White House: No "Fat Finger" Behind Thursday Wall Street Chaos

[Bruno]

http://whitehouse.blogs.foxnews.com/2010/05/07/senior-administration-official-no-fat-finger-behind-on-thursday-wall-street-chaos/

A senior Obama administration official briefed early Friday by regulators said the so-called "fat finger" phenomenon did not trigger the massive sell-off that buzz-sawed 1,000 points from the Dow on Thursday - the largest intra-day point loss on record - before a partial recovery recouped some of those loses.

"Fat finger" refers to a theory - never authenticated - that a trader on Thursday mistyped a sell order, selling far more of a stock than the trader intended. Under the theory, that-larger-than-intended sale order sent a false signal through the market and set in motion a domino-effect of other stock sales. According to two senior officials, there is "no evidence" to support the "fat finger" phenomenon.

The official, who spoke on the condition of anonymity, said regulators reported the more likely cause of the wild market gyrations was programmed sales of stock across exchanges, triggered by a slow down or sale in one exchange and computer-programmed "discrepancy" transactions.

This is the early analysis from Mary Shapiro, head of the Securities and Exchange Commission and Gary Gensler, head of the U.S. Commodity Futures Trading Commission. Both reported to a wide array of top Obama economic aides and advisers Friday morning. One or both agencies are expected to release information on preliminary findings after trading closes today.

The official said Shapiro and Gensler were asked to perform more "forensic accounting" on the underlying causes of the wild ride on Wall Street. The early conclusions are not absolute, the official stressed, but represent the best early analysis and conclusions data gathered so far.

According to the official, while the original trigger is unclear, it appears high volume trades on the Chicago exchange fueled higher sales volume on the New York Stock Exchange. When sales accelerated on the NYSE, built-in trading slow downs meant to minimize huge sell-offs took effect. In reaction, the official said, transactions from the slow-downed Dow shifted to other markets, such as NASDAQ and options exchanges.

This shifting of trades from exchange to exchange were also fueled, the official said, by computer-managed analysis of price discrepancies, meaning if a price spread becomes apparent and falls within a built-in trade range, the computer shifts from one exchange to another.

[Mister Grieves]

They'll just exploit the situation, which they probably called for in the first place, to gain more control over everything. The pattern should be obvious to even the most brainwashed and coddled of the masses by now.

[malkusm]

Ok, so the "typo" theory has been debunked, but they used it as an excuse to implement order cancellations on large orders that might move the market? Got it.

[purplechoe]

Fat finger my ass... wait... that didn't sound good...

http://cybernetnews.com/wp-content/uploads/2008/01/simpsons-fat-finger.png

http://www.iangreeb.com/archives/fatfinger.jpg

[seeker4sho]

http://whitehouse.blogs.foxnews.com/2010/05/07/senior-administration-official-no-fat-finger-behind-on-thursday-wall-street-chaos/

A senior Obama administration official briefed early Friday by regulators said the so-called "fat finger" phenomenon did not trigger the massive sell-off that buzz-sawed 1,000 points from the Dow on Thursday - the largest intra-day point loss on record - before a partial recovery recouped some of those loses.

"Fat finger" refers to a theory - never authenticated - that a trader on Thursday mistyped a sell order, selling far more of a stock than the trader intended. Under the theory, that-larger-than-intended sale order sent a false signal through the market and set in motion a domino-effect of other stock sales. According to two senior officials, there is "no evidence" to support the "fat finger" phenomenon.

The official, who spoke on the condition of anonymity, said regulators reported the more likely cause of the wild market gyrations was programmed sales of stock across exchanges, triggered by a slow down or sale in one exchange and computer-programmed "discrepancy" transactions.

This is the early analysis from Mary Shapiro, head of the Securities and Exchange Commission and Gary Gensler, head of the U.S. Commodity Futures Trading Commission. Both reported to a wide array of top Obama economic aides and advisers Friday morning. One or both agencies are expected to release information on preliminary findings after trading closes today.

The official said Shapiro and Gensler were asked to perform more "forensic accounting" on the underlying causes of the wild ride on Wall Street. The early conclusions are not absolute, the official stressed, but represent the best early analysis and conclusions data gathered so far.

According to the official, while the original trigger is unclear, it appears high volume trades on the Chicago exchange fueled higher sales volume on the New York Stock Exchange. When sales accelerated on the NYSE, built-in trading slow downs meant to minimize huge sell-offs took effect. In reaction, the official said, transactions from the slow-downed Dow shifted to other markets, such as NASDAQ and options exchanges.

This shifting of trades from exchange to exchange were also fueled, the official said, by computer-managed analysis of price discrepancies, meaning if a price spread becomes apparent and falls within a built-in trade range, the computer shifts from one exchange to another.

I was watching CNBC when the market started falling like a lead balloon. The fall did not surprise me as much as the rapid rise in prices following the fall. It appears that the fall and rise were controlled through planned manipulation. This should be a wake up call to those small investors that own stocks. The flash traders have the where-with-all to take profits anytime they want to. Murphy's Law tells us that if something can happen then sooner or later it will happen. In this case it can happen again.

[sb10]

Brokers by law are required to obey the National Best Bid and National Best Offer rules. That means when somebody wants to buy a broker is required to guarantee the fill at the NBO and if somebody wants to sell the broker must guarantee and order fill at the NBB. If it doesn't work out in favor of the broker, the brokers involved are required to eat the difference.

It sounds like the brokers didn't want to play by the rules, because doing so would have driven them to bankruptcy. Yet more corruption.

When is this crap going to end?!?

There had to be a second trader on the grassy knoll (http://www.thereformedbroker.com/2010/05/06/there-had-to-be-a-second-trader-on-the-grassy-knoll-perhaps/)

Expanding on the Market Crash (http://www.market-ticker.org/archives/2287-Expanding-On-The-Crash-Yesterday-NBBO.html)

[Pizzo]

It wasn't caused by a fat finger, nor was it caused by an enormous amount of sellers. Basically in a nutshell here is what happened. The market was already getting its ass handed to it. The stocks getting it the worst were energy limited partnerships, preferred stocks, European banks, and closed ended equity and debt funds. There came a point where they made sharp moves down which would normally be good places to start a position, which myself and co-workers did. But they weren't acting right. I proceeded to get out with relatively small losses, and then i cancelled all of my orders, 191 of them. That's really the key. Not too long afterwards, the market began making new lows, sell stops were triggered, more sellers followed along with panic. The NYSE put temporary pauses of 30-90 seconds on most stocks, but the electronic exchanges allowed the stocks to trade through. That is really the largest key. The NYSE has lots of what we call "stale bids" What these are are large block bids at levels where funds want to get long. they will put GTC (good til cancelled) orders out at a certain level. For stocks like GE these can be million share bids. The NYSE is where the large stale orders are for the most part. But if the NYSE pauses, like it did, and large sell orders are coming through, there arent any bids to support the sells. So basically you had lots of sellers looking to sell on any exchange, but not enough buyers on the electronic exchanges to support them. It doesn't mean there weren't buyers at all, just not where the trades were going off. Now to the poster saying they HAVE to eat the trade, that is not true. Trades get busted all the time. Not only can you lose a big winner, like i did yesterday, your big winner can become a big loser becasue you will now be illegally short where you took profits on your long(buy). What that means is a trader, or anyone really, can wind up being short a stock they had no intention of shorting, they were just taking profits on a buy. To put it into numbers using the 60% threshold for busting trades they are doing look at it like this: Trader buys 2000 shared of a stock that traded from $10 to $2 in under a minute. Trader sells his 2000 shares at $8 for a profit of $12,000. Stock trades higher back to $10. Trade gets busted, trader is now short 2000 shares @ $8 with no profits from his long trade. And likely will cover at around $10 for a 4k loss. I love my job.

[eric_cartman]

It wasn't caused by a fat finger, nor was it caused by an enormous amount of sellers. Basically in a nutshell here is what happened. The market was already getting its ass handed to it. The stocks getting it the worst were energy limited partnerships, preferred stocks, European banks, and closed ended equity and debt funds. There came a point where they made sharp moves down which would normally be good places to start a position, which myself and co-workers did. But they weren't acting right. I proceeded to get out with relatively small losses, and then i cancelled all of my orders, 191 of them. That's really the key. Not too long afterwards, the market began making new lows, sell stops were triggered, more sellers followed along with panic. The NYSE put temporary pauses of 30-90 seconds on most stocks, but the electronic exchanges allowed the stocks to trade through. That is really the largest key. The NYSE has lots of what we call "stale bids" What these are are large block bids at levels where funds want to get long. they will put GTC (good til cancelled) orders out at a certain level. For stocks like GE these can be million share bids. The NYSE is where the large stale orders are for the most part. But if the NYSE pauses, like it did, and large sell orders are coming through, there arent any bids to support the sells. So basically you had lots of sellers looking to sell on any exchange, but not enough buyers on the electronic exchanges to support them. It doesn't mean there weren't buyers at all, just not where the trades were going off. Now to the poster saying they HAVE to eat the trade, that is not true. Trades get busted all the time. Not only can you lose a big winner, like i did yesterday, your big winner can become a big loser becasue you will now be illegally short where you took profits on your long(buy). What that means is a trader, or anyone really, can wind up being short a stock they had no intention of shorting, they were just taking profits on a buy. To put it into numbers using the 60% threshold for busting trades they are doing look at it like this: Trader buys 2000 shared of a stock that traded from $10 to $2 in under a minute. Trader sells his 2000 shares at $8 for a profit of $12,000. Stock trades higher back to $10. Trade gets busted, trader is now short 2000 shares @ $8 with no profits from his long trade. And likely will cover at around $10 for a 4k loss. I love my job.

interesting post. i just don't understand the last part. so he bought his 2000 shares at $2? and then sold them at $8 for a $12k profit? but what does it mean that the trade gets "busted"? i don't understand from then on. if he bought at $2, and sold at $8... what does it matter if the stock goes up to $10?

[Baptist]

I just assumed that the market was finally crashing, but the Plunge Protection Team stepped in to save it, just like they did on a number of occasions back in 2008.

[Nanerbeet]

interesting post. i just don't understand the last part. so he bought his 2000 shares at $2? and then sold them at $8 for a $12k profit? but what does it mean that the trade gets "busted"? i don't understand from then on. if he bought at $2, and sold at $8... what does it matter if the stock goes up to $10?


The buy order was busted (never happend) but the sell order was not. In other words, he sold shares he never owned, and has to buy stocks at the market price to cover his position.