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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PSEUDOLOGOI's picture

Nothing to see here, move along.

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.

Mr Lennon Hendrix's picture

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

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.

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.

DoChenRollingBearing's picture

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

Mr Lennon Hendrix's picture

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

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...

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.

Mr Lennon Hendrix's picture

And all the chicks have their tits done.

TruthInSunshine's picture

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

Mr Lennon Hendrix's picture

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

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...

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.

Mr Lennon Hendrix's picture

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

non_anon's picture

you fucking anti-semite /sarc

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.

RacerX's picture

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

LongSoupLine's picture

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

Manthong's picture

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

YesWeKahn's picture

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

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?

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............

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.

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.

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.

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.

Umh's picture

Think "finacial repression".

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

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...

chump666's picture

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

it's a horrible market.  

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.

chump666's picture

Excellent ZH!

 

espirit's picture

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

asteroids's picture

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

non_anon's picture

time to replace that circuit breaker

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 ?   

max2205's picture

Love charts. Give me more OvO
^

John Law Lives's picture

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

FUBAR...

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
 

q99x2's picture

Where's Hammy with his circuit breaker security statement.

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.

ekm's picture

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