ISO's crashed the market

Discussion in 'Trading' started by JMartinez, May 9, 2010.


    A brief description of a possible blowup with ISO order types from Nasdaq going into the NYSE then getting rerouted (becaue they went slow market) to other markets and sweeping the top of their quotes then trading thru (remember Reg NMS that everyone wanted) till the stock hit zero. Now BATS and NASDAQ are complaining it is NYSE’s fault which in fact their own markets crashed the world not the NYSE. NYSE had protection on and the other’s didn’t. In the next few weeks we will all see the blaming game….from dumb ass’s in Washington to exchanges bitching.


    A review of trading logs and interviews with traders suggests an outline of how a large but somewhat routine selloff spiraled out of control.

    For a good part of the day, markets were down on worries about debt woes in Europe and unrest in Greece.

    Shortly after 2 p.m., traders on the floor of the NYSE say, they noticed some wild moves in currency markets, and gold was ticking up. Stocks fell further.

    Around 2:40 p.m., with the Dow Industrials down about 500 points, a big high-speed trading firm, Tradebot Systems Inc., stopped trading to limit its losses. Other high-speed firms also pulled back. These firms typically buy and sell when other investors need to trade, so their withdrawal could have primed the market for a fall.

    Around the same time, the big P&G sell order hit the NYSE floor. It is not clear where the sell order came from and how big the order was. It overwhelmed available buy orders, traders say.

    Because that order came amid the market selloff, a NYSE system kicked in that’s designed to slow trading when there’s a big move in a stock’s price or trading volume. That so-called liquidity replenishment point system stopped the NYSE’s electronic trading in some stocks, down-shifting into “slow” mode.

    The system is supposed to allow designated market makers—human traders who work on the floor—to help bring order to the market. These traders are required to step in and buy or sell stocks when there are no other investors willing to make the trades.

    Journal Community

    Starting at 2:45 and 52 seconds and continuing for nearly two minutes—an eternity in markets where millions of shares trade every second—no P&G trades were reported by NYSE. For about 80 seconds, not a single share of P&G stock traded through the Big Board.

    Sell orders continued to flood into the NYSE. When the orders couldn’t be filled, they spilled into other electronic trading venues.

    That created an overload of sell orders and caused temporary divergences in prices between stocks on the NYSE and other exchanges. Essentially, there were no buyers for many stocks, which allowed their prices to fall until a trade was done, in some cases to 1 cent.

    During that time, P&G declined 35%, then began to rebound. At 2:47 and 42 seconds, the NYSE reported a new P&G trade at $56.27, just below where the stock was changing hands before the trading halt.

    Meanwhile, the broad market was falling more than 100 points a minute.

    “We were here and didn’t know what happened out there,” said Doreen M. Mogavero, president of Mogavero, Lee & Co., a floor broker. “We thought something horrific happened.”

    Some traders say one culprit for the quick downdraft might have been a type of trade called an “intermarket sweep order,” or ISO. ISOs, which some studies say account for nearly half of all trades, send trades to whatever exchange that has the best price. The order can remain there until it is filled—even if that means the price falls to near zero.

    A large number of stocks that plunged dramatically Thursday were ISO orders in which there were no apparent buyers, data shows.

    Shares of consulting firm Accenture PLC fell from $41 at 2:30 p.m. to $32.62 at 2:47:46 when a trade was routed through NYSE Arca Exchange. Seconds later, at 2:47:50 p.m. an ISO trade cleared through Nasdaq at $5.54. Moments later, an ISO trade went through on Nasdaq at $3.04. The shares traded at a penny at 2:47:53 p.m.
  2. "Shares of consulting firm Accenture PLC fell from $41 at 2:30 p.m. to $32.62 at 2:47:46 when a trade was routed through NYSE Arca Exchange. Seconds later, at 2:47:50 p.m. an ISO trade cleared through Nasdaq at $5.54. Moments later, an ISO trade went through on Nasdaq at $3.04. The shares traded at a penny at 2:47:53 p.m."

    This does not make any sense. I think the greatest danger to society is the fact that any idiot can claim he is a journalist. Not HFTs.
  3. Two parts to this clusterfuck.

    One, the potential energy accumulated by 40+ years trying to borrow our way out of debt set the stage.

    Two, numerous (not one, many) kinetic triggers released and channelled that energy destructively.

    Of these triggers, at least one is addressable.


    If you choose to allow speed of light input to a system, your rules of organization must also execute at the speed of light. Otherwise, the stability and your control of said system is only an illusion.
  4. The pivotal question is : where have been the market makers in this situation ? Even when an ISO cleared through Nasdaq. Why was the next bid at $ 5.54 ? Normally, I would expect a market maker to lick his fingers when Accenture trades at a 20 % discount...I cannot follow any of these "explanations". That's total bulls..t !!!!!!
  5. I remember reading similar stories - that floor traders at the exchange just walked off the floor - during the 1987 stock market crash. I suspect exchange members can not absorb all the stock that might be offered for sale during a crash. There is a practical limit to what short term traders can do to facilitate public trading.
  6. NEW YORK (TheStreet) -- The unusual trading action in Procter & Gamble(PG) stock believed to be at the center of the market's most volatile moments on Thursday is thought to have originated from Terra Nova Financial, a Chicago-based provider of prime brokerage and clearing services, a person familiar with the situation has told TheStreet
  7. lescor


    This journalist did his homework. He's reporting what happened and looking at time and sales, a far cry from perpetuating the fat finger bs that keeps floating around. This is how it really went down.

    The reason stuff fell to a penny is because all the algos just turned off. There were literally no bids outside the nyse on some of these stocks.
  8. d138


    I think the following has happened:
    1. Fat finger situation on PG.
    2. NYSE activates circuit breaker for this ticker.
    - However when it halts a trading on a ticker, it continues publishing OLD quotes.
    3. As the results NYSE receives a large stream of market sell orders seeking to trade against these faked quotes.
    4. It routes them to execute on other markers, thus making it's non-tradable liquidity on the book to look even more attractive and receiving more orders.
  9. Stock


    Regardless of what actually happened, I'm of the opinion that all exchanges should be using the exact same rules as far as circuit breakers and such when participating in the same market(s). That probably would have prevented much of Thursday's carnage.
  10. This makes the most sense of anything I've heard regarding Thursdays "problem".
    Another poster ( I can't remember who ) said it IS possible, and he used the term "mathematically possible", for the system to "crash", like it or not.
    We all witnessed it.
    An old Marine I knew, ( who's gone on to guard the streets of Heaven ), once said "Get all your shit together and put it in one sock!".
    We either need a bigger sock, or less shit.
    #10     May 9, 2010