
Today the Dow dropped 1000 points in about ten minutes. - mnemonicsloth
http://stockcharts.com/h-sc/ui?s=$INDU
======
joe-mccann
Welcome to the world of High Frequency/Algorithmic trading.

In this case, essentially every person that had a "stop loss" order was just
hunted down by a wave of HFT programs and all those stop loss orders were
triggered, which send "market orders" which means, fill my order at the
current market price.

When everyone does this at the same time, there are more sellers than buyers
so prices drop dramatically. However, this presents an opportunity for HFT
programs especially when they have similar strategies, meaning they all are
doing the same thing, pushing the market in the same direction. Now, the HFT
programs forced people to get stopped out, then they bid the market up and
buy, which pushes it right back to the prior level.

Take a look at AAPL, RIMM, GOOG, SPY, etc. and you'll see it is all the same
pattern.

~~~
cookiecaper
So, wouldn't this constitute a major transfer of wealth from individual
investors with stop-loss orders to institutional investors like Goldman Sachs
et al whose computers detected the dip and bought the stock back up?

~~~
nandemo
A similar incident happened in Tokyo Stock Exchange a few years ago.

 _(...) on December 8, 2005 in which a Mizuho dealer mistakenly sold 610,000
shares in J-Com, a recruitment business, at 1 yen instead of selling 1 share
at 610,000 yen.

The dealer, understood to be a 24-year old woman, immediately realised the
mistake but was unable to cancel the trade because of a technical glitch in
the exchange's trading system. Mizuho was forced to buy back the shares,
leaving it with a 40.7 billion yen loss, prompting the firm to cancel year-end
bonuses for all staff in the trading unit._

Note in Japan executed trades cannot be canceled (though in this case the
trader was supposed to be able to cancel the _orders_ before they were
executed). Many brokers made a big profit. Some institutional investors too.
One particular day trader became quite rich and to this day is a sort of
legend on internet trading boards.

~~~
nandemo
Er, I meant some "retail investors too".

------
sonnym
There are far too many speculative comments on this story. I normally find the
comments on HN to be well thought and reasoned - not rapid posting of wild
rumors that are currently prevalent.

Perhaps people should wait until the facts emerge before posting more stories
filled with inaccurate information.

~~~
jsm386
Well, here's a statement from the NYSE:

"There were a number of erroneous trades," said NYSE spokesman Rich
Adamonis."Our guys just told me Nasdaq is investigating the erroneous trades.
What happened today in P&G for instance, the bad print was on Nasdaq, not
here," he said, referring to a 37 percent plunge in Procter & Gamble Co.

The Nasdaq said it is investigating the plunge.

[http://www.bloomberg.com/apps/news?pid=20601087&sid=aQKb...](http://www.bloomberg.com/apps/news?pid=20601087&sid=aQKbTm0qCY0c&pos=1)

And more - including canceled trades of Accenture:

Nasdaq OMX Group Inc. said it’s investigating potentially erroneous trades
involving multiple securities between 2:40 p.m. and 3 p.m. New York time, when
the U.S. stock market tumbled.

Trades in Accenture Plc that drove the second-largest technology consulting
company’s stock price down more than 99 percent to a penny were canceled by
the CBOE Stock Exchange, according to data compiled by Bloomberg.

A total of 19 trades of 100 shares each were executed at 1 cent in seven
seconds from 2:47 p.m. to 2:48 p.m. in New York, a minute after the Dow
average plunged by the most since the market crash of 1987, the data showed.

Eighteen of the trades were executed on the CBOE Stock Exchange and were
canceled. The first trade that sent Accenture to a penny was executed on the
Nasdaq Stock Market. That transaction has yet to be canceled, the data showed.

[http://www.bloomberg.com/apps/news?pid=20601087&sid=a3ti...](http://www.bloomberg.com/apps/news?pid=20601087&sid=a3tiFiVZLZwg&pos=1)

~~~
lotharbot
From what I've read, one key issue was that some exchanges stopped trading or
updating certain prices for a few minutes, which led to other exchanges making
trades in isolation instead of tying them into the larger market. With just a
few more "sell at any price" than "buy at a reasonable price" orders for a
given stock on a given exchange, and with no tie-in to other buy orders from
other places, the "buy at a ridiculously low price" orders that many traders
leave in place just to take advantage of algorithmic glitches of this nature
were triggered.

It's like being at a car auction with a robot auctioneer and putting in a one-
penny starting bid, and then the robot's sensors malfunction so he can't see
any more bids. He'll declare you the auction winner, but that result doesn't
reflect the car's actual value and will almost definitely be canceled.

~~~
rdtsc
> result doesn't reflect the car's actual value and will almost definitely be
> canceled.

Unless the value of the car is defined as whatever someone on NYSE or NASDAQ
is willing to pay for it.

As the result of this there were some losers and some winners. Losers will
want the trades reversed, winners won't. Reversal of trades could start a
dangerous trend. Who gets to decide which trades get reversed? I wonder if
many HFT firms will start to incorporate such kind of behavior into their
trading model, so we'll see more of these "accidents" in the future.

~~~
lotharbot
The way the stock exchanges are set up, they can cancel trades that are
considered "erroneous". It's in the contract, and it has been done before.
Either party can trigger a mediation attempt [1], but in this case the
exchange itself determined that they made a mistake in generating trades that
shouldn't have actually happened and was only triggered by a glitch in the
system, and made a blanket declaration. Since any trade on their system is
actually just a contract to exchange the stock in the next 3 days, they don't
have to take back any stock, they just have to declare the contract as
invalid.

Last I heard, the Nasdaq was going to cancel any trades that were during the
glitchy time window and were more than 60% away from a baseline price (an
amount people were "willing to pay for it" when the system wasn't glitching).
I don't know how they came up with the number, nor how deeply the SEC and
other agencies were involved in setting it. There will still be plenty of
winners and losers coming out of this, just not the ones who thought they
bought or sold Accenture at a penny.

I'm not saying this is a "good" fix, but it is well within the Nasdaq's
authority.

[1] <http://news.ycombinator.com/item?id=1325574> \- notes that broken trades
are fairly common, and that they're usually quickly mediated

------
jrockway
Whoops, meant to run that script on the _dev_ instance.

~~~
thwarted
That's why you should always mount a scratch monkey.

~~~
cracki
"mount" a "scratch monkey"...

i don't think it's such a good idea to mount the monkey that scratches you.

~~~
pook
<http://edp.org/monkey.htm>

------
boredguy8
I have a question as a complete outsider: how much of what's happening is
being driven directly by human-driven transaction and how much is automated
computer-driven trading? (Yes, I understand these are hazy terms.)

And, perhaps more fundamentally: how much of market volatility is the
consequence of automated decision making? It seems, again naivete is at play
here, but it seems like that could be a pretty unstable system.

I guess I think of it like this: the U.S. utilizes Permissive Action Links and
other security measures to provide for launch security. Given the centrality
of the economy (though not wanting to overstate it), it seems like a large-
scale mistake in some models could cause misfiring in ways we wouldn't want
but that a human agent could (theoretically) prevent.

~~~
alttab
Conservative estimates suggest more than half. They are "market makers" which
allow liquidity on demand. At least that's what these HFTs are selling.

Look at market trading volume over the last 15 years.

------
jodrellblank
How bad is that? From the graph it's back to levels of early February, but is
this a curiosity, a drama, a panic or a catastrophe?

~~~
spif
According to CNN it "might" have bee a computer glitch causing a huge volume
of trades and corresponding panic that followed pushed it further down.

Things seem rather stable at -4% now...

~~~
CWuestefeld
From the BBC: <http://news.bbc.co.uk/2/hi/business/10101581.stm>

_"This is an electronic market where bids can be cancelled at the flick of a
button, and everyone cancelled at the same time," said Joe Saluzzi, of Themis
Trading in New Jersey._

Does this make sense? With the time horizons that today's programmed trading
operates at, is this really a reasonable explanation?

------
ElliotH
BBC News has this on the subject:
<http://news.bbc.co.uk/1/hi/business/10101581.stm>

Seems to be about Greece.

~~~
tptacek
Greece may default. Sovereign default, lagging the initial market crash by a
couple years, was a feature of the Great Depression, so there's an emotional
component. Greece's economy may not be compatible with the Eurozone; because
they can't control their money supply, they can't make their exports
competitive. So they may eventually jettison the Euro. There's concerns that
Portugal and Spain could follow. So then there's also drama with the currency
market.

There are 100 people on HN that know this stuff better than I do, but maybe by
babbling I'll irritate one of them enough to explain.

~~~
Silhouette
I doubt I'm one of those 100 people either, but FWIW...

Greece is in fairly immediate danger because of a combination of three things:

(a) a large quantity of government bonds are up in a few days (19 May IIRC),

(b) they just don't have the money to honour the promises at present, and

(c) they have lost much of the ability to borrow that money from the usual
market sources due to the downgrades in their credit rating a few days ago.

Because the Greek economy is tied to the Euro-zone, if Greece goes down it's a
very serious problem for the other Euro nations as well. Thus we see some of
the more financially powerful nations like Germany stumping up billions of
Euros to avoid Greece defaulting, as long as Greece agrees to some pretty
heavy "austerity measures" over the coming months and years so the money isn't
just being thrown away because they're going to default eventually anyway.

Those measures in turn have already led to fatal riots in the streets, as to
the average non-economist citizen, taxes are about to skyrocket,
pension/retirement arrangements are getting significantly worse, etc. and no-
one really knows why.

The trouble has actually been brewing for several years, since things like the
Olympics broke their budget dramatically, but it's only with the recent
worldwide economic conditions that it has become really obvious.

That's my understanding of why Greece in particular is in trouble today, but a
somewhat similar story could be told about several other European nations,
hence the general malaise in the markets.

I suspect this is a bit of a mountains and molehills situation. The odds of
the rest of the Euro-zone actually allowing Greece to go bankrupt must be
fairly slim, but of course the price of bailing them out is then being carried
by those other countries and it's not loose change, so the markets are going
to take a substantial hit all the same.

~~~
CWuestefeld
_Because the Greek economy is tied to the Euro-zone, if Greece goes down it's
a very serious problem for the other Euro nations as well._

This is where I got lost. Can somebody explain why the domino effect? I
understand that other debtor nations hold some Greek debt, but that doesn't
look to be significant enough...

~~~
marcamillion
Well...the Greece situation is a horrible state. Damned if you do, damned if
you don't. What Greece has done to date is an inordinate amount of spending
(financed by cheap Euro loans from banks all over the Euro) - think of what
caused the credit crisis in America (people spending money they didn't have -
by leveraging their house, etc.).

Ok...well now those loans are coming due, and Greece has further compounded
their problem by essentially lying about the state of their finances. Eurostat
(an EU watch dog) recently released a report confirming that Greece has
essentially been lying about the bad state of it's finances and revised their
budget deficit and debt-to-GDP ratio upwards -
[http://epp.eurostat.ec.europa.eu/portal/page/portal/publicat...](http://epp.eurostat.ec.europa.eu/portal/page/portal/publications/collections/news_releases)

Then, to add insult to injury Standard & Poors recently downgraded Greece's
gov't bond ratings to junk status. That basically means that if they wanted to
borrow money from the international capital markets, they would pay much
higher interest than say Germany. That was expected though, because news was
slowly being released that Greece is in a much worse state than they are
letting on. The downgrade just 'solidified' it.

Now, in terms of the domino effect, every country in the Eurozone is connected
by a number of elements. The eurozone is the largest economic area of
cooperation on the planet (geographically). All the countries use the same
currency, but not all are controlled by one central bank. Each country has
their own individual central bank. But they all share a promise that no one
will let any fail, because that invalidates the purpose of the single
currency. It would be the equivalent of California going bankrupt. The Federal
government will never let that happen, because it would undermine the entire
union.

Anyway, so the other countries within the Eurozone that have a similar fiscal
profile as Greece are Portugal, Italy, Ireland & Spain (also known as the
'PIIGS'). By similar fiscal profile I mean that whatever happens to Greece,
something similar will have to happen to the others. So if Greece is allowed
to bankrupt, then investors fear the same thing will happen to the others. If
Greece is bailed out, then the same will happen to the others. It really is
damned if you do, damned if you don't, because if Greece is bailed out - then
they are essentially being 'rewarded' for their profligate spending and
'devious' fiscal behavior over the years. But if they don't bail out Greece,
the entire Euro will likely collapse. So they have no choice, assuming they
want to preserve the Euro. If they bail out Greece though, moral hazard is
created because the other countries are essentially given a guarantee that the
Euro authorities (and IMF) will not allow them to go bankrupt either.

All in all, every countries banks have extended loans to (and bought bonds
from) companies, governments, and individuals in other countries. So if the
debtor defaults, many banks throughout the EU will have an increasing amount
of bad loans on their balance sheet - which could force their governments to
bail them out (provided the defaults are big enough). Not only that, but
credit will dry further and companies that rely on short-term financing for
purchasing inventory and paying employees will go out of business because they
can't get access to this financing (i.e. the financial crisis will restart).
That will then spread to America, the UK, etc.

I know this has been pretty verbose and might be a bit confusing, but I hope
that kinda sheds some light on the situation.

<http://www.reuters.com/article/idUSTRE63Q3FF20100427>

P.S. Oh yes, did I mention that Greeks don't want the bailout and they don't
want to do what needs to be done. They are actually rioting -
[http://online.wsj.com/article/SB1000142405274870396110457522...](http://online.wsj.com/article/SB10001424052748703961104575225472577513414.html?mod=WSJ_hp_mostpop_read)

I am glad I don't live in Greece right now.

~~~
koanarc
Excellent comment, one of the most informative so far ITT. I realize that this
borders on fortune-telling, but you seem to have a decent grasp on the
situation, and you say RE: bailing out Greece that "it really is damned if you
do, damned if you don't", so I'd like to ask -- in your personal opinion, what
impact do you see this (the impending collapse of the Euro) having
internationally over the coming decade?

In other words, is this necessarily the beginning of a chain reaction, or is
there, in your opinion, some route by which the effects of Greece's economic
death rattle may be confined locally?

Also, can anyone elaborate on "they all share a promise that no one will let
any fail"? Does this 'promise' have a strong legal basis, or is that simply an
implied economic obligation in the face of mutually-assured destruction (i.e.,
as per the California comparison, is leaving Greece out in the cold even an
option, legally?)

~~~
marcamillion
koanarc....very interesting questions. Due to the clearly increasing interest
in this topic, I am going to write a series of blog posts on the crisis
(according to what I know - not claiming to be a fortune teller or a sage of
any kind, but it seems people are interested).

Well, I wouldn't say the Euro is near collapse just yet. The Obama
Administration would never let that happen...i.e. assuming that the Eurozone
bigwigs (i.e. Germany, France, etc.) want it to collapse - which I don't see
why they would - a collapse of that nature right now would threaten the
overall economic recovery. So the powers that be, are doing (and will do)
everything in their power to prevent that from happening.

In terms of the impact over the long term, i.e. coming decade, I would say
that provided that the Euro can get through this it should prove good for the
EU. Because the only way they are going to get through it, is if the EU + IMF
bailout the problem states. We have already seen the major sacrifices that
have been demanded of Greece as a condition for getting the bailout -
<http://news.bbc.co.uk/1/hi/8656649.stm>

Although Greeks might be pissed at the 'financiers' for imposing 'harsh'
conditions to the bailout, in the long term it will be healthy for Greece.
They have to go through a bitter, deep, cleansing period (kind of like the
bankruptcy proceeding that GM had to go through to get out of their onerous
contracts they had with labor unions & dealer network) to get to a more
healthy fiscal position. Unless I am mistaking the resilience of the
politicians to weather the storm, I strongly suspect that they will persevere
through the political maelstrom and do what needs to be done. Then in 5 - 10
years, we could see some strong growth coming from Greece again - however it
all depends on what policies (aside from the austerity measures) they
implement.

By bailing out Greece and demanding significant austerity measures, they are
attempting to contain it locally. The issue is that if they don't take their
pound of flesh, the other states/countries will expect the same. So to nip the
moral hazard element of it, they (the EU & the IMF) have to be harsh. It's for
everybody's own good.

In terms of the strong legal basis...I will cover this in my blog post. I
believe there is some legal basis for it - but I am drawing a blank right now.
I am going to do some research and include it in my post. Stay tuned, will
post on HN once I am done. At the very least, even if there isn't an explicit
legal basis for the bailouts, there is a strong implied economic obligation -
because it is in everybody's best interest to bail out the weakest state. Just
like it was in America's best interest to bail out the banks - as annoying as
it was to do, with them paying record profits - the alternative would be
significantly worse. Emphasis on significantly.

~~~
_delirium
Among Greeks at least, there's a significant feeling that Greece _won't_ come
out ahead, and that these measures are being imposed for the benefit of: 1.
other EU countries; and 2. bond investors, some of whom are the same as #1
(e.g. a bunch of German banks). May or may not be true, but there's a large
sentiment (maybe even a majority) that the average Greek, especially those in,
say, the bottom 75% of wealth/income, would be better off if the government
just defaulted on the bonds. They point to Argentina, among others, as a
successful example of taking that route.

~~~
marcamillion
Hah! I am glad you pointed out Argentina as an 'example' of 'a successful
example'. I will definitely cover this in my blog post.

This recent crisis has shown that Argentina never did recover from that
initial default and has had to default a second time. Talk about going back to
the well!

~~~
_delirium
The "going back to the well" I think might actually be part of it: a lot of
Greeks consider that a perfectly viable option, because they remember a past
of periodic defaults / currency devaluations every 10 to 20 years or so (and
remember Italy doing the same), and don't remember it being particularly bad.
Probably a significant proportion would rather go back to that, even if it
meant pulling out of the Eurozone, than enact neoliberal reform.

~~~
marcamillion
Well...the thing is, back in the day it probably was bad - but not as bad as
it would be today. Today, everything is so interconnected. Society has
progressed so much, and wealth has been generated at such a fast clip, that
cutting off your nose would do nothing but spiting your face.

The reality is that when you look at what has been powering Greece's
astounding growth from 1996 - 2006, it was mainly tourism + foreign direct
investment.

If you do an Argentina-type default, tourism will instantly be hit and FDI
will go to nearly zero (or very close) VERY quickly. The unfortunate truth is
that pulling out of the Eurozone wouldn't be a cure all. Without the
discipline being forced on the politicians by the EU + IMF, what will force
them to change and be fiscally prudent? Nothing will. If anything, things
would only get worse because they would be able to print their own money
again.

You know what happens when a profligate government can print their own money?
Ask Zimbabwe.

~~~
_delirium
The 1996-2006 growth is actually part of the disagreement as well: a lot of
Greeks feel ambivalent at best about it, because they feel it went
disproportionately to a relatively small elite (I don't have the numbers on
whether that's true). Total GDP went up significantly from 1996 to 2006, but
the feeling is that it went mainly to the top 25%, with a good portion going
to the top 10%. I believe (though I'd have to look it up) that real income of
the bottom 50% was flat or declining over that period, which would mean that
fully half the country doesn't perceive 1996-2006 as a positive economic
period at all.

On the inflationary side, Zimbabwe is an obvious example (with Weimar Germany)
of the levels you don't want to go to, but the 1970s Italian/Greek levels of
circa 30% annual inflation (with a sort of punctuated equilibrium yearly
distribution, i.e. 5-10% most years and 1000% once a decade) aren't quite the
same as circa 30,000% annual inflation. It has a lot of effects, some
negative, some positive, but is a different sort of beast.

------
krishna2
The best commentary I have read so far is from Phil's stock world:

This is everything that is wrong with program trading in a nutshell and I am
telling you that this was a multi-billion dollar crime. Someone "fat-fingered"
Billions of shares instead of millions and that’s all it takes to send the
markets down 10% in one day and the only reason trading didn’t shut down was
because Mr. Fat Finger just so happened to make his mistake minutes after the
usual trading brakes come off at 2:30. What a friggin coincidence, right?
Well, bad luck to all who got wiped out and what a funny stroke of luck for
those with multi-billion dollar shorts (including us fortunately so we
shouldn’t complain too loudly). It’s amazing what "THEY" get away with right
in front of us, in broad daylight….

------
px
Accenture (ACN) went from $40 to $.01 and back up to $40.
<http://www.google.com/finance?q=acn>

~~~
alphaBetaGamma
Probably a data issue. On a data source used by professionals it 'only' when
down to 38.5 before going up again.

~~~
nostromo
According to Bloomberg that was a real trade that went through.

~~~
borism
and was later cancelled

~~~
nostromo
[http://www.businessweek.com/news/2010-05-06/nasdaq-says-
inve...](http://www.businessweek.com/news/2010-05-06/nasdaq-says-
investigating-erroneous-trades-after-market-plunge.html)

"Eighteen of the trades were executed on the CBOE Stock Exchange and were
canceled. The first trade that sent Accenture to a penny was executed on the
Nasdaq Stock Market. That transaction has yet to be canceled, the data
showed."

------
stretchwithme
If we had papered over our economic problems, I could see this drop as
justified.

but we've paid people to buy houses, cars and appliances. And we've given
billions to banks so they can lend it back to the government at a tidy no-risk
profit.

So, this correction makes no sense. The stock market should be zooming to the
moon.

~~~
rrhyne
I could also see this justified if we had completely failed to bring the
lenders, lendees, brokers, appraisers and CDS originators who committed
massive fraud to justice. So this makes no sense to me either. :D

~~~
stretchwithme
And all the Congressman and Federal Reserve who created the housing bubble in
the first place. Thank god they've fired and prosecuted.

Those who exploited the bubble will always be ready to exploit government
foolishness, so a new crop will sprout overnight.

------
mbreese
[http://online.wsj.com/article/BT-
CO-20100506-717535.html?mod...](http://online.wsj.com/article/BT-
CO-20100506-717535.html?mod=WSJ_latestheadlines)

This seems to have been expected given the European markets today. It's all
over concern for Greek default. Which makes Spain and Portugal up next, which
is the bigger concern since they are a larger part of the Euro-zone economy.

One benefit of this all (to Americans), is that the dollar has gotten stronger
against the Euro, so while the markets are losing ground, the dollar can buy
more from Europe.

~~~
chc
Did Greece just suddenly get in the hole? This drop was extremely sudden. It
seems odd for such a seeming non-event as "Greece is still in trouble."

~~~
jfoutz
Typo.

google for proctor and gamble fat finger.

~~~
aaronbrethorst
I just did. You're the top result on Google. Mind giving a little more
background? :)

~~~
pyre
[http://www.businessinsider.com/cnbc-a-citigroup-trader-
made-...](http://www.businessinsider.com/cnbc-a-citigroup-trader-made-the-big-
fat-finger-error-2010-5)

------
chaosmachine
My favorite quote, so far:

 _"I think the machines just took over," said Charlie Smith, chief investment
officer at Fort Pitt Capital Group. "There's not a lot of human interaction.
We've known that automated trading can run away from you, and I think that's
what we saw happen today."_

Welcome to the future?

~~~
stretchwithme
thats why you want to be careful about letting the market set your selling
price.

------
tortilla
<http://finance.yahoo.com/> is down.

~~~
spif
Google Finance is working nicely:
<http://www.google.com/finance?q=INDEXDJX:.DJI>

~~~
wdewind
it wasnt for a few minutes there tho. got a few 500 errors and a few partially
loaded pages for 2 or 3 minute stretch

~~~
loire280
The one site I'm getting reliably is WSJ.com (I'm a subscriber). May be the
paywall-deterrent-effect. Some of their data got pretty stale (30min+), but
that's probably because things are down across the entire market foodchain.

------
joubert
Chaos - opportunity

~~~
laut
ACN fell from about $40 to $0.01 and came back. 4000x or 400000%

Buying a few thousand $ worth at a penny wouldn't have been a bad trade.

<http://finance.yahoo.com/q?s=ACN>

EDIT: Such as trade would most likely be cancelled though.

~~~
far33d
This makes me think that I should just place limit orders for every S+P 500
company at $.10. Chances are the orders will never be filled but if this
happens again I'll get rich.

~~~
wr1472
Sounds like Nassim Taleb's Black Swan theory. I wonder if he made any money
out of it at his Empirica hedge fund?

~~~
pchristensen
IIRC, he ran out of money before the crash hit. If he had more capital, he
would have cleaned up.

~~~
dkimball
As the old saying goes, "The market can stay irrational for longer than you
can stay solvent"...

------
karzeem
If you wanted to position yourself to make a lot of money if Greece defaults,
what would you do?

~~~
eli
You're not exactly getting out in front of that one, eh?

Ok, so you find a way to bet on Greece failing... don't you think the people
on the other end of that deal are also watching CNN and have priced the deal
accordingly?

~~~
karzeem
Not thinking about it for myself. Just trying to figure out what people might
be rushing into in a mad panic.

------
joelhaus
Google is secretive about its search algorithm to prevent people from gaming
the system; wondering if the major stock exchanges do something similar...

Can anyone explain (and possibly cite sources) what the price represents that
is displayed when you obtain a stock quote directly from one of the major
exchanges?

Is it:

A) _The highest unfilled bid_

B) _The lowest unfilled ask_

C) _The most recent filled trade_

D) _The most recent trade at some min. % of float_

E) _Some combination of the above_

F) _Other:_ _______________________

This is a teachable moment and would go a long way towards helping us
understand what happened. On the surface, most of these pricing models seem
incredibly easy to game.

 _Bonus_ ; are other quote sources priced using alternative methods? If so,
please explain.

~~~
ewjordan
You should be able to get any of this information - a good broker will always
show you a), b), and c), and using tick-by-tick data in most markets you can
figure out d).

Not so much secrecy; however, that doesn't mean there aren't errors, and it
now sounds like today there were a few coming through NASDAQ re: Proctor and
Gamble, which made the brief decline appear a lot more catastrophic than it
actually was.

~~~
joelhaus
Thanks, I understand that this information is available, but I wonder what the
_quoted price_ reflects when you go to Yahoo Finance, et. al..

I've asked this to my finance professor and professionals; there seems to be
little/no consensus on it. There must be arbitrage opportunities here... maybe
that is what HFT are doing?

According to the NYSE, this was purely the result of an economic supply-demand
mismatch. I think the result of this, is the realization that the quoted price
can be a poor (exploitable) indication of an equity's value at any given
moment.

------
nickpp
They say it's because of Greece, but I think this may be Romania. Their
government JUST announced drastic measures to avoid becoming next Greece.

Which means the debt issues are spreading in Europe... Not that US is in a
much better position...

~~~
Zev
Romania isn't exactly a surprise either. A lot of Eastern Europe is in pretty
bad shape. With Romania, their GDP dropped by approximately 20%, or $40
billion in in 2008/2009. Its only expected to go up by about $7 billion or so
in 2009/2010[1].

I wouldn't consider myself an expert on this, but, my understanding is that a
lot of the economic decline is due to a decline in tourism to Romania (well,
to Eastern Europe in general, not just Romania) in the past year or two. And
hotels/restaurants/etc account for ~20% of Romania's GDP, IIRC.

And the US _is_ in a much better position than most of the world. We had what?
Two quarters of negative growth of -2 or -3% at most before we're back in the
plus? Compare that to countries that have been in double digit negatives for
multiple quarters in a row.

The primary country that I'm _really_ worried about in Eastern Europe is
Bosnia-Herzegovina. Three ethnic groups that have distinct political parties
and two of the three don't recognize the third. New government every few
months and very little is done. Low GDP to start with, and its gone down even
more in the past year or two. Its not too far fetched to imagine a situation
like Kosovo in the 90's breaking out again..

[1]
[http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weor...](http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2000&ey=2010&ssd=1&sort=country&ds=.&br=1&pr1.x=74&pr1.y=13&c=968&s=NGDPD&grp=0&a=)

~~~
batasrki
Fun, especially since Bosnia was in a war not too long ago. Thankfully, all of
my family is out of that godforsaken country.

------
obsaysditto
the price of euro also fell to 1.25USD

[http://www.xe.com/ucc/convert.cgi?Amount=1&From=EUR&...](http://www.xe.com/ucc/convert.cgi?Amount=1&From=EUR&To=USD)

------
earle
Thank program trading for this one fellas! People lost their high frequency
trading shirts on that move.

Some happy people in the futures market who bought the effects at < 10k!

~~~
nostromo
Isn't this backward? From what I can tell the HFTs may have pushed down the
price quickly, only to buy in and take part in the correction.

Similar to Magnatar, this is the "lose a little money to make a lot more"
strategy.

------
amvp
Is there any discussion anywhere about what happened?

~~~
tptacek
Worries of Greek sovereign default.

~~~
abstractbill
Seems like a very sudden amount of worry for something everyone has known
about for a long time. Did an actual event trigger this?

~~~
drawkbox
Most likely it was all algorithms. You'll note it was a slow downtrend then it
hit a window that triggered massive selloff cascade. When it hit the bottom
from February the other algorithms were set to buy. I am betting few humans
got through an individual order during this. It was mostly software.

This is what cause the crash in the eighties, we have some fail-safes in place
to slow it but most trading is done by tuned algorithms during stuff like
this. In fact, the PPT (Plunge Protection Team) might have kicked in...

~~~
nailer
I wonder whether a large enough entity could actually deliberately hold and
then suddenly sell enough of an instrument they believed to be undervalued,
just to ensure their competitors stop losses executed, then immediately buy
back the entire market for the instrument.

~~~
prewett
I think Porsche did something like that in 2008:
<http://radian.org/notebook/porsche>

~~~
eru
Not really. Porsche bought lots of VW stock either outright or as a call
option. They also lent their VW stock to short-sellers. This way they
`recycled' some of their VW stock, because those short-sellers sold to Porsche
again.

This allowed Porsche to build up a huge position, with only a few willing
market participants as counter-parties. They also managed to short-squeeze the
short-sellers. (<http://en.wikipedia.org/wiki/Short_squeeze>)

The grandparent post described a long-squeeze.
(<http://en.wikipedia.org/wiki/Long_squeeze>)

------
LoudRoar
Everyone Chillax!

Here is the story: Today was a big bill auction day. Ok. Just chill out for a
minute and let me explain.

China ain't no fool. These erroneous trades were made 10 minutes prior to a
bill auction. This is just to make sure that selling these bills will get a
high return and low rate. It was a great time to sell at the stroke of noon.

Chillax.

------
mnemonicsloth
Here's Apple losing more than 20% of its value

<http://stockcharts.com/h-sc/ui?s=AAPL>

Nobody knows why it's happening. They're talking about a "fat finger mistake"
on CNBC.

Some of these people look pretty scared.

~~~
mbreese
Apple's losses are likely just in line with the market, but it could be the
AT&T extension. The market would like to see iPhones on Verizon sooner rather
than later.

~~~
sabat
Many iPhone _customers_ would like to see iPhones on Verizon sooner than
later. Including this one.

~~~
potatolicious
I hate AT&T with a raging passion. My iPhone's data plan is in reality 40% of
the data plan. The other 60% of the time my phone doesn't think I'm on the
internet even though I have full bars and the 3G icon.

~~~
pyre
Verizon is no saint either. The only service I would purchase from Verizon is
FIOS (and maybe cable).

~~~
sabat
I've heard it has its problems, but I cannot express to you how much worse
AT&T is.

------
kurumo
This is actually very interesting. It may have been led by China. Chinese
market fell on Monday due to reserve requirements change (though the slow
decline actually started quite a bit earlier), and it was widely reported on
Monday night. Commodities followed on Chinese news and European debt on
Tuesday; Europe continued falling on Wednesday on Greece and Portugal
speculation, then this went around the world one more time and was reported at
about 3am today (emerging markets decline), and then later in the day as
decline continued. Speculation on European state debt compounded the issue
(witness the Spain rumours). Then at 13:10pm El Erian was reported to have
said that there is a possibility that European banks will stop lending, at
which point the US markets hiccuped and went into accelerating decline (look
at Russel, SPX and Dow from noon onward).

I will try to add links when I get home later. Clearly it was much more
complicated than this, but this pattern of falling dominoes going around the
world is at least suggestive.

Update:

China reserve requirements:

[http://www.businessweek.com/news/2010-05-04/china-s-
stocks-d...](http://www.businessweek.com/news/2010-05-04/china-s-stocks-drop-
to-7-month-low-as-banks-increase-reserves.html)

Commodities, etc.:

[http://www.google.com/hostednews/ap/article/ALeqM5jpti0ArQEl...](http://www.google.com/hostednews/ap/article/ALeqM5jpti0ArQElljT1JkaSIQPG8m530AD9FG8AKG0)

[http://www.theaustralian.com.au/business/markets/global-
mark...](http://www.theaustralian.com.au/business/markets/global-markets-rout-
hits-australia/story-e6frg916-1225862463688)

[http://www.businessweek.com/news/2010-05-06/corn-soybeans-
wh...](http://www.businessweek.com/news/2010-05-06/corn-soybeans-wheat-fall-
as-slowing-economy-may-curb-demand.html)

Emerging markets:

[http://www.livemint.com/2010/05/04214121/The-Chinese-
contagi...](http://www.livemint.com/2010/05/04214121/The-Chinese-
contagion.html)

[http://online.wsj.com/article/BT-
CO-20100505-713490.html?mod...](http://online.wsj.com/article/BT-
CO-20100505-713490.html?mod=WSJ_World_MIDDLEHeadlinesAmericas)

El Erian - the best I can find is this. The lending comment was attributed to
him when I saw it, but here it is a "trader speaking on condition of
anonimity".

<http://www.cnbc.com/id/36992469>

------
BrentRitterbeck
I think people may be missing the bigger picture. While this may certainly be
the result of a trade error (NB: This has yet to be confirmed), what we did
see is a precursor to what may happen should another of the dominoes fall over
in Europe. There are now rumors that Italy may be headed for a downgrade:

<http://www.cnbc.com/id/36986983>

If less-than cooler heads prevail, an actual economic event could trigger the
exact same response we saw today.

------
qeorge
More information:

<http://www.nytimes.com/2010/05/07/business/07markets.html?hp>

------
drawkbox
Wouldn't it be sad/funny if this was just a hack by some dude messing around
with Python and accidentally the whole stock market War Games style.

~~~
jaekwon
Accidentally the whole thing?

~~~
dzlobin
4chan meme

------
Keyframe
I lost 1200$ today, yaay. edit: I lost 1200$ due to this situation today AND
got downvoted for it! Double the hurt.

~~~
krishna2
Sorry to hear that and not to be insensitive - but I think that number is
probably a rounding-error to a good chunk of traders out there! Imagine all
those who had margin accounts and got wiped!

~~~
Keyframe
I know, you're not being insensitive. :) I'm not making a fuss about it
though, it was a part of the risk anyways and it was an experiment in the spot
market. I built that 1200$ out of 200$ of initiation cash, so there actually
is little to no damage anyways. But you bring a valid and disturbing point,
there are a lot of folks out there now that lost tons of money and got margin
called - most of them probably over leveraged, not a pretty sight.

------
Groxx
Wtf stock-market-people. Panic causing reaction causing panic isn't helping
anything. Chill for a few seconds.

~~~
sophacles
That would be rational behaviour. The market does not exist on rational
behaviour. The Austrians just spread that rumor to take advantage of the
suckers who believe it.

~~~
CWuestefeld
Of course. In this enlightened age we know that it's all driven by animal
spirits.

------
mark_l_watson
Dow Jones Industrial average down 3.20% S&P 500 down 3.24%

So, the Dow ended down about 350 points for the entire day. This happens
sometimes. The world economy could crash triggered by problems in Greece,
Spain, etc. Or, we could continue to be fine for decades. I think that it is
impossible to predict.

------
steveplace
Funny, I was doing live market commentary on stocktwits when this happened.
It's pretty interesting to see how I reacted to the voodoo.

One point: it's my belief that if we didn't have HFT and the quants, this
would have been a move like 1987.

------
varjag
When they talk about "the biggest crash since 1987", do they mean in absolute
points, or scaled to overall DOW magnitude?

------
ck2

         if (confirm('You entered BILLIONS did you mean MILLIONS?')) 
           {return false;}
    

problem solved.

~~~
anthonyb
Until all of your traders get used to pressing 'yes' on your annoying dialog
box, at which point you're back to square one.

------
ojbyrne
Looks like its a glitch. money.cnn.com says "Faulty Proctor & Gamble quotes"
were the cause.

------
what
This was operator error right? Hit the "000" button one too many times on that
sell.

------
fretlessjazz
From cnbc.com:

Trading Error at Major Firm Blamed for Market Plunge: Sources (Story
Developing)

------
fretlessjazz
finance.yahoo.com = down<br /> bloomberg.com = down<br /> cnbc.com = realtime
quote problems<br />

This is some serious load...

------
CoachRufus87
emotions, algorithms, & unknowns == why I don't invest in the stock market

~~~
eru
Warren Buffett sees the same problems in the markets, but he draws a different
conclusion.

------
pw0ncakes
Misleading title. The drop occurred over about 10 minutes, and has partially
reversed. As of 3:06 it's -400 for the day. The VIX is also up into the
high-30s.

Not to say this isn't August 6, 2007 or September 12, 2008. It may well be.

~~~
mnemonicsloth
You're absolutely right.

I was listening to two different people at the same time, and I'm away from my
real-time charting program so I coudln't check.

I just changed the title to reflect.

Holy Shit. Accenture dropped from $40 to $0.01, and now it's back in the high
$30s.

~~~
jasonlbaptiste
can anyone explain how accenture just went to a value of a penny even if it
was momentary?

~~~
jey
As I understand it, all it takes is one share to have been sold at that price.
Probably indicates someone having a "sell _n_ shares at any price" order where
_n_ > buy orders at that moment..?

Regardless of the details, this is an example of how markets aren't perfectly
efficient.

~~~
yan
I don't think anyone claims the markets are 'perfectly' efficient. Even the
people that believe they are efficient and choose to participate argue that
they are exploiting the inefficiencies.

~~~
orblivion
Furthermore the real question is, could the market possibly be made more
efficient if some "expert" were there deciding when a trade was a bad idea?

~~~
WingForward
Probably.

~~~
jey

      [citation needed]
    

"Experts" are overrated. The whole notion is fundamentally backward-looking.

You might as well consult a historian.

------
hockeybias
Second Rumor: Per <http://www.calculatedriskblog.com/2010/05/market-
update.html>

"...the second is that Euro banks are having a liquidity problem of some
sort."

