The article posted by the OP http://blogs.marketwatch.com/thetel...aises-questions-about-market-structure-rules/ reads: "... However, Saluzzi notes that the Securities and Exchange Commission rules are being implemented in stages and in the first phase, which is currently implemented on a number of stocks, the restrictions donât apply after 3:30 p.m., which is when the Anadarko anomaly took place." This is not true! The flash crash occurred during RTH at a minute before market close. Towards the close on 17th May Friday I was watching APC (and mercifully was not long at that time) when to my amazement T&S started printing trades at 1 penny. I immediately took a screen shot. The time column is a bit truncated but you can see it occurred at 14:59 CST. Here is the screen shot. Edit: After posting this I noticed that Mr. Saluzzi being in New Jersey is probably referring to 3:30 Eastern time which is half an hour before market close. If that is the case, then it makes the situation even more ridiculous as it implies that the restrictions are lifted 30 minutes before close of regular trading hours.
Here is a link to CME order types: http://www.cmegroup.com/globex/files/GlobexRefGd.pdf They have what is called a "Market with Protection." It's simply a limit order a maximum number of ticks from the last traded price. Trading everything on a central exchange simplifies things greatly.
Thank you, but I was hoping you'd explain how doing away with market orders will stop the flash crashes. I'm not questioning your suggestion, I'm just admitting that I'm too mentally lazy, at the moment, to think it through. If there is as simple a solution as that, it deserves some attention.
Anybody get filled at those ridiculous prices? Looking at the T+S I see they were most likely impossible to get. Showing trades on THRD, NMS, PSE. Fills for sells but none for buys. For god sakes, do any trades happen on any normal exchanges anymore? What I don't get, is that Id always get busted on trades that were clearly out of the range. How is it possible that this thing trades a million prices in one second and gets cut in half and back, yet all the trades stand? Anyone noticing these third party exchanges dominating more than usual the last few weeks? Im getting my prices traded through constantly. Did they change a law or something recently? Does the SEC still exist????
it's very simple(based on many many busted trades i've seen in the past)-if you are small retail guy-most likely your trades will be busted. if you some big shot with big balls-exchange will rule in your favor. seen it many times. but as i said before- what interesting in this particular case is that there is no single word about APC trades in status log at nasdaqtrader.com(where all info about those erroneous trades on stocks is posted). to me-the system is broken long time ago. it's wild wild west out there and SEC does not exists. SEC only shows up to 'catch' some retail guy,who manually spoof the market on some s**ty stock for 5-10K profit. but when losses are in millions-forget it.
That's not a solution - a limit order to sell at 1 cent is functionally equivalent to a market order. There is a simple solution that will work - if someone wants to offer a stock at 1 cent, let them do it and let them eat the loss. Also, HFT is nothing to do with stabilising a market, it only reduces bid-offer spreads. The only people who can stabilise a crashing market are end-users e.g. investment funds. The question is why they weren't bidding at $1, $5, $10, $20 etc. If you don't have in low priced orders on stocks then you won't get the gravy when some moron sells them regardless of price. If exchanges bust such sales, there is no incentive not to make them. Ergo, let these trades stand, suddenly people will put in submarine orders low down in the hope of catching one, and voila, instant liquidity. Combine it with circuit breakers at 10% intervals and this kind of situation won't recur.
So why hasn't that happened already? Mini flash-crashes occur with regular frequency? How did Anadarko go from 90$ to 1 penny, in less than 1 minute? How did that occur, exactly? More sellers than buyers? Where were all the buyers?? Why do flash crashes only occur in stocks, but not futures? Or currencies? What is it about stocks that makes them easy to crash in a blink of an eye, yet futures or currencies, immune? If this article is right, looks like these flash-crashes are coordinated 22nd century bear raids. HFT get short, execute size on non-protected orders (sell below bid), drives price down, and continue to execute on non protected orders (sell below best bid), to push price down further. HFT kick in to ride momentum, and the "raiders", either a group, or a lone shop, continue to sell below the bid. Then cover for a major gain. Why is this possible in stocks, but not futures or currencies? The system and regulators are totally corrupt to allow this shit. http://premarketinfo.com/2012/12/13/market-fragmentation-flash-crash-2/
if my historical data and memory not faulty, Nikkei futures in '87 crash opened around 5k, and rallied all the way back to 35k or so in a day. Have not been around then, just looked at futures history. I think, got it from Singapore futures exchange. If that true, it's as good as flash crash today. Currenecies, i dont think can be manipulated that way because no central exchange. Currency futures, maybe...
I was not trying to say that stocks won't crash by eliminating market orders. It would prevent people from getting filled at prices far above or below the LTP however. A lot of these crashes are not actual crashes just LPs pulling their bis for one reason or another and someones market order gets filled at a much different price than they expected.