Home Depot (HD) flash crash on NYSE 18 November 2014

(MarketWatch) -- The New York Stock Exchange is cancelling all Home Depot (HD) trades executed at or below $93.33 between 3:55 p.m. and 3:56 p.m. Eastern. The component of the Dow Jones Industrial Average dropped as low as $86.52 before bouncing back, closing at $95.98. The NYSE didn't explain the sudden drop. The ruling only impacts trades made on the NYSE, though it doesn't appear any other exchange saw the same movement in Home Depot.

Williams-Sonoma and Hyatt Hotels experienced mini flash crashes Monday 6/3/13

Two high-profile companies – Williams-Sonoma (WSM) and Hyatt Hotels (H) – experienced mini flash crashes Monday.

The hotel chain’s shares jumped from roughly $40.96 a share to $43.00 a share in 100 milliseconds at 11:19:57 a.m., according to Eric Hunsader, chief executive of Nanex, a provider of real-time data to traders. The shares traded down to $41.18 a share a second later.

Meanwhile, Williams-Sonoma dropped from $53.50 a share to $51.27 a share in less than a second at 9:31 a.m., before recovering to $53.25 a share in the next four seconds. The NYSE cancelled trades in Williams-Sonoma executed at or below $51.96 a share between 9:31 a.m. and 9:32 a.m.

The two mini-flash crashes come as the Securities and Exchange Commission has been grappling with market structure issues. The agency has implemented a series of new rules responding to the “flash crash” that rattled the markets on May 6, 2010.

The fast Williams-Sonoma dive and the Hyatt bump weren’t as extreme as what happened to the price of Anadarko Petroleum last month. The $45 billion company’s stock price was temporarily wiped out in seconds late in the trading day on May 20, before recovering.

Nevertheless, the Hyatt and Williams-Sonoma mini-crashes are worth noting. Hunsader contends that the trades were poorly executed large market orders that were overwhelmed by today’s computerized market environment.

“Ten years ago this would not have happened,” Hunsader said. “When there are a bunch of computers executing trades with no obligations you can get rapid dips or rises like this. A NYSE specialist would not have let it fall like that.”

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EXEL also on Mon 6/3/13

CFTC examines trading algorithms and defends "flash crash" report

Bob Pease, enforcement attorney at the Commodity Futures Trading Commission, said the regulator is looking into the use of computerized trading programs and "quote stuffing" in the wake of the May 6 "flash crash." The CFTC and the Securities and Exchange Commission recently released a joint report on the market plunge. Market observers immediately attacked the regulators' findings, which are being defended by the agencies.

The recently released flash-crash report, jointly written by the staff of the CFTC and Securities and Exchange Commission, pointed to a large trade made by mutual-fund company Waddell & Reed Financial Inc. as a trigger for the market plunge that day. The report didn't cite Waddell by name, but said an algorithm the company used to execute a large sell order of the E-mini Standard & Poor's 500 futures contract was based solely on the volume in the futures market "without regard to price or time." The report said volume that day wasn't a good indicator of market liquidity.

The sell order of 75,000 contracts prompted a selloff and set off a chain reaction, the report said. Waddell has said it doesn't intend to "disrupt" the market through its trading.

Data firm Nanex LLC has since questioned regulators' finding, suggesting Waddell's algorithm actually did factor in price because data show a slowdown in selling by Waddell during the market's steepest decline.

CFTC Economist Andrei Kirilenko on Tuesday left open the possibility that the algorithm didn't completely ignore prices.

The staff is "not aware of any specific price limit that was built into the algorithm," he told CFTC Chairman Gary Gensler. But just because there wasn't a price limit didn't mean the algorithm didn't "take into account prices and quantities," he added.

Still, Mr. Kirilenko and CFTC Commissioner Bart Chilton said the CFTC used the best possible data to draw its conclusions—including raw data that outside firms don't have access to such as audit trails, trader identities and end-of-day position details.

"We are not guessing anything," Mr. Kirilenko said.

CFTC staff indicated the agency is studying the May 6 events to see if they can be dealt with under the agency's new powers to police disruptive trading. The CFTC sought these powers from Congress well before the flash crash, but the incident has prompted them to look at the issue through a fresh lens.

Mr. Pease, the CFTC lawyer, said the agency is looking to see if automated algorithms are "inherently disruptive" and if market players should have certain responsibilities in how they execute these orders.

CFTC Commissioner Scott O'Malia said he doesn't think the use of the algorithm by the large trader on May 6 would be considered disruptive trading under the new law.

Mr. Pease also said the CFTC is looking to see if quote stuffing should be covered in the new rules. Quote stuffing is a practice in which the market is flooded with a large number of orders that are quickly canceled.

source : http://online.wsj.com/article/SB10001424052748703440004575548490476816252.html

Wall Street: The Speed Traders

Steve Kroft gets a rare look inside the secretive world of "high-frequency trading," a controversial technique the SEC is scrutinizing in which computers can make thousands of stock trades in less than a second

The piece gave a detailed account of the fact that most stock trades in the United States are no longer made by actual human traders. Most trades actually are placed by robot computers capable of buying and selling thousands of different securities in the time it took you to read this sentence.

The "60 Minutes" segment showed how supercomputers actually decide which stocks to buy and sell, based on the proprietary, and highly secretive, instructions programmed into them by Wall Street math wizards. The broadcast also showed how high-frequency trading played a distinct role in exacerbating the "flash crash" that took the Dow down some 600 points in about 15 minutes on May 6.

Read more: http://www.cbsnews.com/video/watch/?id=6945451n&tag=contentMain;contentAux#ixzz126c8UqU3

'Flash Crash' Questions Defy Real Answers For Investors

An electric utility stock like Progress Energy is supposed to be a retiree's dream: dependable and stable. So it was shocking to watch the company's worth inexplicably plummet at 12:57 p.m. on Sept. 27. In minutes, shares dropped from $44.60 to $4.57 - an 88 percent decline - only to bounce back within seconds to just under $44.

The Nasdaq Stock Market, where much of the plummeting trades occurred, stopped Progress Energy trading for five minutes.

It was a technical glitch - known as a mini-flash crash - that zapped only Progress Energy's stock. It wasn't the company's fault. But it was the latest shudder afflicting U.S. stock markets and rattling individual investors.

Investors fret over all the talk about computer-driven stock manipulation measured in milliseconds. They sense a fraying fairness in market trading. They wonder whether regulatory agencies are even capable of policing - much less understanding - a growing complexity of variables with names such as "trading algorithms" or "high frequency" trades behind severe stock price swings that otherwise defy explanation.

Investor confidence was strained well before Progress Energy's September blip.

On May 6, the market's big flash crash happened when the Dow Jones Industrial Average plunged 1,000 points before recovering 20 minutes later.

Last week, federal regulators released their analysis of the cause of May's flash crash. They blamed, but did not identify, a large trader's use of a computer trading system to sell futures contracts. That action led to rapid and sudden selling that, in turn, triggered additional sell-offs in an already unstable market.

A Kansas City area mutual fund investment firm called Waddell & Reed was separately named as the culprit. But now even that disclosure is being contested as the real cause of the flash crash.

[Source: St. Petersburg Times]

Flash crash probe requires “deeper” investigation, SEC chair claims

Further work needs to be undertaken to ensure a repeat of the ‘flash crash’ does not occur again, chairman of the Securities and Exchange Commission (SEC) has said.

Mary Schapiro made the comments in an interview with Reuters following the release of a report by regulators on the reasons behind the crash on May 6th.

Financial technology trading algorithms are at the centre of the investigation into events on the Dow Jones Industrial Average, which dropped by more than 600 points within a 20 minute period.

Mary Schapiro, SEC chairman told Reuters: “We really need to do a deeper dive. We are looking at whether these algos ought to have some kind of risk management controls.”

The 104 page report, which was released by the SEC and Commodity Futures Trading Commission on October 1st, revealed that a single trade, valued at $4.1 billion, triggered the drop although the identity of the trader was not revealed.

In a joint statement released alongside the report’s findings, Mary Schapiro, and Gary Gensler, CFTC chairman, said: “We now must consider what other investor-focused measures are needed to ensure that our markets are fair, efficient and resilient, now and for years to come.”

Flash crash report will bring confidence back to investors, SEC chief claims

The release of a report on the reasons behind the ‘flash crash’ by the Securities and Exchange Commission (SEC) will give investors confidence that regulators understand the markets, the organisation’s chief has claimed.

In an interview with Reuters, Mary Schapiro said that the report will show exactly what happened on May 6th, when the Dow Jones Industrial Average fell by nearly 1,000 points in less than half an hour.

The reasons behind the so-called ‘flash crash' have yet to be conclusively explained but a new analysis of why the crash occurred is expected to be released by the SEC and Commodity Futures Trading Commission (CFTC) during the next few weeks.

Ms Schapiro told the news provider: “I think they will feel confident, and they'll feel confident that the SEC and the CFTC staffs have a very deep understanding of the markets as a result of this inquiry, and that we have some ideas on how to go forward.”

She added that the report should provide the basis for a new set of rules on how to manage a similar scenario if it ever occurs again in the future.

Circuit breaker technology was subsequently introduced to the markets by the SEC to prevent trades going ahead when stocks fluctuates by ten per cent or more in value.

SEC Said to Probe Role of Canceled Orders in May 6 Flash Crash

(Bloomberg) -- The U.S. Securities and Exchange Commission is examining whether high-speed traders helped destabilize equity markets during the May 6 crash by repeatedly placing and canceling orders in an attempt to manipulate share prices, a person with direct knowledge of the inquiry said.

The strategy is among several practices being investigated by regulators, said the person, who declined to be identified because the probe isn’t public. The SEC is also looking into whether traders may have used a technique known as sub-penny quotations to artificially generate price movements, the person said. The inquiry was first reported by the Wall Street Journal.

Nanex LLC, a Winnetka, Illinois-based market-data provider, has presented regulators with data it says shows some traders may be trying to manipulate the market by overwhelming exchanges with information, slowing data feeds and creating trading opportunities. Andrei Kirilenko, a senior financial economist at the Commodity Futures Trading Commission, said July 14 his agency is taking Nanex’s research “very, very seriously.”

“It’s a concern for not only exchanges but for most trading firms themselves because at the end of the day it could overwhelm the various platforms that form our market structure,” said Sang Lee, co-founder and managing partner at research firm Aite Group LLC in Boston. Users of market data “want to make sure what they’re seeing is the true market, not something that’s artificially created,” he added.

Under Pressure

The SEC and CFTC are under pressure from lawmakers to show they have a grip on markets increasingly dominated by electronic trading. The SEC has mandated circuit breakers to curb stock volatility and is undertaking a “comprehensive review” of the May 6 sell-off that temporarily erased $862 billion from the value of U.S. equities in less than 20 minutes, Chairman Mary Schapiro said that month.

“A lot of systems at exchanges and brokers got bogged down with a lot of information” on May 6, slowing data feeds used by investors to place buy and sell orders, said Eric Hunsader, Nanex’s founder. His company provides market data to brokers, hedge funds and individuals.

Quotation volume on May 6 reached a record 1.1 billion messages, according to data from Jordan & Jordan, a New York- based provider of data services. Trading volume on U.S. stock exchanges that day was 19.3 billion shares, the highest since Oct. 10, 2008, according to data compiled by Bloomberg.

‘Just Noise’

Some firms may have deliberately caused delays in market data feeds to try to profit from the misinformation provided to other investors, Hunsader said. “A lot of the quote data was what we call quote stuffing, which was just noise,” he said. “They were orders with no intention of being executed because they were so far out of the market.”

Nanex provided data it had compiled about May 6 to “a room full of our enforcement, surveillance and economist staff, and staff from the Securities and Exchange Commission,” Kirilenko said July 14. He added that regulators were supplementing data from Nanex with information about the identities of trading firms. The July 8 meeting took place at the CFTC. A second meeting with the SEC occurred on July 19, Hunsader said.

SEC spokesman John Heine declined to comment.

‘Destroy’

“My understanding of Nanex’s allegation is that quote stuffing is not so much about putting orders in and pulling them back and trying to make the market go to a certain place,” said Jamie Selway, a managing director at broker Investment Technology Group Inc. in New York. “It’s more about an attempt to position yourself and then destroy the market by rendering it unusable with message traffic.”

He added: “Maybe it’s above my pay grade, but I struggle to see how it would be that beneficial to someone to blow up an exchange.”

Richard Gorelick, chief executive officer and co-founder of RGM Advisors LLC, an automated trading firm in Austin, said in an interview in New York that evidence of high cancellation rates “isn’t crop circles or Stonehenge.” He said that while his company doesn’t engage in quote stuffing, explanations may exist for why some firms submit large numbers of orders over the course of a couple seconds. If the intention was to manipulate markets, the firms should be prosecuted, he said.

Quotations in about half the companies traded on the New York Stock Exchange slowed down during the afternoon of May 6, according to Hunsader. “It looked like NYSE had the biggest problems” with data delays among exchanges, especially for the 30 stocks in the Dow Jones Industrial Average, he said. NYSE Euronext spokesman Ray Pellecchia declined to comment.

A Through L

As a result of the delays, NYSE’s bid in some stocks was higher than the offers to sell shares on other venues, resulting in what’s called a crossed market, Hunsader said.

“That’s a problem because it’s misinformation and causes a number of firms to shut down, so you lose liquidity,” he said. “It instilled more fear” in a market that was already volatile, he said.

A joint report by the SEC and CFTC on May 18 found that some firms reined in the liquidity they provided the markets on the afternoon of May 6. An updated account of the regulators’ findings about the plunge is scheduled for release this month.

Computer Overload

Exchanges, brokers and trading firms face the problem of computer overload caused by high volumes of quote data in a fast-paced electronic market, said Aite’s Lee. It’s important to ensure that firms aren’t engaged in a “widespread practice to intentionally cause problems” through cancelations, he said.

Some options exchanges charge firms when their ratio of cancelations to trades exceed a certain level. The computer capacity required to process options data is higher than what’s needed for equities. Stock markets don’t charge users for high rates of canceled trades.

“The fact that you essentially can consume exchange capacity for free -- that’s going to lead to some behavior that’s not all that useful,” Selway said. Policing cancelation rates is difficult, he added. “The reality is some cancels are done for good risk reasons and others are not,” he said.