The fact that the clearance process might be disrupted is not the only factor that is relevant here. Nasdaq's handling of the situation effectively socialized the loss. Instead of penalizing the firm that created the problem, they forced a large group of small players to pay for it. This is a risk in dealing with any exchange, as they will favor their members over the public. Many feel the exchanges ability to bust "clearly erroneous" trades is unfair. The CME has gone even further and busted e-mini trades that were outside a predetermined linkage to the pit-traded contract. While we may be stuck with the exchanges having this ability to bust trades, their exercise of this power has to monitored more closely. Ideally the SEC and CFTC would promulgate some rules that tightly limited the exchanges' room for arbitrary action.
wow. ask and you shall receive....nyse spokesman on kudlow and cramer talking specifically about the COCO incident, saying that traders know that they must stand by their trades. they should've done this in the middle of the freaking day though.
also, i hate nichols from instinet. now he's trying to use this to take shots at ARCA for reopening. what an ass.
It's funny to hear that Instinet is doing anything other than laying low right now, as it was their software that initiated the problem in the first place. I guess he is trying to say "ARCA needs to shutdown their systems anytime our crappy software fails..." -Eric
frankly, he's doing a better job marketing and in the press than anyone else. his system f's everything up and he comes out looking like the sensible one. kudlow called him out somewhat though. although i think he was gentil didn't make the points that he should've.
So what? In the event of client default, the clearing firm still has to pay the counterparties within the settlement period, and if they don't then they go bankrupt and the exchange is then liable. In either case the counterparties would get paid within a few days of settlement. The fact that the clearer might sue the error-prone party makes no difference at all to their liability to the counterparites, and unless the exchange goes bust then the counterparties trades' still clear. If you owe someone some money, the fact that one of your debtors has not paid is no excuse in the eyes of the law. Your position is like saying an insurance company can't be expected to pay up if it would put it into bankruptcy. Sorry but that's the game - if bankruptcy is unpalatable, then don't make promises you can't afford to keep. Possible bankruptcy is a key incentive in business to make sure people don't take excessive risk. If the nasdaq and its members could not break trades and were forced to eat all errors, you can be damn sure that there would *never* be any big errors. The current system gives them a cop out and, as a previous poster correctly said, effectively socialises losses. We, the public traders, are unwittingly underwriting unlimited liability catastrophic loss-insurance for multi-billion market cap Wall Street giants. And that is not just illegal, it's an outrage.
I can't say i necessarily agree with Nichols' assessment as well. Instinet is also to blame. Not cool.
News: Terror in Buffalo Sun Dec 7, 6:13 PM ET Add Sports - AP to My Yahoo! By AMOS LAUDER, AP Writer NEW YORK - What was expected to be a chilly day watching their favorite football team play turned into a nightmare for a large number of fans. A stampede erupted during the Bills vs. Jets game when a man stood up in the stands and began pointing a small handgun at nearby spectators. As people scrambled for the exits, two people were killed when they lost their footing and were trampled by the panicked crowd. Dozens were treated at area hospitals for injuries sustained during the pandemonium. Stadium security quickly subdued the man, and order was quickly restored. It was later discovered that the weapon was a cleverly painted toy water gun. Witnesses described the scene as "horrific", "terrifying", and "the most frightening situation I have ever been in". Others were more apathetic: a nasdaq official who spoke on condition of anonymity stated, "Those people overreacted. In this day and age of heightened security, they should have known better than to think someone could sneak a real gun into a football stadium". Related Links ⢠Are markets fair?