Legacy of the 'Flash Crash': Enduring Worries of Repeat

Discussion in 'Wall St. News' started by ASusilovic, Aug 6, 2010.

  1. In the days leading up to the May 6 "flash crash," some stock-market veterans were picking up disturbing rumblings.

    Philip Vasan, who heads the Credit Suisse prime-brokerage unit catering to hedge funds, began hearing from fund managers who were ratcheting back on trading because, they told him, stocks were behaving strangely. The funds were acting like "a dog that growls before an earthquake," Mr. Vasan told several clients.

    When the quake hit on the afternoon of May 6, the Dow Jones Industrial Average suffered its biggest, fastest decline ever, and hundreds of stocks momentarily lost nearly all their value. So many things went wrong, so quickly, that regulators haven't yet pieced together precisely what happened.

    A close examination of the market's rapid-fire unraveling reveals some new details about what unfolded: Stock-price data from the New York Stock Exchange's electronic-trading arm, Arca, were so slow that at least three other exchanges simply cut it off from trading. Pricing information became so erratic that at one point shares of Apple Inc. traded at nearly $100,000 apiece. And computer-driven trading models used by many big investors, apparently responding to the same market signals, rushed for the exits at the same time.

    Three months later, many market veterans have arrived at a disquieting conclusion: A flash crash could happen again because today's computer-driven stock market is much more fragile than many believed. Many investors, still gun-shy, have been pulling money out of stocks.

    "The whole system failed," says John Bogle, founder of fund company Vanguard Group. "In an era of intense technology, bad things can happen so rapidly. Technology can accelerate things to the point that we lose control."

    9:30 a.m., Dow opens at 10862.22

    Early trading was relatively smooth. Todd Sandoz, co-head of equities in the Americas at Credit Suisse in New York, kept track as clients reduced risk in their portfolios. One way they did it was through trades that would profit if the Standard & Poor's 500-stock index fell: They sold short, or bet against, futures contracts linked to that index. They did the same with exchange-traded funds, which track baskets of stocks.


    You ask yourself why volume in the US of A markets is low ? The answer is very simple : international institutional investors have scaled back their daily trading volumes. They are not stupid sheeple to follow SEC´s incompetence and dishonesty. To say it clear and loud : the "market structure" ( this is a much too polite word for it ) is legalized crime !
  2. hft is the new bubble and we are in it big time.

    companies invested huge in this.
    banks invested huge in this.
    the exchanges are hugely invested in this.
    the mammoth size buildings used to house the equipment.
    the regulators dont want to know and quite frankly dont understand.

    i hear about companies hiring anything and everything with hft / algo in the title just because it sounds good and there must be money in it.


    they had a warning and a chance to change things and they changed fuck all.

    the next one will be larger and quicker.

    i reckon something along the lines of dow 30,000 bid or printing at 0.

    the ramifications and the fallout from this one coming will be life changing and take months if not years to sort out.
  3. DITTO!
  4. its not going to repeat. too many guys are ready for it. including me.
  5. Just make sure you are -59.9% and above the best bid :)
  6. Would those 10% circuit breakers that the exchanges implemented help any crashes? I know it would slow things down, for sure, but if there was some really catastrophic event, I wonder what the charts would look like if there was a big flush?