared with its recent past.

 

Sure, the electronic cat-and-mouse trading game that Lewis called a “rigged” system and others called “market making” may not have changed much. On the bright side, however, there have been no major technological meltdowns like the one that almost bankrupted Knight Capital Group Inc. or fouled Facebook Inc.’s initial public offering in 2012, or caused an almost 1,000-point plunge in the Dow Jones Industrial Average in 2010.

 

Now today, that nascent confidence is being undermined in a big way after 67.78 trillion yen ($617 billion) of mistaken over-the-counter stock orders flooded Japan’s equity market. Don’t for a minute believe that the U.S. market structure is fine-tuned enough to avoid a similar situation, according to Larry Tabb, founder of research firm Tabb Group LLC.

 

“That could absolutely happen here,” Tabb said in an e-mail. “While we do have circuit breakers and pre-trade checks for items executed on exchange, I do not believe that there are any such checks on block trades negotiated bi-laterally and are just displayed to the market.”

 

...

 

Just a month ago, a technical error at CME Group Inc. prompted a four-hour trading halt at the world’s largest futures market, preventing buying and selling of contracts tied to major stock indexes, Treasuries, oil and gold. In May, a trading error at Barclays Plc caused split-second swings in dozens of U.S. stocks including AOL Inc. and Caterpillar Inc., people familiar with the matter told Bloomberg News at the time.

 

No human system is perfect and every day computer systems that interact with the markets are being upgraded and modified, said James Angel, a Georgetown University finance professor who studies market-structure issues.

 

“As Darth Vader said in one of the Star Wars movies, ‘Don’t put all your faith in technology,’” Angel said in an e-mail.

*  *  *

Don't forget who is long (and looking for a greater fool to dump to)...

 

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Sat, 10/11/2014 - 14:52 | 5318551 The Merovingian
The Merovingian's picture

Just don't put up that freaky finger photo again ...

Sat, 10/11/2014 - 15:07 | 5318561 X.inf.capt
X.inf.capt's picture

its getting to the point that this would'nt suprise me at all..

BLACK MONDAY!!!

can we get this party started, please...

 

Sat, 10/11/2014 - 15:32 | 5318625 Newsboy
Newsboy's picture

Columbus Day War.

The Fed and Bank of England are doing a (first ever) War Game in Washington, at the FDIC office, after the IMF Meeting.

Yellen will be there, all top brass.

This is IT!

http://www.theguardian.com/business/2014/oct/11/lehman-crash-play-financ...

Sat, 10/11/2014 - 15:38 | 5318644 X.inf.capt
X.inf.capt's picture

why would they do that...

THE FED WOULD JUST BUST OUT THE DOOMSDAY BOOK...

Yellin...'EXCUSE ME WHILE I WHIP THIS OUT'...

Sat, 10/11/2014 - 17:23 | 5318865 WhackoWarner
WhackoWarner's picture

Weird article. Strange game.

And probably pointless except as some ego inflating pat-each-other-on-the-back arrogant and delusional party.

This just keeps getting more absurd. The tentacles of this huge consuming derivatives intertwined snake.  Faced with this I think all these "party-goers" are simply going to fool themselves into thinking there is some control that can be exerted.

 

 

Unless they are all being given nuclear launch codes. 

Sat, 10/11/2014 - 19:35 | 5319162 asteroids
asteroids's picture

What if it wasn't a fat fingered trade?  What if the BOJ said cancel and they would cover in order to prevent a national or global chain reaction.

Sat, 10/11/2014 - 19:37 | 5319176 Lets Buy The Dip
Lets Buy The Dip's picture

well we could get a black monday, but look at the tick data here. 

basically when the tick data chart here ==> http://bit.ly/1fMcakI normally when the tick reading gets down this low you will see a solidy 1-2 day bounce, that can make you alot of money short term, / swing trading.

This is just a conjob, I bet in 3 months from now, you wished you got in the market right here....as we will be up at new highs!!! This keeps happening again and again, and its not only making the bears sick....its SENDING THEM BROKE!

A xmas rally coming? maybe, we should see, it sure feels like it here, anyways. :-)))))

Sat, 10/11/2014 - 21:26 | 5319448 tocointhephrase
tocointhephrase's picture

be my guest picking up pennys in front of a steamroller...

 

 

Sat, 10/11/2014 - 15:03 | 5318569 slaughterer
slaughterer's picture

Curious to see what Monday looks like, as it should be a battle of machine versus machine, on low volume, with no bond moves to refer to.   But if Kev's green light is on on the Bloomie, then all will be ok.  

Sat, 10/11/2014 - 15:36 | 5318640 Groundhog Day
Groundhog Day's picture

With a closed bond market, stocks will soar. No reality check to measure against

Sat, 10/11/2014 - 15:08 | 5318599 thunderchief
thunderchief's picture

It looks like Harvy Organ just got a gag order stuffed down his gold and silver Blog.

Maybe his call for a Comex blowout after the Shanghai Exchange runs out of silver is just too sensitve.

Who is next, Ed Steer?

Sat, 10/11/2014 - 15:35 | 5318632 X.inf.capt
X.inf.capt's picture

MAYBE THE ZH FIGHT CLUB?...

WE HAVE BEEN GETTING ALOT OF MAINSTREAM ATTENTION, LATELY...

Sat, 10/11/2014 - 17:28 | 5318876 WhackoWarner
WhackoWarner's picture

Harvey is banned per Court Order I have read.  Could be copyright problem.  He has always done "cut n paste".

His blog is on http://www.pacificrimcoins.com/content/harvey-organs-gold-and-silver-report-431

Sat, 10/11/2014 - 14:51 | 5318552 q99x2
q99x2's picture

Wash my FAFSA with fiat. Let it rain let it rain let it rain.

Sat, 10/11/2014 - 14:52 | 5318553 Bangin7GramRocks
Bangin7GramRocks's picture

And nobody will give a shit! all orders will be cancelled and the market will resume its eternal climb of prosperity. 

Sat, 10/11/2014 - 14:55 | 5318560 ebworthen
ebworthen's picture

Am I reading that last chart right? 

After 5 years of talking heads telling retail to buy they aren't?

Sat, 10/11/2014 - 15:00 | 5318576 Spastica Rex
Spastica Rex's picture

That money on the sidelines has gotta be HYOOOOGE!

Oh, wait - I'm on the sidelines.

Nevermind.

Sat, 10/11/2014 - 17:33 | 5318886 WhackoWarner
WhackoWarner's picture

I have been 100% PM for so long (with a little pin money in graphite) for sooooo  long it gets depressing sometimes.  

I have been on the sidelines so long I have built a tent city here,

Sat, 10/11/2014 - 18:17 | 5319000 disgruntled hou...
disgruntled housewife's picture

You are not alone.

Sat, 10/11/2014 - 14:59 | 5318573 maxw3st
maxw3st's picture

From that last chart, it would appear institutions have been the greater fools for quite some time. When that trend changes it's likely to be swift and accompanied by large, block orders.

Sat, 10/11/2014 - 15:34 | 5318629 debtor of last ...
debtor of last resort's picture

It's always easier to get in with somebody elses money.

The forced four '0' one ETF is a nice short.

Sat, 10/11/2014 - 15:03 | 5318584 Maplehood
Maplehood's picture

Here's some commentary on all major indices rolling over

http://www.goldsqueeze.com/technical-analysis/a-look-at-the-major-us-ind...

Sat, 10/11/2014 - 15:03 | 5318590 AccreditedEYE
AccreditedEYE's picture

Sentiment guys look at a ZH post like this and love it. The more reference to Black Monday, in their mind, the more probability it cannot happen and they encouraged to squeeze shorts once .50% decline manifests.

Real question is, with QE coming off, does the sentiment trade get revealed to be a flawed approach? Perhaps at the least, an approach that does not score nearly as many victories as it once did? Hmmm

Sat, 10/11/2014 - 15:05 | 5318594 1929agin
1929agin's picture

QE four will save the week... Ponzi Scheme continues

Ebola diversion in place, check.

Increase middle east b.s., check.

666, again, surely you gest...

 

Sat, 10/11/2014 - 15:23 | 5318609 wmbz
wmbz's picture

There will be QE 4,5,6&7 if need be in the eyes of TSS (The Smart Set) that run the show. The un-federal reserve will never ever sit on their hands and "do" nothing. Is not going to happen, period. There will be no ah-moment by Jack Yellen and her klan. Those sons of bitches will stay the course all the way to hell, just watch and see. 90 years in the making!

FUBAR for sure

Sat, 10/11/2014 - 16:42 | 5318779 Newsboy
Newsboy's picture

Nope,

 

Bankers know how to profit mightily from collapse.

They suddenly own everything.

They have played the free-money hand to the point of collapse.

Now they drive the collapse really hard.

"Financial War Games" Monday in Washington at the FDIC.

Fed and Treasury Chiefs, and BoE and Chancellor of the Exchequer will all 4 be physically present.

Not a "game".

http://www.theguardian.com/business/2014/oct/11/lehman-crash-play-financ...

Sat, 10/11/2014 - 17:07 | 5318828 SheepDog-One
SheepDog-One's picture

No need for QE4, they already own it all.

Sat, 10/11/2014 - 15:23 | 5318610 The Magus
The Magus's picture

"Absolutely happen"

Has there ever been a situation where Tyler ended up being shown to be prescient?

 

Sat, 10/11/2014 - 17:40 | 5318905 WhackoWarner
WhackoWarner's picture

Has there ever been a situation where Tyler ended up being shown to be prescient?

 Far as I have known over the years nobody on this website claims to give market advice/guidance.  Or a crystal ball. 

Only information.  Sometimes one viewpoint; sometimes another.  Information.

 

Would be nice if I could find someone, anywhere able to tell me what will happen.  Let me know when you do as then we can all stop thinking for ourselves.

 

Sat, 10/11/2014 - 15:24 | 5318612 bbq on whitehou...
bbq on whitehouse lawn's picture

Roch motel, no one can get out even if they need to. They are all stuck levered long those margin calls are going to fall on def ears.

This is what happens when you throw a party and no one comes. Your stuck with the bill.
No wonder companies have been buying shares to feed their short bond positions. Can't even rebalance, the desperation is going to be fun to watch.
How many interest rate derivitives did those banks sell? How many of those companies sucked those up and covered with their stock.

How bad is it really?

Sat, 10/11/2014 - 15:35 | 5318637 Amish Hacker
Amish Hacker's picture

And don't forget near-record margin levels, i.e. many of those derivative bets are being made with borrowed money. Any serious downdraft will be self-reinforcing. Sell, Mortimer!

Sat, 10/11/2014 - 15:36 | 5318642 chubbyjjfong
chubbyjjfong's picture

Its the 'leverage' that will leave them waking up in sasquatches crotch.

 

Sat, 10/11/2014 - 15:50 | 5318672 bbq on whitehou...
bbq on whitehouse lawn's picture

When leverage become Lever-rage who pulls what and how fast. We might wake up to a market that can't open. First market anywere in the world may domino. Are the central banks going to backstop all market positions?
Who would make a bid against a 7-8% sell order? Now that would be bambi in the headlights. Against a 57% sell order its time to just close up shop.

Sat, 10/11/2014 - 15:33 | 5318630 Super Hans
Super Hans's picture

Who cares!

Sat, 10/11/2014 - 15:40 | 5318647 ebworthen
ebworthen's picture

I'd be happy with a huge fat finger crash if the gambling addled banksters were held accountable financially, then jailed.

Problem being the next crash will yet again hurt pensioners, retirees, and savers while passing the bill to future generations.

Paulson, Bernanke, Geithner, CONgress, Supine Court, Executive branch, .gov law "enforcement" - all have demonstrated their willingness to engage in treasonous acts of skullduggery for cash and perks.

None of this b.s. will truly matter until the hangings and executions for treason commence.

Probably not in my lifetime, unfortunately.

Sat, 10/11/2014 - 16:07 | 5318705 ekm1
ekm1's picture

Let's settle this once and forever as I've been saying since 2012:

 

RETAIL IS DEAD

 

It is naturally impossible if 50 million people are using food stamps. Economy is dying due to shortage of energy

Sat, 10/11/2014 - 16:28 | 5318741 Everybodys All ...
Everybodys All American's picture

I disagree only slightly. The energy is there we just don't need near as much when the economy is this weak. Reminder: This is the weakest "recovery" since WW II and that's with stimulus and 'cooking' the figures of gdp, jobs, etc. to make things look much better than reality.

Sat, 10/11/2014 - 17:16 | 5318777 ekm1
ekm1's picture

It works the other way around

Plenty of energy causes expansion

Shortage of energy causes contraction

 

A car needs fuel to move from A to B. If it runs out of fuel, then people will push the car by hand

Hence, Manual vs Non-Manual labor.

 

Steam engine caused economic expansion

Electricity caused economic expansion

Oil caused economic expansion

Sat, 10/11/2014 - 16:57 | 5318815 booboo
booboo's picture

Yes that's it, not enough fuel to to get to the mailbox to collect thier welfare.

Sat, 10/11/2014 - 17:04 | 5318826 RaceToTheBottom
RaceToTheBottom's picture

But, But,, but the punchbowl is still full.....

LOL

Sat, 10/11/2014 - 16:34 | 5318759 ArmyofOne
ArmyofOne's picture

Fat finger better than a fat dick.

 

Signed,

Hilllary Rod-in-the-ham Clinton.

Sat, 10/11/2014 - 16:34 | 5318763 observer007
observer007's picture

**********

FACEBOOK CRASH

 

Survey: Facebook use among teenagers aged 13 to 19 plummeted from 72 percent to 45 percent

http://homment.com/facebookcrash

Sat, 10/11/2014 - 16:50 | 5318796 NOZZLE
NOZZLE's picture

Many years ago,  when you wanted to buy or sell you had to call your broker, give him your account and tellll him what you wanted to loose money on.  He would then call a floor guy who after putting down his coke spoon would laugh and then front run your trade.

Sat, 10/11/2014 - 19:43 | 5319191 willwork4food
willwork4food's picture

So true. I funded a many full coke spoons before I realized that strange feeling in my butt wasn't because I had to go. Funny thing, the dude that took my orders, and lost my money, got fired/let go/relocated right after.

Sat, 10/11/2014 - 17:38 | 5318897 Fuku Ben
Fuku Ben's picture

You are limited to cash withdrawals at banks. Somewhere in the $2500 range in your respective currency will likely start getting you a lot of unwanted questions

But financial institutions can have up to $600+ Billion "errors", "fat finger trades" or "glitches" that continue to mysteriously pop up?

Looks like its not only the current US Constitution checks and balances that are the complete opposite of what they should be

In case you haven't figured it out why it is because
We All Live in a Capital I (EYE)

https://www.youtube.com/watch?v=Wc1RfFYxZ2I

Sat, 10/11/2014 - 18:16 | 5318997 algol_dog
algol_dog's picture

I changed my mind and cancelled the order. What's the problem?

Sat, 10/11/2014 - 18:20 | 5319003 xcehn
xcehn's picture

I had a really vivid dream this past Monday early am; I have "instincts" by others' appraisal....I woke up at 0330 approximately, and was profoundly agitated. I remembered the dream I had with unusual clarity. I googled "cuneiform," and ultimately stumbled upon the symbols that I recognised in my dream. I was beside myself. I swear it floored me completely. For what it's worth, I needed to share this.

Sat, 10/11/2014 - 20:02 | 5319232 willwork4food
willwork4food's picture

Thx for sharing, but what were the cueiform charactors and how do they relate to the post? Perhaps God/Jesus/the Great Spirit was trying to share or warn you about something in your personal life?

Sat, 10/11/2014 - 18:35 | 5319021 Bangalore Equit...
Bangalore Equity Trader's picture

Listen Zero's.

The Hedge has gone to a skeleton crew on the weekends. This loss of productivity is "STUNNING".

I believe the the NWO crew will start slipping their dirty deeds through during this "BLACKOUT" period to avoid coverage by the "CRACK" Hedge staffers.

This is a big mistake! I think they are using The Hedge's comment section to communicate amongst themselves. Be on the lookout for "VERY" weird comments.

Sat, 10/11/2014 - 18:45 | 5319048 xcehn
xcehn's picture

Whatever. I swear I've no hidden agenda and hold a doctorate degree in a specialty.

Sat, 10/11/2014 - 21:46 | 5319501 falconflight
falconflight's picture

It could be a conduit.

Sat, 10/11/2014 - 22:55 | 5319658 Wild Theories
Wild Theories's picture

Listen Equity boy.

nice tinfoil on your turban

Sat, 10/11/2014 - 20:08 | 5319242 limacon
limacon's picture

The market is being maniplated in a very crafty fashion by exposing th market operators to patterns of bids . This requires a lot of money , hence the cancellations .

For the underlying method , see

http://andreswhy.blogspot.com/2009/01/sources-of-nile.html

Sat, 10/11/2014 - 21:23 | 5319434 gswifty
gswifty's picture

This is what i want to know. "It may not be rocket science, but one wonders: just who has the potential to trade over half a trillion in market orders, let alone screw it up?" 

Sat, 10/11/2014 - 21:25 | 5319444 Youri Carma
Youri Carma's picture

The only thing which is keeping this electronic bot market together are these circuit breakers. These circuit breakers are like an emergency break handle in a train. If you feel you are in a ‘funny’ mood or the train is not going the way you want you pull the emergency break handle.

So when the NYSE says they made the market saver they actually mean they have better software for the circuit breakers. Of course the market learns when they kick in and could make use of that by triggering them as you think the market is not going your way, for example. Everybody knows that if you de-risk something in the financial world rather sooner than later somebody is going to use that.

CEO of the NYSE explains what caused the drop in the market on 6 May 2010 https://www.youtube.com/watch?v=Up5XtW7kM_c

Sat, 10/11/2014 - 21:39 | 5319478 falconflight
falconflight's picture

I never thought Abe's policies would be able to force the Yen to more than 100 to the dollar, yet it has.  Too bad the one outcome that the Keynesians claimed would happen (big boost to their current acct/exports) has been an abject criminal failure for their People's daily lives.

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