

Did a Stuck Quote Prevent a Facebook Opening Day Pop? - pldpld
http://www.nanex.net/aqck/3170.html

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jeffdavis
"The economic and psychological costs stemming from Facebook not getting the
traditional opening day pop are impossible to measure."

Are shareholders now entitled to a reward for going public?

Opening day is over. FB is trading well below the IPO price, let alone the
high. Nobody can blame that on opening day glitches.

That means that the market would have clearly been _more wrong_ to give it an
opening-day "pop".

~~~
chimeracoder
Exactly. Let's assume that Day 0 = day of IPO, and Day -1 = the day before the
IPO. Let's assume that the (unobserved) value of the stock on Day -1 is the
'true' underlying value of the stock.

The only way that a glitch on opening day would have a permanent affect on the
stock price is if the stock price on Day n (for all n > 1) is conditionally
independent of the price on Day -1 _given_ the price on Day 0. In other words,
the best predictor of tomorrow's price is today's price, and yesterday's price
adds no new information.

This is a reasonable assumption, but if you believe that, it means you also
believe that stock prices are essentially a random walk, in which case there
is never any convergence to the true underlying value, _even if_ the price
starts at that true value (which it may not!)

Let's assume that stocks are _not_ a random walk and are some reflection of
the underlying value of the company (however you define that).

Even if there had been a glitch, on the first day, as soon as the real quotes
start getting published and the information is symmetric all around, then the
prices should start to approach the fundamental value, even if they don't
converge.

If a week later, Facebook is still trading below the IPO price, we can assume
_either_ that the convergence process takes time (unlikely, given the volume
of stock being traded) or that the underlying value of Facebook as a company
has changed in the last week (unlikely, since there has been relatively little
news about Facebook-the-company, as opposed to Facebook-the-stock).

~~~
nanex
Then why did BATS not reschedule their IPO again the next day? First
impressions, regardless of how illogical they maybe, play a significant role
in group behavior.

"Even if their had been a glitch?" Really? 3x the open was postponed, followed
by 17 seconds of no quotes/trades on ANY stock from Nasdaq, followed by a
crossed quote from same exchange, followed by 3+ hours of no quote in FB from
the listed exchange.

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cynicalkane
It's interesting what happened that day. At the opening of FB stock, Nasdaq
tried to match about 75 million shares' worth of buys and asks--the 'opening
cross'. However, if any one of those trades were updated, Nasdaq's engine was
programmed to partially or completely throw out the cross and try again,
resulting in an infinite loop since they couldn't calculate the cross fast
enough every time there was an update. This is a pretty basic mistake in a
system designed to process lots of events in real-time.

Nanex always likes to cast HFT as the villain of everything that goes wrong
with the market--this is silly. HFT makes nothing but money for Nasdaq, and
narrows spreads for investors. It was pretty clearly Nasdaq's job to handle
the volume of information and not falter due to such a dumb mistake as other
networks kept chugging along.

The same bug also affected trading in Zynga later that day on lower volume
when trading closed and re-opened on that stock. This to my mind makes Nasdaq
look guiltier. It's like they didn't even test what would happen handling a
big cross under load.

~~~
nanex
"HFT makes nothing but money for Nasdaq, and narrows spreads for investors."

HFT makes a pile of money for Nasdaq. But narrows the spread?

Prove it.

Here's one of thousands of examples that shows otherwise.

<http://www.youtube.com/watch?v=sDriNz8oAlc>

~~~
cma
Even if it does narrow spreads, it doesn't matter at the margin. If the spread
is 5 pennies on average without HFT, and 1 penny with it, investors are losing
out. HFT is charging them a penny to remove a penny of randomness. If someone
offered you a a game where you could either:

A) flip nickles: heads you keep get the nickle, tails your opponent gets it B)
flip pennies: heads you keep the penny 98% of the time, 2% of the time some
other third party gets to keep it (an HFT outfit), your opponent gets it

Would you take A or B?

~~~
Drbble
Why do non-HFT buyers or sellers deserve the spread any more than HFT buyers
and sellers? They pay the same fees you do.

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davvid
_Did a Stuck Quote Prevent a Facebook Opening Day Pop?_

Nope. It didn't pop the 2nd day either.

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billpg
So... many... graphs....

