Here's a pretty good reply in that article's comment section.
The Waddell & Reed trades are not the entire story, not by a long shot. Putting in a sell order for 75,000 e-minis would not in itself cause any problems.
The key piece of missing data about the W&R trades is what they were priced at. If they were market orders, then they were either erroneous or W&R would have known that they would have been disruptive. The only way W&R would have sold off that many contracts as market orders is accidentally, if they were taking a huge position on the future direction of the market, or if they needed to liquidate the contracts to use the cash for another reason. Any it’s nearly impossible that they intended to offer that many contracts as market orders. More than likely they intended to spread out the trades over time but put in the order incorrectly.
In any event, one market participant putting in sell orders does not by itself create any problem. The problem is when the other market participants are automated programs that only see numbers and don’t see the big picture. If the decline had been just in the S&P futures, it could be conceivable that all of the decline had been because of the W&R contracts that were being fire-sold. But because the decline also occurred in the S&P, PG, AAPL, etc., that shows a real problem with the automated trading programs. Specifically, they were looking at the direction of the S&P futures without doing book analysis. Any program trading then that DID do book analysis and saw that the decline was due to a single large block of market sell orders that entered at the same time would have made a killing buying them up.
I’ve always thought that automated trading programs would be banned entirely or limited in volume by 2020. It looks like we’re well on the path to that happening sooner, which will be critical to keeping the markets useful at all. Sooner or later Washington and American will realize that the markets are currently just playgrounds for quants, and are not serving the purpose they are intended for. |
