SEC, CFTC blame algorithm for flash crash

[Roland99]

Source: MarketWatch

SEC, CFTC blame algorithm for flash crash
Two liquidity crises caused flash crash of May 6

WASHINGTON (MarketWatch) -- The Securities and Exchange Commission and Commodity Futures Trading Commission on Friday blamed two liquidity crises caused by a computer trading algorithm as the source of the “flash crash” on May 6 that rattled markets and investor confidence worldwide.

...

Specifically, the report points to a large fundamental trader, which the report does not identify, that executed a large sell order using an automated execution algorithm at a time in the afternoon while the markets were already very stressed.

...

According to the report, the combined selling pressure from the order drove high-frequency traders to drive down the price of the E-Mini S&P 500 futures market at the same time as it drove the liquidity providers and market makers to withdraw from individual stocks. See external link to the flash crash report

“(High Frequency Traders) in the equity markets, who normally both provide and take liquidity as part of their strategies, traded proportionally more as volume increased, and overall were net sellers in the rapidly declining broad market along with most other participants,” the report said.

Read more: http://www.marketwatch.com/story/sec-cftc-blame-algorithm-for-flash-crash-2010-10-01-1246290

---

Waddell & Reed are thought to be that "large fundamental trade"

[whyverne]

1. Something else most people have forgot about.

Surprise, it was the machines.
Find Sarah Connors.
Has John been born yet?

[sabra]

2. Wall Street flash crash sparked by computer algorithm

Source: AFP

NEW YORK — The May 6 Wall Street "Flash Crash" that saw the Dow Jones index dive 700 points within minutes was sparked by a computer algorithm, according to a report by US watchdogs published Friday.

The joint report by the Securities and Exchange Commission and the US Commodity Futures Trading Commission fell short of naming "the single trader" that used an algorithm to sell 75,000 stocks worth 4.1 billion dollars extremely rapidly.

The large trader, widely reported to be Waddell & Reed Financial, initiated a sell program to offset the risks of an existing equity position, the report said.

The program had previously executed a similar sale over more than five hours, but on May 6, when the markets were already under pressure due to worrying news about the European economy, the sale was executed in just 20 minutes.

This, in turn, sparked super-fast trading algorithms -- which account for more than 50 percent of trade volume -- into a spiral of selling that led the Dow Jones index to drop by nearly 10 percent only to recover within minutes.

Read more: http://www.google.com/hostednews/afp/article/ALeqM5ieKs9-PmPx4lIUWV2W4Ag9QiU5ng?docId=CNG.c41a43301a2a0ba462c063759615c08e.b01

[indepat]

3. Just freakin' peachy

:banghead:

[Omaha Steve]

4. One large trader led to May 6 stock market plunge

Source: AP

By MARCY GORDON and DANIEL WAGNER

WASHINGTON (AP) - A trading firm's use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average plunging nearly 1,000 points in less than a half-hour, federal regulators said Friday.

A report by the Securities and Exchange Commission and the Commodity Futures Trading Commission determined that the so-called "flash crash" occurred when the trading firm executed a computerized selling program in an already stressed market.

The firm's trade, worth $4.1 billion, led to a chain of events the ended with market players swiftly pulling their money from stock market, the report said.

The report does not name the trading firm. But only one trade that day fit the description in the report. The firm Waddell & Reed, based in Overland Park, Kan., has acknowledged making such a trade that day.

Read more: http://apnews.excite.com/article/20101001/D9IJ3KV81.html

[DCBob]

5. hard to believe..

but if true thats a problem.

[Downwinder]

6. Like an acoustic feedback. n/t

[mistertrickster]

7. This is what is wrong with the marketplace. If a big player loaded up on puts, and then

deliberately forced the market down, they could make out like bandits with virtually no risk.

This is essentially what Soros did by shorting the British pound. He made a billion dollars on the deal. Granted, the pound was somewhat overvalued which Soros correctly spotted. But the very fact that a major player like Soros is selling will make thousands of others sell too . . .

[Blandocyte]

8. When my retirement fund guy tells me the history of the market

and how my money is "statistically certain" to grow, I always wanna say, but, wait, all them there years on the graph yer a-showing me was before compewters!

[underpants]

9. This was the "fat finger" crash wasn't it?

:eyes:

They are playing silly games with other people's money

[underpants]

10. Why, because no one believed the "fat finger" excuse the last time?

just asking