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The Day The Market Crashed - The Sequel

Tyler Durden's picture




 

Via Joe Saluzzi and Sal Arnuk of Themis Trading,

 

In August 2013, the Nasdaq SIP  broke and trading in Nasdaq stocks was halted for 3 hours. Yesterday, at 1:07 PM ET, the NYSE SIP broke but trading was allowed to continue until the backup facility was put on line (above is a graphical representation of the outage from Nanex).  The NYSE SIP is overseen by the policy making body known as the Consolidate Tape Association (CTA). According to the CTA:

“The New York Stock Exchange LLC is the Administrator of Network A and NYSE MKT is the Administrator of Network B.”?

If you are not familiar with the CTA , here is a brief description of who they are:

The Consolidated Tape Association (CTA) oversees the dissemination of real-time trade and quote information in New York Stock Exchange LLC(Network A) and BATS, NYSE Arca, NYSE MKT and other regional exchange (Network B) listed securities. Since the late 1970s, all SEC-registered exchanges and market centers that trade Network A or Network B securities send their trades and quotes to a central consolidator where the Consolidated Tape System (CTS) and Consolidated Quote System (CQS) data streams are produced and distributed worldwide.”

Here is part of the statement that the CTA published yesterday concerning the NYSE SIP outage:

At approximately 1:07 PM ET, there was a network hardware failure impacting the CTS/CQS/OPRA data feeds at the primary data center. At approximately 1:34 PM ET, after investigation of the issue, SIAC made the determination to switch over to the secondary data center in Chicago for the CTS/CQS data feeds and then the OPRA data feed.  Normal processing resumed in Chicago at approximately 1:34 PM ET for CQS, approximately 1:37 PM ET for CTS, and approximately 1:41 PM ET for OPRA.”

For at least 27 minutes, the SIP which processes Tape A and Tape B stocks was not working properly. This means that any dark pool, stock exchange or retail broker which relies on the SIP for public quotes was pricing off of incorrect quotes.  Of course, any firm which pays for exchange direct feeds was still pricing off of accurate information. Therefore, for at least 27 minutes, an “information asymmetry” existed.  You may remember the term “information asymmetry” from last year’s Nasdaq SIP outage when the CEO of Nasdaq said:

We knew professional traders had access to individual data feeds, but the traditional long investor, retail investor now didn’t have the same information, because of that, we halted the market.  The high frequency firms would have access to proprietary feeds from individual exchanges. The consolidated feed which we operate had a problem, wasn’t giving quotes out.  We had to halt the market because of that.  We didn’t want to have a situation where information asymmetry, as you say.”

?Apparently, the NYSE didn’t think it was necessary to halt trading in their listed stocks.  But some dark pools took responsibility and decided to halt trading at their venues.  According to Bloomberg , “ITG had to close its Posit dark pool for about 30 minutes and Goldman Sachs Group Inc. briefly halted trading in its Sigma X dark pool.”  This makes us wonder about all the other venues that did not halt trading yet rely on the NYSE SIP for pricing.

-          Did their customers receive accurate pricing?

-          Were retail market orders, which normally receive sub-penny price improvement, priced off of incorrect and stale quotes?

?In addition to possible pricing errors, there was another situation which occurred right in the middle of the SIP outage.  At 1:19:19 PM ET, an extremely high number of trades occurred in the E-Mini futures contract.  According to Nanex, there were 15,263 contracts that traded during this second.  Almost immediately, quote and trade levels spiked on the US equity markets in reaction to this e-mini barrage of trades.

-          Were these E-Mini trades placed to take advantage of the misplacing in the equities market?

-          Could the E-Mini’s trades have been put through to ignite momentum in a stock market which was already suffering from a liquidity issue due to the lack of correct quotes?

Unfortunately, we don’t know the answer to these questions and doubt that our regulators (even if they knew to ask these questions) would have the data to find the answers.  Since the CFTC regulates the E-Mini futures and the SEC regulates the stock market, they maintain two sets of different data.  This was evidenced clearly after the May 2010 Flash Crash when it took a Joint CFTC/SEC committee almost 6 months to analyze 45 minutes of trading.

We live in a cross-asset world where high speed traders routinely position multiple asset classes. Unfortunately, our regulators still seem to live in a single asset world.  We believe that the CFTC and the SEC should create a Joint Task Force which could quickly be put into action when events like yesterday occur.  This task force would be able to share and compare data to determine if any nefarious behavior caused or took advantage of an outage.

One last ironic point about yesterday’s SIP outage.  At the exact same time the outage was occurring, an Exchange Leaders Panel ?at a SIFMA event in NYC was just kicking off.  The session was billed as:

This session will explore the competitive, structural and regulatory landscape that Exchanges operate in today, and the challenges and opportunities facing the industry in the year to come.”

No doubt those exchange leaders have some more challenges to address now.

 

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Fri, 10/31/2014 - 13:33 | 5398981 ekm1
ekm1's picture

It was TESTING for the pre-planned wipeout

 

TRIPLE LEHMAN

Fri, 10/31/2014 - 13:35 | 5398994 Philo Beddoe
Philo Beddoe's picture

When, EKM? Any guess. 

Fri, 10/31/2014 - 13:46 | 5399034 Its Only Rock N Roll
Its Only Rock N Roll's picture

EKM was calling for it last year, then went radio silent for quite some time, now back out with it

Fri, 10/31/2014 - 13:51 | 5399063 Philo Beddoe
Philo Beddoe's picture

Many have been calliing for a crash...and nada. I am more interested in the rationale for the call.  

Fri, 10/31/2014 - 14:00 | 5399098 DetectiveStern
DetectiveStern's picture

Because what they are trading is basically worth fuck all. They are only valued at what someone is willing to buy at and they are quickly running out of buyers. 

Fri, 10/31/2014 - 14:08 | 5399132 ZerOhead
ZerOhead's picture

"Information asymmetry" is not a bug.

It is a design feature...

Fri, 10/31/2014 - 14:25 | 5399192 CrazyCooter
CrazyCooter's picture

I think EKM1 meant these markets are going to "triple lindy" ...

https://www.youtube.com/watch?v=rDMMYT3vkTk

Regards,

Cooter

Fri, 10/31/2014 - 15:19 | 5399439 barre-de-rire
barre-de-rire's picture

what you all see is ppl trying to "make money" while saving system, they don't war, nobody wants, war is the last way when  diplomacy fail.

 

things are the way they acts wasn't good long ago, now they are in a position which do not let many amplitude for  comfy POV of the futur.

 

nobody has the POV, just coz nobody know how things gonna be.

 

some want war n walking dead, some want keep ponzi scheme coz part of it.... just as the world is, a mix of different ppl n minds.

 

anyway, i received my ammo today, i'm open to any discuss

 

hihihihih

Fri, 10/31/2014 - 13:54 | 5399067 oddjob
oddjob's picture

Actually that was ekm, not ekm1.

Fri, 10/31/2014 - 14:14 | 5399158 Its Only Rock N Roll
Its Only Rock N Roll's picture

Is that the new and improved EKM?  Called Triple Lehman by both.

 

Fri, 10/31/2014 - 13:57 | 5399086 max2205
max2205's picture

It must have been a deseminated test.....there was. O movement in price

Fri, 10/31/2014 - 14:11 | 5399150 ekm1
ekm1's picture

I did not think obama would go as far as allowing china currency swaps and pulling back from attacking syria.

 

Now military is in revolt

Fri, 10/31/2014 - 14:53 | 5399319 LawsofPhysics
LawsofPhysics's picture

Bullshit.  REPOs and reverse REPOs (laudering/fraud) on Wall street is going just fine. The financiers have never been happier.

Fri, 10/31/2014 - 15:14 | 5399411 oddjob
oddjob's picture

The "allowing China" part is a bit rich.

Fri, 10/31/2014 - 13:50 | 5399046 nope-1004
nope-1004's picture

If you own the market and all computer pricing mechanisms, I'm not sure what "testing" a wipeout will do.  Also, if .gov is planning on wiping out equities and the dollar, gauging public opinion through a test makes no sense, because wiping those markets out entirely is an exclusive event that no reliable test can gauge, nor would any agency be prepared for the fallout of the real event.

Doesn't pass the smell test to me.

Fri, 10/31/2014 - 14:12 | 5399153 ekm1
ekm1's picture

Humans are not predictable

Whenever central command decides.

But, now military is in revolt. Obama is retreating

Fri, 10/31/2014 - 13:39 | 5399009 NoDebt
NoDebt's picture

If so, it worked perfectly.

Fri, 10/31/2014 - 13:36 | 5398986 Bell's 2 hearted
Bell's 2 hearted's picture

"Apparently, the NYSE didn’t think it was necessary to halt trading in their listed stocks."

 

haha ... it was an UP day

 

and if markets had been DOWN??

Fri, 10/31/2014 - 13:36 | 5398992 OMG
Fri, 10/31/2014 - 14:06 | 5399097 ZerOhead
ZerOhead's picture

The dude is actually making toilet seat covers with Obama's face on them while answering the Secret Service's questions about Zombie threats... priceless!

Who the hell said entrepreneurship is dead in America...

Fri, 10/31/2014 - 14:26 | 5399191 NotApplicable
NotApplicable's picture

Sadly though, he's a participant in the lefty/righty war, and thus a valued divide and conquer asset. Had he been above such childishness, he would already be in the cell next to Irwin Schiff.

Fri, 10/31/2014 - 13:38 | 5399000 maskone909
maskone909's picture

only GS JPM and a select few primary dealers will be refunded. 

Fri, 10/31/2014 - 14:01 | 5399102 redd_green
redd_green's picture

Sounds like we got the Bill Of Wrongs.

Fri, 10/31/2014 - 13:41 | 5399016 tedstr
tedstr's picture

I use the BATS SIP feed for my TC2000 screens and all week long there have been a very large number of very large <1min price spikes on all kinds of stocks.  Somethin's up.

Fri, 10/31/2014 - 14:01 | 5399105 redd_green
redd_green's picture

The big Algo toilets are a flushin!

 

Fri, 10/31/2014 - 14:10 | 5399142 Fast Twitch
Fast Twitch's picture

Since the European close this morning something has gone haywire with the SPY "Low" for the day RT quote. Are you seeing this too?

Fri, 10/31/2014 - 13:51 | 5399064 ShrNfr
ShrNfr's picture

And pricing using the SIP accurate? Okm whatever you say...

 

All I know is that I can see a trade in something that I have done having just gotten a report on and then wait for hours until it appears on the tape any day of the week.

Fri, 10/31/2014 - 14:08 | 5399130 WTFRLY
WTFRLY's picture

Facebook to mine, sell user data on political issues to ABC, clickbait distraction site Buzzfeed
http://wtfrly.com/2014/10/31/facebook-mine-sell-user-data-political-issu...

Fri, 10/31/2014 - 14:17 | 5399167 ZerOhead
ZerOhead's picture

You would think that the NSA would just give it to ABC for free... you know... considering all that ABC does for them already.

Fri, 10/31/2014 - 14:37 | 5399253 NotApplicable
NotApplicable's picture

I'm going to assume they've been doing this for quite some time now, but are announcing it only in an effort to support the stock by showing revenue growth.

Another item of interest I don't see mentioned is how ABC et al. can use this tool to measure the effectiveness of their own psyops in near real-time. No wonder we see so many contradictory trial balloons floated out in the MSM now.

The next US presidential selection should be a real fucking hoot!

Facebook is Orwell and Huxley combined.

Fri, 10/31/2014 - 14:18 | 5399166 Dickweed Wang
Dickweed Wang's picture

We believe that the CFTC and the SEC should create a Joint Task Force . . .

Yeah right, those guys are sooo efficient in enforcing the law.

Fri, 10/31/2014 - 14:32 | 5399225 NotApplicable
NotApplicable's picture

Honestly, all they need is MOAR money and power, and I'm sure they'll get this shit rigged... er... "fixed" in a jiffy!

Fri, 10/31/2014 - 14:51 | 5399315 Keltner Channel Surf
Keltner Channel Surf's picture

A Day in the Markets

 

I read the news today, oh boy
Four thousand holes in the Fed’s Taper plan
And though the holes were rather small
They couldn't count them all
Now they know how much QE it takes stop the market’s fall

They'd love to turn you on

Fri, 10/31/2014 - 15:06 | 5399383 BudFox2012
BudFox2012's picture

Be rest assured that if the DOW were down 200 points, trading would have been stopped immediately.  On an irrational rally day when it is 200 up?  No so much.   Remember, the DOW must go up at all costs!

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