Stock Market Sell-Off Might Stem From Trader's Fat Finger 643
s122604 points out a CNBC story according to which "the catalyst for today's extraordinary price swing (at one point the Dow lost almost 9 percent in less than an hour) may have been because a trader entered a 'B' for billions instead of an 'M' for millions on a trade of Procter and Gamble: 'According to multiple sources, a trader entered a "b" for billion instead of an "m" for million in a trade possibly involving Procter & Gamble, a component in the Dow. (CNBC's Jim Cramer noted suspicious price movement in P&G stock on air during the height of the market selloff).' Unbelievable there are no safeguards to protect against this."
Slashdot, you missed the software part! (Score:5, Interesting)
CBC Story about software controls for selling on the market: http://www.cbc.ca/money/story/2010/05/06/tsx-markets.html [www.cbc.ca]
Nuts to fat finger keyboards, there are automated software controls in the industry that caught-on to the sale and snowballed this individual's mistake into something really big. The issue wasn't just in this guy's mistake, but the fact that potentially billions of dollars changed hands because of a trust relationship these systems have with market indicators.
Not that there's anything wrong with that: on a good day this could protect big firms from being the guy caught holding the bill, but I think we've discovered where the next upgrade in broker software might be :)
-Matt
Protections may be bypassed... (Score:5, Interesting)
So you implement some protection. Then some prima donna trader comes by and asks that they be disabled and his trades unquestioned. If the company makes good profit off the guy, down the protection goes.
Reminds me of this story on a commodities trader that not only didn't close his position, but actually ended up taking physical delivery of the commodity. Oops. Sure there were protections, but the guy had them disabled.
http://thedailywtf.com/articles/special-delivery.aspx [thedailywtf.com]
Hell, for all we know, this is exactly what happened - most traders can't enter in a "b", except a succint few well-trusted individuals. Just one of the "gods" managed to fumble it.
I can't see any other reason for the sell off ... (Score:1, Interesting)
I mean with a quarter of Europe circling the drain and the whole country of Iceland looking for a buyer that will assume their debt. Add in the south eastern US coast may be facing a depression since they depend on tourism and the ocean for 90% of their income. Do I even have to bring up the rest of the country? They were lucky some one didn't post a "Buy" notice on canned food and shotguns.
Institutional Traders Don't Enter Trades Like That (Score:5, Interesting)
It may have been a system problem, that's quite possible. But institutional traders don't type in "b" or "m" next to some number they type in of stock they want.
But even in some strange world where they did, entering in a standard lot quantity that required an "m" (much less a "b") for the stock that is suspected to be the issue at hand (PG), would result in an order that exceeded the 30-day avg vol for PG by a factor of 10.
And that's not even considering that the firm's risk management would, in theory, have caught the issue already.
I am, obviously, doubtful of this explanation.
Market correction due and it's here! (Score:5, Interesting)
They've been saying for some time the market was due for a correction. Mind you, at the height of the financial meltdown, the Dow was at 6500, and has almost doubled value in about a year, it was rising too fast considering that the recovery still really hasn't come (i.e., there are still no jobs).
The only people making money are the same ones that are always making money -- the fat cats. Now it looks like the market will correct, and probably stablize around 10k, maybe 9. And even more people will lose their jobs and the cycle will continue until America admits that it is bankrupt.
Then will come some really hard times, but, once we address the real issues plauging the country, we'll come out of it stronger. But first, we need to start getting rid of all the lawyers....
I'm surprised, somewhat. (Score:4, Interesting)
However, I am somewhat surprised that the guys who do UI design for financial systems don't design systems to make things like power-of-ten or million/billion errors very difficult. Having a 3 factors of 10 difference be just one key away(and phonetically not all that dissimilar) seems like a mess waiting to happen.
I've seen in doctor's offices(and I know pharmacists and pharmacy techs, especially ones where compounding and other tougher than "dispense stock pill" type activities go on get drilled hard on this) outlining acceptable and unacceptable notetaking protocols to reduce the risk of power-of-ten dosing errors(things like ".2 is wrong, there should always be a leading zero to clue you in to the decimal point, use 0.2.") Some of them are even domain specific conventions, specifically trading off other factors in favor of reducing the risk of error. In science, for instance, saying 2.0, or even 2.0000 if you have that much precision, instead of 2 is a good thing. It tells your reader how precise the value they are looking at is. In prescriptions and medical notes, "2.0" is dangerously close to "20", and is thus avoided.
One would think that, even if it meant making up arbitrary symbols, or using UI element sizes to convey magnitudes, or something, financial UIs would adopt a similar set of domain-specific tricks to head off the most common and dangerous errors.
Re:SELL! (Score:5, Interesting)
It doesnt take a genius to figure out that the "typo" theory is BS... In 2008, it was a "computer fault"... Deflation is still very much in control at the moment, and it appears that we have only delayed it. As greece and many other sovereigns start to default on their debts, we will see the leg down... Acceptance is a b&^%*& sometimes...
Re:SELL! (Score:5, Interesting)
It reminds me a little of a throwaway comment Stephen Hawking made in the recent series Into The Universe With Stephen Hawking [wikipedia.org] - he was asked not to speculate on the end of the universe in a certain lecture series for fear that it would affect the stock market. Really? Even if the universe was going to end in our lifetime, and no-one had noticed before now (oops), what kind of fool would hear the news and immediately worry about his or her stock portfolio? What are you going to do with your money after the universe ends? You would think (if people behaved rationally) that the stock market would grind to a halt when every trader says "Screw this, I haven't got much time left and I'm not going to waste it here".
This should happen EVERY DAY, would be good (Score:5, Interesting)
You read that headline right. This should happen ALL THE TIME. It would be good for the markets.
Speculators would be driven out, or driven insane. Emotionally driven traders would have heart attacks.
Sound judgments made based on factual data would not be affected.
Next week, people like me won't give a toot that this ever happened. However, a lot of day traders just pooped their pants. I'm buying men's underwear stocks.
The person who made the mistake will be punished dearly.
Re:Protections may be bypassed... (Score:3, Interesting)
Trust me, the Daily WTF story didn't happen (if you want to, you could read about coal futures until you believe me, but I'd recommend just trusting me on this). However, I know personal trading platforms all come with "Yes, I know what I'm doing, really really really let me shoot myself in the foot" options, I can easily accept that institutional systems have the same for some traders, and even more likely have bugs in the protections...
Re:SELL! (Score:2, Interesting)
The NYSE has rules in place to slow down price moves.
The electronic markets do not (or they are sufficiently different that they didn't kick in).
I think you guys are missing the actual point (Score:5, Interesting)
What's being talked about here isn't the general decline in the market today, but a very suspicious "blip" that occurred in a huge number of stock prices at 2:45 EST, followed by immediate recovery.
Look at the blip:
Adobe [google.com]
Google [google.com]
Westlake Chemical [google.com]
Cabela's Incorporated [google.com]
Apple [google.com]
Microsoft [google.com]
Titanium Metals [google.com]
Fidelity IIS [google.com]
This shit is across the board, with very few exceptions. You try explaining how something like that happens apart from some major fuckup somewhere.
look at the volume! (Score:4, Interesting)
I suspect that something funny did happen though, in TFA they are quoting that PG was trading down at $30 per share at some point, so something definitely slipped. Fortunately, we managed to avoid another Black Monday [wikipedia.org], where the DOW went down and stayed down.
Re:NYSE Spokesman Disagrees (Score:2, Interesting)
He is defending the NYSE. The bad trades happened on other markets. He is not disagreeing with the article.
The market runs on lemming stupidity (Score:3, Interesting)
We all know this and have known this for decades. The people who operate within the market like to think of themselves as sensitive to trends and currents and activities, but the reality is further from the truth -- a bunch of people doing what everyone else is doing hoping that the person in front of them knows where they are going.
The cure for much of this (not all of it) is setting up rules that limit the number of times a single item can be bought or sold in a day. Whatever the real "best solution" is (and I'm sure my notion isn't even close) it should probably focus on getting rid of the lemming factor that tends to send people marching off the edge of a cliff taking the whole market with them.
Correct, but also incorrect (Score:3, Interesting)
It wasn't a typo, it was Bernie Sanders speaking for an hour on the Senate floor today, pushing for a bill to audit the Fed. Everyone who is anyone knows what we will find if we audit the Fed, and it isn't good. Not just for us, but for the world. Which is why Obama threatened to veto this bill, citing national security. The dollar is the world's reserve currency. If all the plebeians of the world found out how utterly worthless our currency is, we would suffer a crash that would make the last one look like a cake-walk.
As for Greece, though, that crisis is actually pushing investors back to America.
Re:Correct, but also incorrect (Score:3, Interesting)
Indeed, I don't think it was fat fingering. (Score:2, Interesting)
Accenture (ACN) went down to 1 cent from about 40, for all of one or two minutes, then went back to about 40. The iShares Russell 1000 Value Index Fund (IWD) had a similar ride, from around 60 to 8 cents. Centerpoint Energy (CNP) went from 14 to somewhere under a penny (I saw a number, but I can't remember if it was 0.007 or 0.0007). There may well be other cases like these.
I really suspect there was a software bug that affected several stocks, not fat fingers.
Re:Correct, but also incorrect (Score:4, Interesting)
Re:Institutional Traders Don't Enter Trades Like T (Score:3, Interesting)
Financial engineers as a whole are a bunch of Dilettantes. They literally play guessing games disguised with fake knowledge. Any scientist would look at the markets as an optimization or stochastic problem. Not financial engineers. They look at indicators that have minimal mathematical basis and "psychological" levels.
They're also damn good at what they do. No offense to scientists, but anyone trading using the scientific method is just going to be giving money to people who use more effective methods. The simple explanation is that the scientific method is far from optimal for the problem of rapidly evaluating the price of a security in real time. Market trading also isn't an optimization or stochastic problem. Those are approximations for the real deal. As I see it, a seat-of-your-pants market maker is going to know more and make better trades.
Pardon me while I make a brief appeal to authority here. I have a PhD in math. It's not in financial mathematics, but I'm acquainted with what they do here. The math/computation part is in getting a good estimate of what things are worth and how they correlate with other securities over certain time scales. It enables the trading of complex derivatives and execution of automated strategies (especially hedging and arbitrage related trading). IMHO, there's no magic math algorithm that will trade well understood securities far better than current methods. That vein is probably almost mined out. There might be something there, but I doubt it. The current play seems more in those complex derivatives.
I see a lot of the current problems more as social engineering problems. For example, I bet every single bank and investment firm that collapsed in 2008 had incentives (and lack of accountability) in place for the traders and managers to accumulate highly leveraged risk. Guessing right on a highly leveraged strategy can get you excellent bonuses. A prudent strategy can lose you your job, even if you are right in the end. The last of the outcomes, guessing wrong with highly leveraged risk just loses your job again (the company might go belly up as well, but it's not your problem any more).
As I see it, the fundamental problem with most such businesses (and most publicly traded companies as a whole) is simply that the owners do not run the business. The people making the decisions risking the capital are completely divorced from the owners of the assets. The decision-makers only stand to lose their jobs.
Re:The market runs on lemming stupidity (Score:3, Interesting)
Re:Actually (Score:2, Interesting)
Will ANY politician in US say to the 'voters': You have to bite the bullet. There is no money for Medicare. There is no money for Social Security checks. There is no money for any Government run program.
Social Security has never cost the US Government a dime. It's a trust fund that is in danger of paying 75% of what was promised if nothing is done by 2020. The easy solution is to raise the retirement age to match the increase in life expectancy - which seems fair enough.
As far as Medicare and other social services, they account for about 40% of our discretionary budget -- approximately the same amount we spend on the military. So, I think we can stop building Ospreys and drawing down our 750 military bases around the world before we start ending social services.
However the BIG Sell Off is coming whether the Governments do anything or not.
The difference between US and Greece is this: Greece is in Euro and cannot print, so it either quits Euro and goes back to Drachma and prints the money into oblivion causing a crash of its bonds/treasuries/currency OR Greece bites the bullet. Greek's Government for some reason decided to go the High Road and to be Honest for some reason, I need to figure it out.
US will NEVER do this, it's impossible. It will print and print USD into hyper-inflation.
The issue is that Greece cannot devalue it's own currency, as the US can through the Fed. It is forced to keep the Euro, and France and Germany do not want their currency devalued. Fiat money systems are purposefully designed that way - the restrictions of gold based currencies were the cause of massive crashes in the 19th and early 20th centuries.
, just understand that for a Government work has ceased being a rewarded function long time ago, when the government decided it can print money and set interest rates. That's the primary problem.
They've been able to print money and control interest rates since the mid 1930s. America has had a good debt level for most of those years - only when taxes were cut for the wealthy in the 80s did real investment in production stop.
Furthermore, during WWII, we had a debt level far higher than we do now. WWII was basically the largest Keynesian economic success story in world history, and our debt levels came down quickly as the government reaped the benefits of the creation of the middle class.
When you destroy the middle class, you destroy the economy. Lower class families do not have the resources to make real investments, and the ultra rich have no incentive to make real investments. So we're left with underperforming, underemployed economies across the United States, and a bunch of people on Wall St waving their dicks in the air, making big bets and doing little else. It's the wrong solution for what we need - real investment in real production to provide real jobs for real people.
Re:Safeguards? (Score:3, Interesting)
What's interesting is that the online boards (websites) weren't able to keep up with the market due to so many people hitting their servers. Even Yahoo and Google Finance couldn't keep up.
The Web Struggling to Keep Up with the Market [techcrunch.com]
Re:SELL! (Score:4, Interesting)
" . . . in a matter of minutes the market had recovered . . ."
Yes, but think of the people in the following situations:
1. Had stop-losses in place
2. Got caught on the wrong side of "put" options at the wrong time
3. Had margin requirements and were automatically liquidated from their positions to meet those requirements
This whole thing stinks.
Re:Actually (Score:3, Interesting)
Trading of synthetic instruments is only part of the problem. There is a lot of trade in very physical things -- trade that only inflates the prices and serves no other purpose.
Take any good condominium project. Those typically come in phases -- say buildings A&B are phase 1, buildings C&D phase 2, and so on. They are sold in pre-construction. A project that has good prospects and sells out phase 1 within say 24-48 hours -- will usually be done by a developer who has a clue, and there will be lots of investors who know that developer and will snatch it up in pre-construction sale. Success of such sale in phase 1 usually implies that same investors will rinse and repeat in phase 2 and so on.
Now we're talking about a very physical thing: an ownership in a condominium. Yet the investors will, usually, just flip the units and resell them as fast as they can, for 10-20% in instant profit. People who do that sort of investing will make $100-$200k per unit that way -- just like that, for nothing -- just for the fact that they signed their name on a pre-construction contract. Their only risk is being out of, say 10% of the price if they decide to back out of the contract -- as the nonrefundable deposit is often just 10%.
This is just an example I'm familiar with, but there are *tons* of examples like that: trading, or, "investing" in very tangible things, for negligible risk, where the payout is relatively obscene, and there is zero added value by the investor.
Re:SELL! (Score:5, Interesting)
If you're worried about that kind of collapse, then yes, gold would go to zero, too. What can you do with gold other than look at it? You think you're going to arrange a deal with the typical large industries that actually put gold to a useful purpose? After a massive currency collapse? Good luck!
Baskets of metals are ok as a hedge, though all bets are off in a real crisis, and there is so much more out there you could be involved in that doesn't involve getting ripped off by a sketchy company with cheesy ads.
Re:Actually (Score:3, Interesting)
Synthetic instruments are unregulated and exceed the value of the planet's GNP. Just because people are willing to posit a value in something doesn't mean that it actually has value. Take the Tulip mania of the 1800's http://en.wikipedia.org/wiki/Tulip_mania [wikipedia.org] for example.
The problem with the jerks marketing the derivatives again is that they were bailed out once and expect to be bailed out as many times as they can get away with it.
I wouldn't be at all surprised if today's little "accident" wasn't just a few program traders making a killing under the guise of a typo. I trust nobody in any of the Wall Street Arbitrage / Hedge Fund business. We would all be better off repealing the Gramm-Leach-Bliley Act and imprisoning the top 20% of every investment house.
Comment removed (Score:3, Interesting)
Re:SELL! (Score:3, Interesting)
I very much suspect that the panic would work AGAINST the workaholic trader.
Firstly, the only people left trading are also banking on the world not to end, so they're not going to sell cheap (or at all, your scheme relies on a bear market). The only shares that would be sold would be ones for companies that aren't expected to recover from the panic, which causes their share price to plummet, which means that if they weren't going to recover before they CERTAINLY won't recover now.
Secondly, even if they could get money, it's extremely unlikely that it would be worth anything. Any retailers who own large stocks of supplies would either horde, or gouge (to take advantage of the massive surge demand that resulted from the panic, the decrease in supply from some of your competitors choosing to horde, and to compensate for the inherent risk of trading during a panic). Now, mix a panicky and stressed crowd, the anger from being charged more than usual, and the fact that there's no consequence for crime, and you've got yourself one fine recipe for a massive looting spree. Hell, even if the retailer were totally honest, the crowd might loot them for the fun of it, or because they're the only honest retailer in town and the crowd is upset that they're out of stock.
Even if the world DIDN'T end, the people who have money after the crisis would become pariahs (they only have money because they stole it and/or hoarded it), and popular opinion would demand the complete devaluation of pre-crisis money; a full financial reset. A lot of infrastructure was destroyed during the crisis (either by neglect or violence), so the financial reset would be but a drop in the bucket. (By the way, the clean-up is the time to quietly profit - there's a whole lot of property with corpses or social outcasts for owners, and the restoration of state-sanctioned property rights means you don't have to worry about guarding your possessions). Of course, this all depends how much warning was given for the end of the world.
Re:SELL! (Score:2, Interesting)
Re:Correct, but also incorrect (Score:4, Interesting)
The problem is there are a whole lot of people who know just enough about economics to understand that money has nothing backing it, but not enough to understand that really, that's how money has generally always been. For some reason they see gold as a magical substance that cannot lose value, and that if we just had that behind currency there'd be no problems. This ignores, of course, the Great Depression, when currency was on the gold standard (and some would argue the inflexibility of it helped create the depression). They can't separate the large amount of value gold has due to its use as a financial reserve with the smaller value it has for industrial uses.
So they have no faith in current currency, but think that a currency backed by metal would be worth something. They don't understand that money is just a theoretical construct that facilitates trade.
It is one of the reasons that I think a basic economics course should be mandatory in high school. Too many people have their own half-assed ideas about how things work. Understanding the very basics is important, fundamentally that everything is just trade.
Re:Correct, but also incorrect (Score:4, Interesting)
You've created a strawman, attributed it to "they" and seem to be completely oblivious to the actual argument, and certainly nobody say there would be "no problems", they say it would constrain the government to only spend money that the country actually has right now.
When money is backed by something physical it prevents the government from spending more than it has by printing (or adding ten zeros) to its bank account whenever it wants, therefore devaluing the money that is already in existence.
You can't print gold so the government has to try a lot harder to spend money it doesn't actually have.
That's the real point of a hard money currency system, the fact that you hear gold (and silver) all the time is that it's just a convenient, historic store of wealth, if there was something more convenient the argument would be made for that.
Also you conveniently leave out the fact that it was while on the gold standard that the US, the UK and France became world powers, and once they went to fiat currencies became mired in debt and devaluation and lost their prosperity and declined.
It's not about money, it's about an inbuilt restriction to preventing politicians writing blank cheques until the country is broke, like most western countries are - as we see the beginnings of with Greece, Ireland, the UK and soon The US if it doesn't get its spending under control and cut the services it can't afford.
Finally you make it out like the current Fiat money system has proved itself superior, yet every single fiat currency in history has imploded at around 50 years due to unrelenting printing. You do realise it's only been implemented in the US for 38 years and that government spending has been increasing exponentially over that time compared to revenue? Do you think that can continue forever? Or do you think they'll get to a point and say, that's enough spending?
Re:SELL! (Score:3, Interesting)
Fuck you, in the UK at least a lot of people don't have any control over where/how their money is invested by their pension provider.
Re:SELL! (Score:4, Interesting)
And why's that? It must be because you assume that your stocks, bonds, deeds etc. increase in value with time, whereas gold does not and costs money to store it safely. Am I right? ;-)). This is a fact.
:-) ). But besides the sunlight, Earth is a closed system, and we're probably using up too much of the long-term concentrated chemical potential energy stores (oil) and should switch to weaker, more direct energy sources (solar photovoltaic, solar heating, wind, biogas, biodiesel) to sustain our civilisation longer-term than just this century.
Gold is an inert metal that doesn't wear down with age (unlike the Dutch tulip bulb craze
The paradigm that in general stocks increase in value with time is *not* a fact. It is an assumption based on past behaviour, explained by a world-wide exponential growth in economy, as we got more people, the people extracted more raw materials (including non-renewable and non-recyclable materials such as oil) from our planet's crust, and those resources in turn fueled the economy and consumption rate.
Our planet is an open system in the sense that we get free sunlight from our sun and ultimately this is the power source for all economic growth (except nuclear fission and, as mentioned in another discussion [slashdot.org], tidal
How can you believe to have permanent exponential growth of power resources / manufacturing / consumption in a closed system? IT DOESN'T MAKE SENSE.
Listen to this:
In a steady-state economic system, solar energy input == economic production. Your stocks and bonds are valuable but will not increase in value (I don't see how?). I haven't found any economics articles that I could understand about what such a world would look like, but the transition is probably painful (I'm not a doomer btw).
:-)) discussion of the discrepancies between economy and reality, I refer you to The Oil Drum [theoildrum.com] forum, where people much smarter and possibly more clear-minded and rational than me discuss these things :-).
Just because Malthus (1798) and the Club of Rome (1972) were impopular doomers doesn't make them wrong. Our generation and the next few must *prove* them wrong.
For any serious (and really not always doomer-like
Re:What is the value of this market speculation? (Score:3, Interesting)
Right, but which is larger?:
a) Value of money "taken out of the system" as profits by traders
b) Value gained by people who wanted to buy and sell stocks and were able to do so (instead of not being able to)
Essentially: How much value is liquidity worth?
I'd guess a > b, which means people would (on average) be better off not being able to buy or sell when they want to instead of being able to.
Traders basically = eBay. What I want is Craig's List.
Re:Correct, but also incorrect (Score:2, Interesting)
Correction: The wealthiest 5% of Americans will not permit this, therefore they will spend their money on lobbyists, PR firms, and advertising front groups to bamboozle the remaining 95% that their taxes will be raised by an indefinite amount (which everyone for some reason knows is going to be over 400%).
Consider how the Tea Parties got their initial growth spurt. It wasn't Ron Paul's Campaign for Liberty, it was Rick Santelli's rant on the exchange floor. He was very likely bought by the wealthy to get the populace into the deception. Yet no one called him on it except for Comedy Central's Jon Stewart.