Computer Glitch Causes Havoc and Losses on Nasdaq 324
goombah99 writes "In an illustration of how fragile the electronic stock market system is the NY Times is reporting how a tiny computer glitch rippled through the Stock Markets with buyers who bought low and sold high taking huge losses. An erroneous large sell order was entered. Many people bought at this low price, then signed options contracts to sell these at higher prices, locking in a profit. Or so they thought utill the erroneous low sell order was removed. Now to honor their options they had to buy the stock at a higher price. Since exchanges trust each other's trade prices it rippled throughout the system. There does not seem to be any way to gracefully undo such errors."
Hmm.. (Score:5, Interesting)
Re:Hmm.. (Score:2)
Re:Hmm.. (Score:5, Funny)
"YoUvE bEEn HaxOreD fuXOrS
Suckee it down!
wOOt!"
Re:Hmm.. (Score:5, Informative)
I work for the company in question, and I assure you this is not the case. What basically happened is that the feature which would auto bail-out of a losing position which was in place for client X was discovered and used by client Y, who wasn't even supposed to know about it. Client Y added the setting to support autobail, but didn't include a lag time to send the orders.
Thus, the order was sent thousands of times before the error was noticed.
For it to have been malicious, the programmer would have had to have contact with the client in question, which is not the case. It was a multi-layered mistake, plain and simple.
Re:Hmm.. (Score:5, Insightful)
Ahh, security through obscurity.
I hope that appropriate action is taken against whoever decided that was the best way to prevent the feature from being used by an unauthorized party.
Add hysteresis to tackle glitches + bugs (Score:5, Informative)
All forms of instability are reduced in their effect by this means, so it doesn't matter whether the instability stems from human error, bugs, or system glitches arising from other things.
And exactly how would one do this? There's a ton of ways, and quite a few of them simply entail holding quoted prices steady for a mandated period, plus a few adornments.
There are much more creative ones around though which could probably work even better, like allowing only audio readouts in trading rooms so that info comes in slowly like in tickertape days, or the one I like best, allowing traders to use no equipment other than the morning's financial newspaper, plus a pen and notepad.
Re:Its not a glitch (Score:3, Informative)
accordinging to the article it's not entirely clear what happened.
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.
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"There was some sort of system glitch," said Andrew Goldman, executive vice president of Instinet Group. "We are trying to figure out precisely what it was and who caused it. It appears that the result was an unintended effect on the stock in question."
Other market officials said that the sell order apparently went into an electronic loop, endlessly repeating. Then automatic systems sprayed those orders throughout the market.
.
Re:Its not a glitch (Score:4, Insightful)
> The price plunged, falling from $57.50 at 10:46 a.m. to a low of $39.25 at 10:54 a.m. Mr. Goldman said that Gr8Trade officials noticed the trading and notified Nasdaq of a possible problem. A Nasdaq official, who declined to be quoted by name, said Nasdaq contacted the company and was told there was no news to explain the move. It halted trading at 10:58 a.m.
--Twelve-minute response time. That's better than I would ever have thought! Could have been a lot worse.
Re:Its not a glitch (Score:3, Interesting)
Sivaram Velauthapillai
Re:A right to compensation. (Score:4, Insightful)
A better analogy is that you sold the orange for 20c, then after someone was locked into buying it, because they have already sold it to someone else, you tell them that the orange is only available for $1, because the orange you originally offered did not exist.
Poor slobs. (Score:2, Insightful)
H.
Re:Poor slobs. (Score:3, Interesting)
One Dollar (Score:5, Funny)
Virus (Score:3, Funny)
(Or,maybe they run Norton SystemWorks... )
Not a Virus (Score:2)
Why would anyone make some fancy virus for a one-time job? It might involve using a virus, or not, but I'd think it would be more just direct work on security holes.
Re:Virus (Score:2, Interesting)
Anonymous Ex-Deccie coward
Interesting approach from Clancy (Score:5, Interesting)
It doesn't apply to this situation, but the specifics of how they do it is interesting for anyone who might want to check out the book.
Re:Interesting approach from Clancy (Score:3, Informative)
Re:Interesting approach from Clancy (Score:2, Funny)
in which case (Score:2, Funny)
The issue is settlement. (Score:5, Interesting)
Clancy was a bit simplistic there - it would be a hell of a rollback.
let's just hope... (Score:4, Funny)
its that pesky Y2.003K bug! (Score:3, Funny)
Thunderdome (Score:5, Funny)
Pffft...Screw that! Start making a list of people who are stocking up on toilet paper and gold coins. This is anarchy baby!
Do over!!! (Score:5, Funny)
Remeber being a kid and playing some game (like baseball or soccer)? What happened when someone really screwed up? or did something thinking they were allowed? You called "do over!!!"
That is the solution. On Monday morning, all of the trading managers go out on the floor, and start off the day by yelling "do over!!!" Every trader's account is reset to its pre-Friday state, and everyone is happy. Duh, it's so simple.
Not always possible (Score:3, Insightful)
Re:Not always possible (Score:5, Insightful)
Re:Not always possible (Score:3, Interesting)
Re:Not always possible (Score:3, Insightful)
Re:Not always possible (Score:4, Insightful)
It disturbs me that no one seems to question this "of course". Your friend was wrong. He made an unjustifiable profit on a mistake made in good faith by the clerk -- a mistake he clearly recognized as such. What he did might have been legal but it was wrong. And yes, I'm the kind of guy who goes back to a store if I discover I've received too much change.
Re:Not always possible (Score:5, Insightful)
Only about the yelling part, I think (Score:3, Interesting)
Open Sourced (Score:2)
While I'm at it, how many SCO stocks did it manage to fsck up?
Re:Open Sourced (Score:3, Insightful)
undo errors..... (Score:5, Funny)
Homer: Oh, yeah! I'm betting on Jai-alai in the Cayman Islands, I invested in
something called "News Corp"--
Lisa: Dad, that's Fox!
Homer: [shrieks] Undo! Undo! [hits key, sighs]
Re:undo errors..... (Score:2)
Easy Fix (Score:2)
Re:Easy Fix (Score:2)
Re:Easy Fix (Score:5, Interesting)
Daytraders often buy on dips, betting that the stock is being oversold. This is a decent strategy, since often the reaction to bad news is more extreme than the news warrants. So, the stock dips suddenly, then regains a lot of what it lost. This is risky, because sometimes it turns out that news was even worse than initially reported, and the stock goes down even more. Daytraders understand this risk and accept it.
However, NASDAQ has introduced an entirely unprecedented risk -- that your buy order may be cancelled with no notice after you have already sold it forcing you into a short position that you did not intend.
Take this scenario:
10:55 AM - Investor sees huge dip in stock, enters BUY order for 1000 shares
10:56 AM - Investor gets confirmation from broker that he bought 1000 shares at $40, total price $40,000 (plus fees)
10:58 AM - Stock is halted
11:19 AM - Stock resumes trading, price starts going back up
11:55 AM - Investor puts in SELL order for 1000 shares
11:56 AM - Investor gets confirmation from broker that he sold his 1000 shares at $50, paying $50,000 (minus fees). That's a profit of $10,000.
12:28 PM - NASDAQ announces cancellation of all trades between 10:46 and 10:58 AM.
12:30 PM - Broker adjusts Investor's account to remove cancelled BUY order from 10:55 AM. But the SELL order was not in the cancelled time frame. Investor now has -1000 shares of stock and must buy to cover the debt.
12:35 PM - Investor enters BUY order to cover the 11:30 SELL.
12:36 PM - Investor gets confirmation from broker of BUY at $55 per share, total cost $55,000. Since the shares were sold at $50/share, that's a loss of $5000, due to NASDAQ's cancelling after the fact.
If NASDAQ had announced it was cancelling transactions before resuming the stock, the investor would not have entered the SELL order in the first place, and the whole thing would have been a wash. That would be the fair way to handle it.
Re:Easy Fix (Score:3, Interesting)
Sure, there was out of line behavior, but it happened at Archipelago... who is a completely different operation. The moral of the story is to trust NASDAQ for a fairly played market, and beware of Archipelago opening trading too soon on stocks that should remain halt
Trading has its risks (Score:5, Insightful)
If you lost money, sorry. Unless the SEC/others can prove that somebody is liable for the initial mistaken order, you lose. Tough. Trading is risky, and sometimes the risks are completely unforseen.
Re:Trading has its risks (Score:5, Insightful)
The markets are meant for people to invest their money in businesses they feel will make a decent return for them. Investment risk consists of inherent risk of the industry, currency risk, political risk, etc. Nowhere in that equation is there EVER risk of a glitch in the computing system factored in.
Mistakes happen because people are unethical, criminal, or just dumb managers. But mistakes should never ever happen because the system that you gave an order to buy or sell for you decided to have a glitch.
Someone IS liable. NASDAQ is liable! NASDAQ is a company and it will be sued for the losses that it caused other people. It's as simple as that.
Re:Trading has its risks (Score:2, Informative)
you think they didnt think of this ??
Disclaimer
Because of the possibility of human and mechanical error as well as other factors, NASD and its affiliates are not responsible for any errors in or omissions from the information contained in or accessed through this Site. All such information is provided "as is" without warranty of any kind. NASD and its affiliates make no representations and disclaim all express, implied and statutory warranties of any kind to the user and/o
Re:Trading has its risks (Score:4, Interesting)
If it can be shown that NASDAQ's systems caused this, rather than a glitch in someone else's systems, then their action was taken as an act of self-preservation, and would not be tortious. If it was caused by a problem on someone else's system, though, it probably would be.
If, however, the failure was caused by NASDAQ's systems, the fact that safeguards were not put in place to detect such a runaway sell order qualifies as gross negligence on their part.
Either way, if that were the contractual agreement between the day traders and NASDAQ, it seems likely that NASDAQ is screwed. However, the text you quote above is clearly web site boilerplate information, and has nothing to do with the contractual obligations NASDAQ has regarding an actual sale of stock. Without those contracts and a solid knowledge of contract law in the state of New York, we're all basically guessing here.
That having been said, the odds do seem to lean in favor of NASDAQ being found to be negligent, and thus at fault, IMHO.
Re:Trading has its risks (Score:5, Interesting)
So, sorry money hungry lawyers... you'll just have to settle for suing a
Re:Trading has its risks (Score:3, Interesting)
Exchange/clearing interventions of various types have occured many times in the past (for example, the redefinition of futures contracts during the Hunt brother's Silver corner, the post-WWI coffee futures reset, the post-9/11 T+5 swap settlement change.)
NASDAQ was the party making the exceptional change, n
Re:Trading has its risks (Score:5, Insightful)
The investor chooses the risk and the reaction to short term changes. The low risk, long term investor would not likely be affected by this mistake. Such investors seldom keep track of minute to minute prices. Such an investor might notice something funny happened the previous day, and check on the details, but when nothing was found go on with life.
It the high risk trader that is going to be burned by this scenario. This trader has chosen the high risk levels, and should know the consequences. And, your fantasy world notwithstanding, information is sometimes wrong. (In fact this case is not about computers but information dispersal) Sometimes you lose money. Sometimes you can sue for damages. But these traders are big boys and girl. The smart ones double check information if it seems out of the ordinary (and wrong quotes come by more than you might believe, often direcly from the exchange). They do not run home to mommy and daddy complaining that a 5th grader sold his pubes for $10, and you now want your money back.
Re:Trading has its risks (Score:5, Insightful)
If I market buy because the ticker says a $50 stock is selling at $40, it goes through between 10:46 and 10:58, then NASDAQ is right to cancel at 12:30: no problem. If my option straddle executes on the volatility on both sides, one before and one after 10:58, but NASDAQ cancels the options in-the-money (on Instinet) but not the options out-the-money (on another ECN), then its a problem. If I'm an idiot, and leave those options open unchecked through a halt, then its my fault for engaging in a risky behavior and getting slammed in the ensuing short-squeeze.
Other stocks in the sector were off by 10%, so it was not stupidity to think that a 20% move was legitimate. NASDAQ halted Instinet, but not other ECNs. Archipeligo already announced intentions to file suit with the SEC on the matter. And that won't be the last suit filed on it.
Re:Bullshit (Score:3, Informative)
No, it isn't. Execution of a trade means merely that matching buy and sell orders were recorded by the exchange. There is no verification of account balances: you are putting blind faith in an unseen seller. The actual payment is made later, during settlement, which is where account balances are checked and adjusted. In the U.S., settlement occurs three business days after execution. In foreign marke
Re:Trading has its risks (Score:2, Insightful)
It would be interesting to see what happens next.
Re:Trading has its risks (Score:5, Informative)
This is NASDAQ's "clearly erroneous" rule. I'm sure a Google search will turn up plenty. All serious players are aware of this rule.
When you as an individual do trades, you do them with a brokerage, not with nasdaq, no matter how transparent it looks, and liability in that case depends on your contract with your broker.
It's not their fault, and the contract should cover this.
Re:Trading has its risks (Score:2)
It's like saying you just have to accept the risk of someone arbitrarily deciding to put a negative sign in front of your profit figure.
Re:Trading has its risks (Score:3, Interesting)
Wall Street rewards non-diversifiable risk taking, and one of those risks is that trades will be disputed. Your average investor has many ways to mitigate that risk (dollar cost averaging, investing in mutual f
Bound to happen. (Score:5, Insightful)
The stock market is frail, and a fool's playpen. I remember hearing a story about a huge media barron, before the stock market crash that led to the great depression. The mogul was standing in this elevator and overheard busboys talking about how they were going to start playing the stocks. The millionaire immediately sold everything when he got to the office. His reasoning was that if two people who had no money were playing stocks, that they were a sign that the whole system was at fault and doomed. I forget who this person was, so if anyone remembers... hehe feel free to say.
The guy's logic is correct even to this day, imho. The big companies that go public hope that an infusion of cash will make them more profitable, but it usually ends up that they get to take a break on stockholder's money for a while until it's deadline time again and they have to scramble to make product/service X work.
The whole system is wrong.
Look at all the ads for investing these days. They all suggest that you trust them to make you money, and they have as selling points, how easy it is to make money. The easier it is, the more moot it is, imho.
There is no easier way than hard work.
Glitches are bound to happen. Remember when the grid went down this past summer? I would have suspected major losses then, but somehow it wasn't that bad?
Re:Bound to happen. (Score:5, Insightful)
I wonder how old you are, because you sound like my father.
The fact is that there is no harder work than taking a risk. Things like the stock market allow people to take measured risks in return for a greater reward. It also provides cheap capital for businesses and liquidity in trading businesses. Without it the economy would be less efficient and your "hard work" would buy you a whole lot less.
Re:Bound to happen. (Score:2)
There is nothing that is absolutely safe. All things have risks whether you realise it or not. You gamble with your life every day and you don't realise it. But some are risker than others, the question is are the risks worth the rewards? That's what the sharemarket is about, the "gambling" part of it is neither here nor there.
Re:Bound to happen. (Score:5, Interesting)
Stocks were never meant to be traded as speculation on the share price. Purchasing stock is purchasing a share of a company's future earnings in the form of dividends. This is why people who invest long term make more than people who buy expecting to sell with a profit in the same week.
There are several stocks paying 5-10% real returns as dividends right now. Try getting that rate at the bank. The best CD right now might pay 2%, if that.
Re:It was Joe Kennedy (Score:2, Informative)
Re:Bound to happen. (Score:5, Interesting)
The same thing happened in the 90's. I read an article about how states which, during the great depression, had passed laws forbidding governmental organizations from putting money in the market were now repealing those prohibitions. Well, if Depression-era legal prohibitions were being repealed, then the market was due for a crash. Unfortuately, my prediction was a good two years eary, but oh well.
Re:Bound to happen. (Score:2)
Re:Bound to happen. (Score:4, Insightful)
Actually the stock market has been the best place to invest one's money over the last 70 years. No other investment actually outpaces inflation.
Remember when the grid went down this past summer? I would have suspected major losses then, but somehow it wasn't that bad?
When your predictions don't come true, it's time to re-evaluate your assumptions.
Glitches are bound to happen.
Yup. The question is what happens afterwards - do they get corrected and people move on, or do not get corrected and people lose confidence?
The former seems to have happened here showing that the system has a degree of failure tolerance.
Look at all the ads for investing these days. They all suggest that you trust them to make you money, and they have as selling points, how easy it is to make money. The easier it is, the more moot it is, imho.
As you well know, advertisements and reality are two different things. Making money by investing it is hard work, requires intelligence, wisdom and perserverence. If you let yourself be driven by fads and ads, well you are one of the people PT Barnum was talking about.
Re:Bound to happen. (Score:3, Interesting)
The stock portfolio did not suffer a loss in any of the 685 separate 20-year holding periods. In every period, the annual rate of return for the stock portfolio was greater than the inflation rate. At the same time, the bond portfolio outpaced inflation in only 317 of the 685 20-year holding periods -- by a much lower margin."
So in other words, you are wrong - in more than 1/2 of the baseline 20 year periods bonds DID NOT outpace inflation.
Real Estate is e
Re:Bound to happen. (Score:3, Offtopic)
Assuming the Republican's retain control of power next year its a near certainty they are going to make a first attempt at privitizing Social Security. The case for this w
Re:Bound to happen. (Score:4, Informative)
I've seen many types of correct critiques of the system, but this is just wrong. When a company receives money by issuing equity, they give up (through dilution of voting rights) partial control of the company. Management only authorizes stock issues when they expect to make money faster with the increased capital than their original equity could.
An IPO or follow-on offering brings in money, but it doesn't make the issuer "rich." If those accelerated earnings don't materialize, the company will be worth just as much as it was worth before, only now the original owners have a smaller stake.
Look at all the ads for investing these days. They all suggest that you trust them to make you money, and they have as selling points, how easy it is to make money.
I challenge you to produce evidence of this. This is strictly illegal. Read up on securities law my friend, and you will notice that the regulations on investment advertising is pretty severe. If you promise someone to make them money and can't deliver, you are in violation of the law.
The Securities Exchange Act of 1934 [uc.edu] set out the general provisions, and the National Association of Securities Dealers (NASD) Advertising Rules [nasdr.com] have strict guidlines on what constitutes violations regarding investment advertising.
And even if somehow this ad got past the NASD, it wouldn't get past the SEC. If you learn anything about investing, learn that SEC Rule 10b-5 is your friend.
Re:Bound to happen. (Score:2, Informative)
> I believe the mogul was Warren Buffett.
Wow, I knew Warren Buffet was getting on in years, but it's quite surprising to learn that he was already a mogul 74 years ago!
(actually, he was born in 1930, the year after the crash)
Re:Oversimplification (Score:3, Insightful)
You could be like the guys who invented ICQ.
Or you could create a business, that slowly churns in the coin.
Or you could make a movie like Blair Witch, using about $5 of pocket change and some cigarettes, a scrap of tent and some gasoline, and make way more money than you'd ever make measuring stocks. Just don't make a sequel.
Stocks are mere gambling, imho. The house always wins...
The cancel probably shouldn't have happened (Score:5, Interesting)
The fact that the trades were cancelled without permission from everybody involved in the trades is quite disturbing (because then it can set up precedence that any of your trades could be cancelled without you knowing about it, and that can really screw up your position).
Some people lose money because of mistakes, and some people make money because of mistakes...that's part of how the market works, and you should be willing to accept that risk if you're going to trade.
If it really was that bad (and a $20 difference is huge), and archipellago did screw up, they should take responsiblity and take the losses. If someone just entered in the wrong ask price, then that firm should take the responsibility. I know if our systems screw up our traders, then we mitigate those losses.
I have a feeling there might be some lawsuits in the near future if there were a lot of shares traded.
Re:The cancel probably shouldn't have happened (Score:5, Informative)
That precedent is already there, for example NASDAQ's "clearly erroneous" rule.
Really this happens all the time and I don't know why this particular incident made /.
Re:The cancel probably shouldn't have happened (Score:5, Interesting)
Re:The cancel probably shouldn't have happened (Score:5, Insightful)
Re:The cancel probably shouldn't have happened (Score:4, Informative)
To me, Archipelago seems to be the big problem here. They willfully resumed trading of the security even while NASDAQ continued the halt, and complained [yahoo.com] that Nasdaq "used this authority to attempt to impose on its competitors a trading halt in a situation that was unique to it."
It would seem to me that if a stock is halted on one market, it should be halted on all markets, and I think it was irresponsible for Arch to resume trading. Clearly there was enormous confusion over this stock during the time frame in question, and the purpose of a halt, in my opinion at least, is to allow information to get out to eliminate the confusion in order to ensure a fair market. Arch's action of unilaterally resuming trading resulted in increased confusion and an unfair market situation.
Too good to be true (Score:2, Funny)
Some exchange officials, speaking on condition of anonymity, said they had little sympathy for traders who bought stock at the low prices, and then lost money when they sold the stock before learning that the earlier trade was being canceled. "They should have known that was too good to be true," one said.
Damn! Gotta check my Linux box for back doors, addware, or some other bug. I should have known it was too good to be true!
Hyper-transactional databases? (Score:5, Insightful)
Simply "roll back" the transaction that failed, and the dependencies would cancel themselves out. But, then I realized that the current RDBMS model only allows for a single transaction - you can't nest them.
Also, transactions are private only - you cannot transact with data in the middle of another transaction.
Thus, you might have ACID compliance, but only with one level of "undo".
How hard would it be to create an RDBMS that supports infinite levels of "undo" or transaction/rollback.
Such that you commit transaction A, which affects rows 1,2,3, and 11. Then, another transaction B which affects (further) rows 2, 3, and 12.
Then, if you roll back transaction A, transaction B would be similarly affected. I dunno - the depencies may get rediculous - but it seems that this could and should be done at some point.
Bright idea? Or another noise from an unpleasant orifice?
Let me know what you think!
Re:Hyper-transactional databases? (Score:3, Informative)
You can't use two phase commit because it doesn't scale in the real world.
This means that all trades would have to be conducted on a single system.
Re:Hyper-transactional databases? (Score:3, Interesting)
That said, this wouldn't be practical in this case, just because the amount of rearchitecting that would be needed to implement it.
Re:Hyper-transactional databases? (Score:5, Informative)
Unfortunately, people don't seem to understand the real problem here. The problem is that people make offsetting trades in other markets, that are built on other systems, to lock in profits in the primary market. This story was about traders who sold options contracts to lock in profits on the stock itself. The trades on the stocks were busted by NASDAQ, but the options trades can't be backed out of, they are in a separate market. Thus the trader gets fucked. Having a transactional rollback capability on the NASDAQ wouldn't help here, it would have to encompass all the other markets people might trade in.
Mind you, I would think there would be legal recourse here based on contract law. The buyer entered into an option sale contract with reasonable reliance on the NASDAQ's "promise" that they bought the stock at a low price. Promissory estoppel against the NASDAQ, or against Archipelago? I don't know, sounds to me like an interexchange issue that needs legal or regulatory collaboration more than it needs a technical solution.
Re:Hyper-transactional databases? (Score:3, Interesting)
b) you don't want this anyway. a trade is a contract, and like contracts usually are, undoable only if both parties agree to do so. in the case of trades like these, with a domino effect, the top-level traders who want to undo their trade (or at least one side does) need to ask th
Re:Hyper-transactional databases? (Score:3, Interesting)
Frankly, they should heavily penilize the errant broker...perhaps 1 month inelligibility to trade...and make the "day traders" live with their choices. Day Trading is a questionable, but legal practice anyway...like french fries & soda pop, too much will wreck the market...perhaps a few incidents
Why undo such errors? (Score:5, Insightful)
They wouldn't have to be gracefully undone, if there was a simple check to gracefully prevent them from being made.
Re:Why undo such errors? (Score:2)
Computers can't understand business news, so it's always going to take human spotters to notice a stock that is moving despite the lack of apparent news. Those humans need time to act, and that's why they buy time
power of perception (Score:2)
Wow sounds intense. The corrections will be made eventually, but the way the heading sounded, I didn't know whether I should be ducking for cover in a nuclear fallout shelter or something.
The initial cause was ... (Score:4, Funny)
W3 R Gr8Trades. All U base R belong to us. Nyaaaaa.
(Anyone entrusting a company named "Gr8Trades" to buy 5000 shares at $40/share should be spanked. $200,000 was theirs, now it's not.)
Re:The initial cause was ... (Score:2)
Multivendor Rollback? (Score:2)
Clearly the world's financial markets need a rollback mechanism. Literature abounds with tales of chaos that would ensue because of a set of erroneous or malignant trades rippling through the economy.
1D107 error (Score:2)
I'd say the program might need a little revamping, or the user who entered the wrong price should take the fall.
Warning: Instant big profits never happen... (Score:5, Insightful)
Not only did think they had bought something something at far below its value, they then signed options contracts to sell what they had just bought at slightly below its regular price. They should have known something was fishy... why would anybody want to pay close to the normal price to them if the price had just plumeted? Why would anybody want to sell to them at far below the usual price?
The should have known that the rules of the game allowed for their trade to be undone, yet they committed to an options contract that couldn't be undone because if they had hesitated, they risked their "instant profits" going away... their fault.
Re:Warning: Instant big profits never happen... (Score:3, Informative)
Do you know what the market is going to do at any given month, how about any given week? Day? Hour? Minute? The market is set up under the principle that transactions are executed immediately and without prejudice. If the stock price goes down $2, who is to say that is wrong? You? Stock prices can go down drastically in a few hours, does anybody sit there deciding that they know the reason why it went down? Hell no, someone puts in a order to buy ABC at 40, and that is it. If the someone sells at 40 the t
much ado about nothing (Score:2, Flamebait)
Maybe Not Fixable, But Preventable (Score:3, Insightful)
There does not seem to be any way to gracefully undo such errors.
From the article:
Such losses would have been prevented if the markets had not resumed trading until a decision was made on which trades, if any, should be canceled. But with markets intensely competitive, trading resumed before officials had made their decisions. The losers were traders who were not responsible for the errors or the slow decision making.
But I guess hindsight is 20-20, right?
there goes my confidence (Score:3, Insightful)
Back when I was writing trading software... (Score:5, Informative)
So I find it puzzling that traders wouldn't realize something was amiss with a $20 spread on a stock. I'm sure they did realize it was amiss, and there was a strong possibility that NASDAQ would break the trade, but they figured they'd go ahead with the trade just in case they could make some money before it was broken. It was, they lost money, and now they're crying.
BTW: Somebody asked what NASDAQ's software runs on. Mostly they use Suns, although there are some Windows systems, and possibly some SGIs.
Insurance (Score:3, Insightful)
False start by Archipelago? (Score:5, Interesting)
What's supposed to happen is that everyone is supposed to stop trade in the stock while market officials try to sort out what happened. The NASDAQ did just that, and called the company involved to see if they had any news that would have justified the drop and they responded that there was no news. NASDAQ announced that their initial review indicated that there was errant trading going on, reserved the right to cancel the trades made before the halt, and released the stop. Within the hour, they confirmed the source of the problem, and revesed the errant trades.
Yet, while trading was still halted on NASDAQ, Archipelago undid their halt without any announcement that anything was wrong. This is wrong on two levels... not only did it falsely convince other people that the drop was for real, but it also pressured NASDAQ's decision-makers to hurry up, otherwise NASDAQ would lose trading volume to Archipelago.
So, the blame for this mess really belongs at Archipelago... they seem to have done an investigation that resulted in a verdict of no error, where in 20/20 hindsight we know there was an error on the play. Did Archipelago conduct a flawed investigation, or did they conduct any investigation at all? This was a case of the market's self-policing rules falling apart rather than any computer program...
This is not the first time this has happened (Score:5, Informative)
This was widely reported in the financial press, and eventually the sell position was unwound.
Since the order was a sell order tied to a diversified holding, it caused this decline to happen with both the electronic Nasdaq exchange and also the auction-based NYSE.
"In October of last year, for example, a trader at Bear Stearns mistakenly entered an order to sell $4 billion in stocks instead of $4 million. And two years ago London's stock market collapsed after one hapless trader entered an extra zero into a sell order."
See
http://stacks.msnbc.com/news/945909.asp?0sl=-21
and
http://news.bbc.co.uk/1/hi/business/2294525.stm
for more details
Previous errors
Mistakes have been made in market trading before by other companies.
In May last year, London's FTSE 100 index dropped by more than 2%, after a trader typed 300m, instead of 30m, while selling a parcel of shares.
In 1998 a Salomon Brothers trader mistakenly sold 850m-worth of French government bonds by LEANING ON HIS KEYBOARD.
And at the end of 2001, shares in Exodus, a bankrupt internet firm, jumped by 59,000% when a trader accidentally bid $100 for its shares, at a time when its value was 17 cents.
Moral of the story... (Score:5, Insightful)
Re:Moral of the story... (Score:3, Insightful)
Have you noticed that spreads keep on getting smaller? Think for a minute about why that happens...
This happened to my friend on eBay... (Score:3, Funny)
He saw an ad for really cheap DVDs at some discount web site. So he ordered a bunch of copies and then sold them on eBay. Only problem is he didn't wait until the DVDs actually arrived before he sold them, and it turned out they were out of stock, and the order was cancelled. So he had to buy the DVDs at a higher price somewhere else in order to fulfill his eBay sales. Oops.
As a trader I feel I can comment (Score:4, Informative)
either a) very wrong or b) very bad news was out. This was
after all a $60 stock and they were now buying at $42.
Without going into detail, I find it impossible they lost
any money on options trades (no open exchange, prices were
much higher when they did reopen).
2) Similar things have happend at CBOT and CME on their
electronic stock index products a few times this past year.
Most recently, a trader was said to have entered a stop/loss
order in the less liquid Dow Jones futures for a very large
amount. As CBOT handles S/L orders natively (internally),
their system proceded to hit bids until the order was
filled. Those trading S&P futuers did notice what was going
on and started selling there as well, perhaps fearing a
terrorist or other news related item. The sell off was not
as far (500 Dow pts), in part because of the greater market
depth, and the fact nobody could figure out what was going
on. Trades were subsequently broken, hours later, on the
CBOT, but NONE were cancelled on the CME. This caused quite
a bit of pain for people who had s/l orders open which were
executed, for all intents erroneously. (no not me, but I do
know one who was). CME refused to cancel as the original
event did not occur in house.
To this day, I do not believe the order was entered in
error. I believe a hedge fund or other firm had a need to
buy, and buy large. What better way to get filled then to
trigger a large move in a closely correlated market (Dow
futures) where you know the majority of the trades will be
cancelled, and just sit on the bid in the other market
(CME) as people panic sell. And do not rule out collusion.
So, what's the problem? (Score:3, Informative)
From the article, it appears that the software that communicated market orders went into a loop, and submitted a loop of Sell orders on this one stock. If it were just little old me selling stocks I don't own, it's called a Short, and I'd be liable for buying back any shares I don't own. If its really a computer error, then its up to the market providers to cancel the orders.
At some point, the SEC needs to find out who was liable this this little adventure. Why does NASDAQ allow companies to submit raw sell commands w/out proofing them for validity? And what about this software company? If it were me playing with Ameritrade, and their software repeats my order 100 times, shouldn't the software company be liable for all of the (unsolicited) trades? If these trades should have been cancelled, why did some markets resume trading before they validated the orders? I wouldn't be surprised if there's another round of market rules that fall out of this, because obviously there's a big loophole here.
Re:Haha (Score:2)