History of Market Crashes
Some 25 years ago, Wall Street saw its biggest one-day percentage slide ever sparking familiar worries about small investors and depressions. The long-term damage wasn’t as severe as the 1929 crash, but the 1980’s bubble pop was spectacular by any measure. Here’s a look at 10 other great market crashes and some of their unusual consequences. Courtesy Market Watch. Full article here.
Remember the Flash Crash?
The Trader has written on the HFT many times over the past years. Just a small reminder of the Flash Crash that occured two years ago. Via Forbes.
Two years ago, an accidental trade in the midst of a jittery market set off a cataclysmic plunge that seemed to defy all reason and pulled back the curtain on high-frequency trading for millions of investors who had no idea that computer-driven strategies account for the lion’s share of daily market volume.
That day, big-name stocks like Accenture,Procter & Gamble, IBM and a number of others traded like penny stocks. With massive plunges in a matter of seconds as the broader market cratered and the Dow Jones industrial average showed a loss of nearly 1,000 points in a matter of minutes before recovering.
The Flash Crash, as it became known in short order, prompted plenty of finger-pointing outside the financial industry and within. Congressmen and regulators made pledges to address the issues and plenty of market watchers warned that mom and pop would be scared out of the market.
There are plenty of recaps you can read on the Flash Crash (here’s one I wrote on the report regulators released on the event), but this video sums up the feeling of that day pretty well:
HFT will be there to provide liquidity, or?
Just to remind you, who will be there when you need the liquidity.
Remember the HFT panic two years ago?
Remember the Flash Crash?
Not even two years have passed, but majority have forgotten about the Flash Crash. With the markets having enjoyed a no volume melt up over the past months, it sure could get flashy if this market starts heading lower. The liquidity has just been drying up during this rally. With the low liquidity and depressed volatility levels, investors should recall what actually happened less than two years ago.
Video below.
Remember volatility?
The market is becoming more boring by the day, especially on tripple witching days. Let’s review some of those fun trading sessions. Live video from the Flash Crash day. Remember what vol used to be?
Quote Stuffing prior to the Flash Crash
Meanwhile the quote stuffing continues. Did “they” try stuffing the market prior to the Flash Crash? From Nanex;
The charts below shows message traffic for each of the 12 multicast lines plus the total for CQS. Each multicast line carries quotes for a certain range of symbols alphabetically. For example, symbols beginning with letters A and B are transmitted on line1, C and D on line 2 and so forth.
On April 26, 2010, quote message rates shot up to capacity at 9:29:10. That means other legitimate quotes would incur queuing delays. Between 250 and 500 quote updates per symbol were blasted per second. Symbols were chosen in a way that each multicast line filled to capacity. This was not some random fluke, but a well timed sophisticated algorithm involving a precise count of quotes from multiple exchanges. We think this might be one of the earliest examples of a full feed quote stuffing algorithm either running in production or undergoing a test. Note that the Flash Crash occurs the following week.
War of Algos and the warning of the next Crash
We try bringing you the latest and most interesting pieces on the the HFT theme. The Trader has argued that a war of Algos is developing, and that the gap between regulators and the technological developments are just increasing. People have heard of the Flash Crash, but few know similar events occur on a daily basis. From New Scientist.
Might a fleeting and little understood aspect of stock market dynamics hold the key to warding off financial crashes? That is the tantalising suggestion to emerge from a group of physicists who have been studying stock movements.
The study is the first to focus on an ultra-fast feature of market dynamics that the team, led by Neil Johnson at the University of Miami in Coral Gables, calls a “fracture”. Fractures happen when the price of a stock briefly shoots up or down, often before returning to its original level. They take place so quickly, sometimes lasting less than half a second, that they can be invisible to any human following the price. “If you blink you miss it,” says Johnson. His research shows that there seems to be a link between these fractures and sudden stock market crashes, known as “black swans”.
Global Financial Markets. An ultra-large-scale systems perspective.
“They” tell us HFT reduces volatility, increases volumes, and helps the average Joe. Nobody has shown this, yet. If we try to get a larger perspective on what is going on, implications of the recent technical developments and the future of computerized trading. The world is changing rapidly. From BIS;
We argue here that, in recent years, the global financial markets have become a complex adaptive ultra-large-scale socio-technical system-of-systems, and that this has important consequences for how the financial markets should be engineered and managed in future. The very high degree of interconnectedness in the global markets means that entire trading systems, implemented and managed separately by independent organizations, can rightfully be considered as significant constituent entities in the larger global super-system: that is, the global markets are an instance of what is known in the engineering literature as a system-of-systems(SoS). The sheer number of human agents and computer systems connected within the global financial-markets SoS is so large that it is an instance of an ultra-large-scale system, and that largeness-of-scale has significant effects on the nature of the system. Overall system-level behaviour may be difficult to predict, for two reasons.
The Future of Computer Trading in Financial Markets
Untouchables-HFT
While all pundits try making the correct 2012 outlook during the last trading days, the HFT machines, churning some 70% of all traded volumes, still trade in a highly unregulated fashion.
Below interview with NYSE COO. Presented without comments. Wonder just how much HFT firms pay the Exchange?
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