Nanex LLC, now known for having coined the term “quote stuffing” – the split-second, dumping of computerized buy or sell orders, which are then instantly canceled – has taken a deeper dive into the crucial fractions-of-a-second moments when the market came unglued.
blogs.wsj.com
According to Nanex’s analysis, at 2:42, 43 seconds and 600 milliseconds, something unusual happened: there was a massive surge of orders that were, for the most part, immediately cancelled. (the first leg up in the chart)
What’s key about this surge of quotes is that they hit what Mr. Hunsader refers to as the “saturation point” - essentially the upper band of what that exchange computer systems can likely handle before getting clogged up.
Then, just 400 milliseconds later, there’s another wave of selling, this time, with sellers hitting existing bids in the marketplace. (That’s the second leg up in the chart)
At 14:42:44:075 some $125 million worth of June 2010 CME eMini futures contracts were sold followed 25 milliseconds later by the immediate sale of over $100 Million of exchange traded funds, including the SPDR S&P 500, SPDR Dow Jones Industrial Average, the PowerShares QQQ
At that point, Mr. Hunsader says, the NYSE stock exchange’s computer feed bogged down.
“This caused delays in the systems which caused liquidity providing firms to pull out. So you lost liquidity and it caused confusion,” Mr. Hunsader says.
The other interesting thing, Mr. Hunsader says, is that this pattern is very similar to what happened just two weeks earlier on April 28th. “It’s eerily similar,” he says.
Back on April 28th, the E-mini dropped about 5 ¼ points in one second, which Mr. Hunsader says is the equivalent of about 50 points on the Dow.
“That doesn’t sound like much but it all occurred within about one second,” Mr. Hunsadar says. “It’s a very similar pattern (to May 6th) where we saw the quotes to the saturation point, followed by a small number of trades and half a second later there’s a significant amount of trading.”
And that, Mr. Hunsader says, presents one of the biggest mysteries surrounding the Flash Crash – was it the same person, persons (or robots) that caused all three bursts?
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nanex.net
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