296 'funked up' stocks -- trades canceled

[TomCADem]

Source: CNN Money

NEW YORK (CNNMoney.com) -- After one of the most wild days on Wall Street, Nasdaq canceled trades of 296 stocks whose prices fluctuated the most.

* * *
But the circuit breaker mechanism that was designed to cool traders' heads had the opposite effect: The slowed trading occurred at a time that investors were growing increasingly worried about Greece's debt issues and other economic factors. The Dow, which was already down about 200 points at the time, quickly dropped about another 200 points in the 15 minutes between 2:30 p.m. and 2:45 p.m.

"The problem is that when slowed down, it effectively took their traders out of the market at a time when everyone else wanted to sell," said James Angel, a professor of finance at Georgetown University.

In other words, when the NYSE paused its trading, the off-exchange computers found no bids, or offers to buy. The computers, which were looking for the best bid, were tripped up to believe the best bid was $0. The high-speed trading computers are designed to add a penny to each trade to make a commission on every deal, so the computers placed bets at a penny higher, or 1 cent.


Read more: http://money.cnn.com/2010/05/07/markets/explaining_wall_street_turmoil/index.htm

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This is outrageous. Beer maker Samuel Adams was one of the stocks that dropped to $0.01 due to the glitches. If you were able to score 1000 shares for $10.00 shouldn't you be able to keep them? Whoever was selling them made the decision to automate the sell of their stock.

:rofl:

[grasswire]

1. yet ANOTHER explanation?

Come on. How stupid do they think we are.

[boppers]

5. I'm thinking a combination happened:

Greece worries wasn't enough.
(M)(B)illion wasn't enough.
Attempted auto-trading, to no takers, wasn't enough.
Attempted auto-trading, triggered by stocks in the same industry falling, wasn't enough.

*Combine* them all, at the same time, and that's when things get really weird.

[EJSTES2005]

8. Can you say BAILOUT!!! Or maybe Mulligan......Do-over

wonder who's computers continued to drive it down to zero............................sorry 1 cent

[PassingFair]

2. What happened to the "B"illion/"M"illion : Buttle/Tuttle explanation??

[zenprole]

7. ROTFLMAO

Great photo - had forgotten about that scene. How appropriate!

[DJ13]

3. The circuit breakers wont work if outside brokers can still trade

It needs to be a system wide halt.

[TomCADem]

9. But the traders chose to utilize such systems. Live with the consequences.

If the Wall Street types were so eager to find an end run around the trade protocols, then why do they get Mulligan because trades were being executed at 0.01 a share?

[whyverne]

4. Humans are not allowed to take advantage of robot mistakes?

Maybe we should get Asimov's Three Laws of Robotics inserted in the finance bill.

[Duer 157099]

6. How can they undo this?

Let's say someone had a stop loss in that triggered, and so the order executed, and then they used that money to make another transaction. They have to cancel both/all of the transactions then?

They should just revert everything to where it was at the beginning of the market day and wipe the whole day clean.

I don't know how they can selectively cancel just some of the orders.

Unreal.

[On the Road]

10. Transactions Don't Settle Immediately

It may be two to three days before the trades are officially complete.

It's up to the exchanges whether they feel that any trades should be reversed and which ones. Different exchanges are making different decisions. NASDAQ's solution is kind of strange in that it involves an arbitrary cutoff of 60% profit, but there's no clean way to make a distinction.

The exchanges are looking bad in this since their trading systems didn't exactly perform very well. While some daytraders made money, a lot of rich and powerful people lost a lot of money.

[quakerboy]

18. I hate to say it

Naw, not really. Too bad, so sad. If you participate in the system, and get burned because you didn't know enough about it, didn't make sure that it was safe for your money, then when you lose you lose.

Isn't that the whole argument that the very people likely to be squeeking about this issue made with all the foreclosures? "They shoulda read the fine print, been aware of the details, shoulda known better, so now they have to live up to their responsibilities and pay for their greed in taking more home loan than they could really afford"?

[On the Road]

19. That an Argument Worthy of Ayn Rand

and contrary to a century of progressive politics. Having your stock holding become worthless because you wisely put in a limit is not a good situation to apply the principle of "buyer beware." The exchanges themselves, for God's sake, had every motivation in the world to prevent this mess, and they didn't do it successfully. The fact that you could even propose that this is a normal risk that an investor should have anticipated shows abysmal ignorance of the subject.

You could take that approach with everything in the economy for that matter. Oh, you put your money in a savings account and the bank went under? Should have thought of that. Keep your retirement money under the mattress and a buglar stole it? Should have planned for that possibility. It would be a libertarian dream, at least until the corporations figured out how to control the process.

You feel this way, incidentally, because you associate the stock market with rich people you don't sympathize with rather than everybody's retirement money, which is what most of it is. That is not a good position to formulate policy from.

[mopinko]

14. the up side of computerization

is the robustness of the audit trails, and the ability to walk back things that go haywire. there is insurance in place for the exchanges and the firms to set these things right. this is the expectation of the firms that do the trading. it is not at all uncommon to go back and examine a glitch or an outage and make people whole.
people who are making a big deal out of this do not know the whole situation.

[BumRushDaShow]

11. Exelon dropped to $0.0001

Ironically, the idiot exchange runners are whining and demanding that the NaziCommieSocialistFacistMarxist gov't tell them what THEY did wrong. :banghead:

[On the Road]

12. Nobody Made a Decision to Sell SAM for $.01 a Share

Here's the chart from this week. This is not a normal pattern:



The majority of shares have stop-loss orders to sell if prices dip below a certain point. Those orders may typcially be set 5-20% below the current price, and less for short-term traders. SAM was selling about $57, meaning that there would probably be a lot of stops in and around the $50 range.

Stop-loss orders can be set as limit orders, meaning they can only execute at the specified price. The problem is that during a crash or a panic, the stock falls so quickly that no one buys at the limit price. The result is that the limit orders just sit there and never execute, which defeats the purpose of a stop. Therefore, stops are usually set as market orders and execute at whatever the current bid price is.

Problem is that either due to the rumored billion/million typo, the Greek credit panic, or some other technical reason, the market was flooded with sell orders without corresponding buy orders. A few day traders and professionals who saw what was happening jumped on the situation and put in ridiculously low bids for some of the affected stocks. (I wish I had, but I missed it.)

The result is that people who had 100 shares of SAM in their IRA at with a $50 stop suddenly found that their stock had been sold at $.01 a share and they were left literally with $1 on a $5,000 position.

The stock exchanges look extremely bad in all this. They have some customers with conservative holdings who were almost wiped on a two-hour glitch and lost sizeable parts of their retirement money. That's not supposed to happen. Trading should have been halted. The exchanges have the option to reverse those trades, and some of them are being reversed, but the process is arbitrary and the people who profited are getting angry. It's a no-win situation.

[TomCADem]

15. I Agree, But It Appears That This Due To Folks Trying To Avoid...

...the halt in trading. Thus, rather than lessen volatility, the halt in trading magnifies such volatility due to the end run.

If anything, this episode further undermines confidence in the markets, particularly if limit orders are executed at $0.01 a share. Thus, rather than limiting risk, such orders end up wiping out the seller of the stock.

[On the Road]

16. I'm Not That Familiar with Off-Exchange Transactions in General,

but my impression is they are not used to evade the exchanges so much as for kinds of trading that the exchanges don't offer, primarily:

1) Pre- and Post-Market Trades: If you miss the closing bell and still want to trade, you can generally buy a stock in the after-hours market or before the exchange opens through an ECN.¹ Because the panic happened during the trading day, this is not likely what they were referring to.

2: International Trades: American investors can buy foreign stocks through ADRs ², which are kind of secondary listing foreign companies traded on a US exchange. Perhaps foreign investors do something similar. So some of the trading might have been overseas.

3: Puts and calls: This is likely to be the biggest one. From the Wikipedia article: There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities. ³

So a lot of the people burned are likely to have had puts that suddenly became worthless. (Investors with calls would have cashed in big.) But a lot of index funds like DDM use puts as well, so it's not inherently speculative, and not for rich people only.

-----

On the other hand, some of the stock symbols like SAM show prices trading as low as $.01, so apparently a lot of these extraordinary losses happened right there on the NASDAQ, NYSE etc, during regular hours.

I guess in general I don't see the term "off-exchange" as something sinister, evasive, or for the super-rich only like the infamous "dark pools."⁴. Some of the people burned were no doubt unsympathetic hustlers, but the methods are part of what a lot of normal investors do too.

[RUMMYisFROSTED]

13. "Bright light city gonna set my soul, gonna set my soul on fire..."

I'll always remember that I had a swingin' time.

[Roland99]

17. What? The NYSE "paused its trading"? BULLSHIT. Check these out >>>>>>>

Dissecting The Crash
http://www.zerohedge.com/article/dissecting-crash

The chart below (more to follow) captures the moment of the final capitulation, before the reversal today. The idea that it was a 'fat finger' error is ludicrous; unless the fat finger hit every market in the world virtually simultaneously. Liquidity simply left the world financial markets for about four minutes this afternoon. The bids just vanished. And what else vanished? Remember the vaunted supplemental liquidity providers, led by Goldman Sachs. Remember that they are paid to "provide liquidity" through their predatory high-frequency algos, they are not required to do so. So when the S@#$T hit the fan they just disappeared. In one second more or less someone (and yes, under these circumstances, human beings take control of the machines) made the decision to pull the bids on every equity in the S&P, every financial futures contract, every FX contract in every market in the world. This kind of thing just doesn't happen in a pure auction environment; there just isn't a tight enough communication link between the parties to allow the decisions to propagate within the same second -- even with HFT algorithms. No. Some human made the decision to pull the bids; all of them, all at once. If that is not a condemnation of the concentration of financial power and the systematic risk it engenders I don't know what is.

The Near 1,000 Point Slide of the DJIA Compels Further Investigation of the Wall Street Casino Scam
http://www.zerohedge.com/article/near-1000-point-slide-djia-compels-further-investigation-wall-street-casino-scam