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Forensic Analysis Of Yesterday's Market-Close Mini Flash Crash

Tyler Durden's picture




 

When reporting on yesterday's bizarre market action, which in addition to criss-crossing the DJIA 13,000K a total of almost 70 times in the past 4 days, saw some very curious fireworks throughout the day, we noted a very curious sell off in stocks in the last second of trading, which we jokingly (or so we thought) claimed was another flash crash. As it turns out, the move may indeed have been a mini flash crash, with all the salient features exhibited by the market on that fateful day in May 2010 when the DJIA plunged by 1000 points in seconds. Nanex, which unlike the SEC, is eager to explain and unearth strange and unexpected market moves, has performed a forensic analysis on this data, and has uncovered the same quote dissemination delay that occured during the Flash Crash, only this time not in the NYSE, but on the Nasdaq. Which, in turn should answer readers' questions whether any exchange is safe (if anyone were to care to find out the answer), aside from Sizma X of course.

From Nanex:

SPY Closing Event of February 29, 2012

During the market close in SPY on February 29, 2012, a delay of about 1.25 seconds developed in quotes from Nasdaq relative to quotes from other exchanges. Execution trade prices from Nasdaq appeared synchronous with trade prices from other exchanges, which shouldn't be possible, since Nasdaq's quote was behind. We also noticed an anomaly in the trade condition.

The trade condition Form-T is used to indicate trades that executed before or after regular trading hours (9:30-16:00 Eastern). What is puzzling is that the first Nasdaq trades marked Form-T don't appear for almost a full second after the close. Right along side the Nasdaq trades marked ISO or regular are trades with the same prices from other exchanges, but marked Form-T. We've become used to seeing Nasdaq trades printing ahead of their quotes because it's so common (yet impossible unless routing is based on direct feeds instead of the SIP). But we're not sure how the trade condition could get time-warped like that. How is it that trades from Nasdaq between 16:00:00 and 16:00:00.841 are not marked Form-T, yet have the same prices as trades from other exchanges which are marked Form-T? It's as if the prices are not delayed, but the conditions are. What is going on here?

Update March 1, 2012

We now believe that Nasdaq trades with timestamps between 16:00:00.000 and 16:00:00.841 and marked regular or ISO occurred before 16:00:00.000. Which means the quote delay was at least 841 milliseconds longer than originally thought. This still does not cleanly explain how trades from other exchanges with similar prices were marked with the Form-T condition (indicating after close).

Another mystery is the source of the closing price of 137.02. We found trades with the condition Official Market Center Close on ARCA at 136.87 and Nasdaq at 136.54.

 

SPY 5, 10 and 100 millisecond interval charts.
Shaded area represents Bid/Ask spread, circles represent trades. Note how far Nasdaq's quote gets behind BATS's quote, yet Nasdaq Trades are not affected (except for the trade condition).

 

1.  NQ quotes (shaded) and trades (circles). 5 ms. Quote and trade prices should be aligned, but you can see the quote shifting to the right.

2.  NQ and BATS quotes and trades. 5 ms

3.  NQ and ARCA quotes and trades. 5 ms

4. NBBO and trades from all exchanges. The red shading (NBBO crossed) indicates the magnitude of the delay. 5 ms

5.  NQ and BATS quotes and trades. 10ms

6.  NQ quotes and trades. 10ms

7.  BATS quotes and trades. 10ms

8.  NQ and BATS quotes. 10ms

9.  NQ and ARCA quotes and trades. 10ms

10. NBBO and trades from all exchanges. 100ms

11. The NBBO (normal market: black, locked: yellow, crossed: red). 100ms

12. Best bid and offer becomes severely crossed due to the delayed NQ quote.

 


 

In the grand scheme of things, all of this is irrelevant. Remember: no matter what anyone says, everyone will be able to sell ahead of everyone else when the dump ultimately comes. Guaranteed.

 

 

 

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Thu, 03/01/2012 - 20:16 | 2215172 PSEUDOLOGOI
PSEUDOLOGOI's picture

Nothing to see here, move along.

Thu, 03/01/2012 - 20:16 | 2215175 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Jinx

Thu, 03/01/2012 - 20:38 | 2215210 TruthInSunshine
TruthInSunshine's picture

I believe in baseball, hot dogs, apple pie & Hyundai.

And I believe that CMG & PCLN are truly unique companies that are still well undervalued, and could easily be 10 baggers from here.

Everyone knows that for every equity that falls in price, 10 equities rise in price, and that's why they have to constantly reshuffle the indexes, delisting the ticker symbols that have exploded upwards, otherwise the Dow would be at 1,000,000, the Nasdaq would be well over 300,000 and the S&P would be close to 175,000 by now.

I'm sticking with Cramer, Laszlo Birinyi, James Altucher, Abby Joseph Cohen & James Glassman, bitchez.

Thu, 03/01/2012 - 20:39 | 2215220 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I believe in America.  America has made my fortune....

Thu, 03/01/2012 - 20:48 | 2215241 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 Mr Lennon, even if it does not show.

I believe in Korea (at least their bearing companies).  They treated us better than the Americans did.

Thu, 03/01/2012 - 21:09 | 2215300 John Law Lives
John Law Lives's picture

I believe in America. America has made my fortune....

http://www.youtube.com/watch?v=bB9cLr7OR-A

Thu, 03/01/2012 - 21:15 | 2215326 earleflorida
earleflorida's picture

cookie crumble?

Thu, 03/01/2012 - 21:20 | 2215347 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The CookieFather

Thu, 03/01/2012 - 20:46 | 2215235 DoChenRollingBearing
DoChenRollingBearing's picture

@ Truth

+ 1

I believe in Hyundai too!  As well as their bearings...  "Made in Korea"

I am NOWHERE CLOSELY qualified to offer any kind of expert commentary re HFT and flash-crashes (although I love flash drives).  But, it LOOKS real-illegal in there somewhere...  I also agree with "Mish" who wrote recently that they would not de doing HFT unless there was a LOT of MONEY being made.

Thu, 03/01/2012 - 20:48 | 2215242 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I like Mardi Gras "flashes".

:)

Thu, 03/01/2012 - 20:49 | 2215245 DoChenRollingBearing
DoChenRollingBearing's picture

Another + 1 for bringing back dimly remembered drunken images during Mardi Gras in the Big Easy...  35 years ago...

Thu, 03/01/2012 - 21:22 | 2215256 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Can't wait for us to have drinks after the goldpacalypse.

Thu, 03/01/2012 - 22:01 | 2215429 DoChenRollingBearing
DoChenRollingBearing's picture

Ah, yes.  The party we planned after gold reaches $55k.  I'll start putting the list of ZH-ers back together I wrote up a year or two ago...  I even have a candidate city in mind...

You, chumba, Gordon_G, Hulk, dumpster, Rocky R, so many...

Thu, 03/01/2012 - 20:53 | 2215255 TruthInSunshine
TruthInSunshine's picture

Not to get off topic too much, but South Korea is one of the few nations I'm very bullish on over the intermediate term. They have all the good attributes of the Japanese, quite a few less of some of the nastier inclinations of the Japanese (I am not insulting the Japanese, as they're cooperative and harmonious on the whole; but like many homogeneous populations, they are prone to historical periods of ultra-nationalism and even a belief in their superiority), they've made amazing strides in high tech manufacturing and R&D, and they're managing their budget better than most developed nations.

Thu, 03/01/2012 - 20:53 | 2215261 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And all the chicks have their tits done.

Thu, 03/01/2012 - 20:55 | 2215263 TruthInSunshine
TruthInSunshine's picture

Well, I was not aware, but I will trust but verify.

Thu, 03/01/2012 - 21:20 | 2215345 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

In SK, retail hires the most attractive applicant, and so anyone who wants to work retail has work done.

Thu, 03/01/2012 - 21:57 | 2215421 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

I hope to go to Korea in May or June (to visit our suppliers).  I will take careful note of how the office worker ladies differ from any I see on the factory floors.  I have been invited to take two plant tours!  That of course is a dream for any self-respecting bearing...

Thu, 03/01/2012 - 22:01 | 2215428 Buck Johnson
Buck Johnson's picture

Eventually all of us will have the opportunity to see what a massive market dislocation is.  This game is coming to an end and it will be nasty.

Thu, 03/01/2012 - 20:16 | 2215173 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The Bank of Israel just needed a good entry point.  Move along....

Thu, 03/01/2012 - 21:18 | 2215341 non_anon
non_anon's picture

you fucking anti-semite /sarc

Fri, 03/02/2012 - 04:19 | 2216136 Western
Western's picture

Spot on.

Fri, 03/02/2012 - 11:14 | 2216722 DeadFred
DeadFred's picture

More power to the Nanex guys for trying to keep the algos and manipulations in the light but who understands this stuff? Talk to me about the quantum wave functions of free water movements in the active site of a protein molecule and I'll keep up but this data, pfffft, right over the head. Keep it coming though.

Thu, 03/01/2012 - 20:16 | 2215176 RacerX
RacerX's picture

It's only illegal for those who don't know the secret knock.

Thu, 03/01/2012 - 20:43 | 2215230 LongSoupLine
LongSoupLine's picture

It's onty illegal if there's enforcement of the law (hint-we're speaking of the SEC...'nuff said)

Thu, 03/01/2012 - 20:21 | 2215184 Manthong
Manthong's picture

It's that personal touch of a free and open market that always gives me a warm and fuzzy feeling. 

Thu, 03/01/2012 - 20:21 | 2215186 YesWeKahn
YesWeKahn's picture

Sell to whom. When everyone has bought, who is going to buy?

Thu, 03/01/2012 - 20:25 | 2215194 Squid Vicious
Squid Vicious's picture

Cramer told me to take all of my money out of the market in late 2008... is now a good time to get back in?

Thu, 03/01/2012 - 21:51 | 2215408 jcaz
jcaz's picture

Yep- that's when he called the top of the bond market, too....  Funnier still to watch him whine about getting refinanced............

Fri, 03/02/2012 - 08:42 | 2216339 Waterfallsparkles
Waterfallsparkles's picture

I would not give Cramer a loan.   With his calls on Stocks he could lose every penny in the Market in a nano second.  Before you even say flash crash. He always wants to but at the top and sell at the bottom.  High risk borrower.

Thu, 03/01/2012 - 20:27 | 2215195 Global Hunter
Global Hunter's picture

TPTB will be patting themselves on the back for another job well done but I liken all this electronic bullshit market stuff to a knocking in the engine, it might not bring you to a halt right away but the knocking is probably going to cause something else eventually to go "thud". The knocking is getting louder and louder but the driver of the car is oblivious because he's getting good mileage and avoided a speed trap.

Thu, 03/01/2012 - 20:36 | 2215209 adr
adr's picture

Wait, computers have control over the market? What? hahahahahhahaha

We are fine as per Communist News Network, BEST AUTO SALES IN YEARS!!!

Consumers flocked to showrooms in February to purchase cars at the greatest rate in seven years.

--------------------

Actually no CNN, the car companies report sales to dealers. Car companies stuffed dealers with inventory to make it look like sales are through the roof. Just like Apple they can claim millions of cars are sold before a customer even takes it out. If the recent car show I attended in cleveland was any indication of the current state of the mid country car market. The only thing selling will be Buicks and Avalalons. I swear there were about three people under the age of 70 there.

My sister in law bought a car three weeks ago. The salesman said the first few weeks of January were good but then sales fell off a cliff. She bought a 2011 model by the way, and those came out in 2010. There were still 30 or so on the lot and she bought a $25k car for $20k out the door. They had to make room for all the 2012s. Funny because pretty soon they will need to make room for the 2013s.

You can't even weed out the bullshit anymore reported by the news networks because that is all there is.

Fri, 03/02/2012 - 08:48 | 2216348 Waterfallsparkles
Waterfallsparkles's picture

I think that any increase in Car sales is due to the Insurance Industry.  I had an accident with my paid off 2004 car (only 33,000 miles) and the Insurance company totaled the car instead of fixing it.  The only option you have is to buy another car.  Although, I was lucky and my Son had an extra car I am now driving.

Thu, 03/01/2012 - 20:40 | 2215223 Umh
Umh's picture

Think "finacial repression".

Thu, 03/01/2012 - 21:17 | 2215323 chump666
chump666's picture

No, think stock market Armageddon.  If you go long on a sound company, buy some physical and most of the week not give a f*ck the markets, you'll be fine. But if you play the markets, you have to contend with the HFTs.  Last session check the Dow, it hits 13000 (again) and sells on the Saudi/oil spike.  The machines, were gaming off (stocks) the 108, 109 oil futures, before it settled at  (close to) 109. That was bizarre, meltdowns and melt-ups in seconds.  The Point?  We are heading, in fact speeding, towards the big one.  A major flash crash is due, and it will strip confidence from the market so quickly might take mths to recover.

What would be interesting is a equity flash crash like May 10 2010 and oil stays bid.  That happens, I would prepare for the great re-set (derivative/ETF/bonds markets takes out the world) within 2012

Thu, 03/01/2012 - 22:04 | 2215436 DoChenRollingBearing
DoChenRollingBearing's picture

The last figure I believe I saw was that an impressive 70% of all trading is robot vs. robot.  Perhaps RobotTrader could chip in with his views...

Thu, 03/01/2012 - 22:21 | 2215474 chump666
chump666's picture

and the 30% get gamed by HFTs trying to go long on mega $ trades.

it's a horrible market.  

Fri, 03/02/2012 - 08:53 | 2216359 Waterfallsparkles
Waterfallsparkles's picture

The problem I see is that it moves so fast that you do not know why it dropped.  It takes you some time to figure out what just happened by scanning the news.  Humans are way behind the curve when it comes to reacting to a news event.  Computers seem to be scanning the news all the time.

Thu, 03/01/2012 - 20:49 | 2215246 chump666
chump666's picture

Excellent ZH!

 

Thu, 03/01/2012 - 20:50 | 2215247 espirit
espirit's picture

PPT slacking?  I thought the last minute stick saves were gospel.

Thu, 03/01/2012 - 20:53 | 2215259 asteroids
asteroids's picture

I think ALL trades are being buffered, chopped and diced, before they hit the outside.

Thu, 03/01/2012 - 20:55 | 2215264 non_anon
non_anon's picture

time to replace that circuit breaker

Thu, 03/01/2012 - 21:10 | 2215273 earleflorida
earleflorida's picture

The financial market's today - ALL, should be called the NYG20 ? Whereas each individual country will be, or is, supported by QEn & LTROn to infinity, with the "NWO-Market OECD's", patiently waiting for merit-based entry, upon the acquiescence of all sub-enlisted conscript's via the UN's "Blue-Helm[u]t's Mercy`Mercenary Security-Exchange enforcement entourage!

Seriously ?   

Thu, 03/01/2012 - 21:02 | 2215282 max2205
max2205's picture

Love charts. Give me more OvO
^

Thu, 03/01/2012 - 21:06 | 2215294 John Law Lives
John Law Lives's picture

Did Waddell & Reed get the blame again?  Damn those provocateurs...

FUBAR...

Thu, 03/01/2012 - 21:39 | 2215392 GovtMediaLiars
GovtMediaLiars's picture

"In the grand scheme of things, all of this is irrelevant. Remember: no matter what anyone says, everyone will be able to sell ahead of everyone else when the dump ultimately comes. Guaranteed."
 

Surely this must be the case. The business news networks on all day at work frequently assure me it is so.
But, for those of you out there who are irrationally sceptical and don't believe this, I'm sure at least YOU'LL get out ahead of the train wreck. And that's all that matters, right?

 

Thanks for this great article. We brought up this anamoly in our daily market recap yesterday and were thoroughly stumped by the action. This at least sheds a little light on the strange movements observed immediately after the close. Thank god for nanex.

Cheers!
GML
 

Thu, 03/01/2012 - 22:37 | 2215506 cnhedge
Thu, 03/01/2012 - 22:49 | 2215541 q99x2
q99x2's picture

Where's Hammy with his circuit breaker security statement.

Thu, 03/01/2012 - 23:43 | 2215760 jack stephan
jack stephan's picture

Carl Reiner: Let me show you a clip from my latest film where my faulty depth perception kept me from yelling "cut" at the right time.
[on a movie set, just as a car plummets off a cliff, Reiner yells]
Carl Reiner: Cut!
[but it's too late, and the car explodes at the bottom of the cliff; back to the press conference]
Carl Reiner: If I had yelled "cut" on time, those actors would be alive today.

Fri, 03/02/2012 - 00:37 | 2215851 ekm
ekm's picture

"In individuals, insanity is rare; but in groups, parties, nations and epochs it is the rule" – Nietzsche

    Fri, 03/02/2012 - 02:32 | 2216022 DutchR
    DutchR's picture

    Just a Tech who brought along his 8 year old to see all the shiny flashing lights, "Pa what does this bit do?"

     

    AAAahhhhhhh, never ever touch that......................

     

     

     

    Oops

    Fri, 03/02/2012 - 10:18 | 2216587 highwaytoserfdom
    highwaytoserfdom's picture

    Just face it you are not in the club..  Currupt K street defining prop trading..  There is no competion in the markets...   I have taken to a new investment vechile TVG.com  I find the horse racing much more profitable than Maxi pad with wing industrial packagers.     Seriously the 11b club deal has to be paid for.  ON THE POSITIVE SIDE THESE GUYS FAIL TO REALIZE WE ARE IN AN INFORMATION REVELOUTION.  The reality is the "crony" K street still changes laws in favor of the "club"...    Hapens when we have the moral hazard of protecting the last 40 years of financial  interest of aquirers instead of investing in entrapueneral capital.    If you don't stop and thik of the FED and buying treasursy bragging on electronic transactions as "NOT PRINTING" if you think for one second the FED and or TBTF surgorates are not trading political chicanery you are going to be sadly disappointed.  Politicians used force to steer you into mutual funds, pension funds and if you think that the loss of individualism and freedom is going to be returned you don't understand the problem.

    "This is the biggest buy-out since 1989, when—on its own—Kohlberg Kravis Roberts (KKR) bought RJR Nabisco for $25 billion. But most of the money used to buy Nabisco was debt; the $3.5 billion of equity invested in SunGard is the most ever.

    Today, KKR is a proud member of the SunGard club. Its other members are also as “blue chip” as a private-equity firm can be—Bain Capital, Blackstone, Goldman Sachs Capital, Texas Pacific, Providence Equity Partners and the organiser of the deal, Silver Lake Partners."

    http://www.economist.com/node/3821814

     

    These  COMPUTER MALFUCTIONS are systemic risk of crony capitalism  the part that is upsetting to me is  Goldman and Providence Equity (Dick Parsons Citi ex time warner)...  Both firms cost me many Units...   

     

    "In the grand scheme of things, all of this is irrelevant. Remember: no matter what anyone says, everyone will be able to sell ahead of everyone else when the dump ultimately comes. Guaranteed. "  

    AGREE  STRONGLY...   BUT FRONT RUNNING Theta  OR HIGH FREQUENCY IS THEFT OF GAMESMANSHIP..  Two page law no high frequency no prop trading would go a long way in restoring free markets.... But the days of Buffet using insurance float are over... 


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