The problem with the sell off is no one can tell us what happened

http://whydoeseverythingsuck.com/2010/05/problem-with-sell-off-is-no-one-can.html

by thafman • 16 years ago

7 7 16 years ago

grhino• 16 years ago

I think the author underestimates the problem of finding an explanation out of the mess of data that's available. It's possible there could never be a simple explanation of what caused the sell-off. It could just be that 1) we need more measures in place to reduce this kind of volatility, 2) we need less protective measures and let market corrections happen on their own, or 3) accept that this can happen and handle the next event the same way this one was handled.

I've read some articles suggesting that the drop was more dramatic because automated trading systems were taken offline. I've read that the drop was more dramatic because some stocks are sold on multiple markets with different emergency stop conditions.

secretasiandan3• 16 years ago

I second the notion that making sense of the data is extremely complicated (assuming that your answer is not just "there were more sellers than buyers").

First, the amount of data is extremely large. See the BATS connectivity manual, page 8. They require a MINIMUM connectivity speed of 1Gbps PER FEED. Page 9 shows that the peak rates are higher than this. Note that this is only one exchange of many. http://batstrading.com/resources/membership/BATS_Connectivit...

Second, even if you could make sense of all the data, there's people on the outside creating the data. A full model of what happened would require knowing what is going through their minds.

secretasiandan3• 16 years ago

"Amazingly, as stocks were diving downward, willing buyers were locked out of purchasing"

This is Just Plain Wrong. The post offers no evidence for this. For my evidence I'll use the fact that trades were occurring at almost all price levels, which is why some had to be canceled. For the stocks that "went to 0", that in fact means there were no willing buyers for anything other than $.01 (I doubt any trades actually occurred at 0)

"There has to be some explanation, and I can't imagine why it would take days, or even hours to figure out how a $50 stock could get to a price of $0 with no one able to purchase as that price is dropping"

Yes, the answer is that when a deal looks too good to be true, you check it out for at least another second (or perhaps 10 minutes, the duration of the "flash crash") before you put millions to billions of dollars of money into something. Again, I reject the idea that no one was able to purchase at any point.

yummyfajitas• 16 years ago

I think what he is referring to is that ARCA (NYSE's sucky exchange) stopped routing buy orders in an effort to boost prices locally. So if you placed a buy order on ARCA, and it could be filled on BATS, it was not routed to BATS and remained unfilled (this is what normally occurrs).

http://www.washingtonpost.com/wp-dyn/content/article/2010/05...

secretasiandan3• 16 years ago

I think you're referring to the following quote : "As part of that process, the NYSE held on to "buy" orders, in the hopes that it could gather enough of them to meet the selling demand. "Sell" orders that came to the NYSE were rerouted to other exchanges, which were not required to slow trading. Those other exchanges were soon overflowing with sell orders and didn't have enough buy orders to meet them, leading to the rapid decline in prices."

I've spoken to a recently retired HF trader about it to verify that it seems wrong and he says that the way that quote is written it doesn't make sense.

wdewind• 16 years ago

I don't think this guy really understands the issues at hand. I'm pretty sure we know EXACTLY what happened, just not WHY. Which is exactly why his "10,000 foot view" is completely useless.

lallysingh• 16 years ago

Yeah, let's go to every firm and ask them their trading strategies. I'm sure they're happy to share.

The problem with the sell off is no one can tell us what happened

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