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Full Discussion: No evil algo-trader behind the flash crash
Special Forums News, Links, Events and Announcements Complex Event Processing RSS News No evil algo-trader behind the flash crash Post 302459281 by Linux Bot on Monday 4th of October 2010 09:15:02 AM
Old 10-04-2010
No evil algo-trader behind the flash crash
Giles Nelson
10-04-2010 08:28 AM
The long anticipated joint SEC and CTFC report on the 6 May 2010 flash-crash came out last Friday.

After reading much of the report and commentary around it, I'm feeling rather underwhelmed.

The root cause of the flash-crash, the most talked about event in the markets this year, was a boring old "percentage-by-volume" execution algorithm used by a mutual fund to sell stock market index futures. How banal.

The algorithm itself was simple. It just took into account volume, not price, and it didn't time orders into the market. Many commentators have pejoratively described this algorithm as "dumb". It may be simple, but it's one of the most common ways that orders are worked - buy or sell a certain amount of an instrument as quickly as possible but only take a certain percentage of the volume available so the market isn't impacted too much. The problem was the scale. It was the third largest intra-day order in the E-mini future in the previous 12 months - worth $4.1Bn. The two previous big orders were worked taking into account price and time and executed over 5 hours. The flash-crash order took only 20 minutes to execute 75,000 lots.

It wasn't this order on its own of course. Fear in the markets created by the risk of Greece defaulting was already causing volatility. Stub quotes (extreme value quotes put in by market makers to fulfill their market making responsibilities) appear to have contributed. There was the inter-linking between the futures market and equity markets. There was the very rapid throwing around of orders - described as the "hot potato" effect, certainly exacerbated by the many high-frequency traders in the market. There was the lack of coordinated circuit breakers in the many US equity markets. There was the lack of any real-time monitoring of markets to help regulators identify issues quickly.

High-frequency and algorithmic trading have been vilified in many quarters over the last months. I think many were expecting that the flash-crash cause would be a malignant algo, designed by geeks working in a predatory and irresponsible hedge fund, wanting to speculate and make profits from "mom and pop" pension funds. It just wasn't anything of the kind.

The flash crash has raised important issues about the structure of multi-exchange markets, the role of market makers, the lack of real-time surveillance and how a simple execution strategy could precipitate such events. I do hope that the findings in the flash-crash report will ensure a more balanced view on the role of high-frequency and algo trading in the future.



Source...
 

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LEARN ABOUT SUNOS

curs_beep

curs_beep(3CURSES)					     Curses Library Functions						curs_beep(3CURSES)

NAME

       curs_beep, beep, flash - curses bell and screen flash routines

SYNOPSIS

       cc [ flag ... ] file ... -lcurses [ library ... ]
       #include <curses.h>

       int beep(void);

       int flash(void);

DESCRIPTION

       The  beep() and flash() routines are used to signal the terminal user. The routine beep() sounds the audible alarm on the terminal, if pos-
       sible; if that is not possible, it flashes the screen (visible bell), if that is possible. The routine flash() flashes the screen,  and	if
       that  is not possible, sounds the audible signal. If neither signal is possible, nothing happens. Nearly all terminals have an audible sig-
       nal (bell or beep), but only some can flash the screen.

RETURN VALUES

       These routines always return OK.

ATTRIBUTES

       See attributes(5) for descriptions of the following attributes:

       +-----------------------------+-----------------------------+
       |      ATTRIBUTE TYPE	     |	    ATTRIBUTE VALUE	   |
       +-----------------------------+-----------------------------+
       |MT-Level		     |Unsafe			   |
       +-----------------------------+-----------------------------+

SEE ALSO

       curses(3CURSES), attributes(5)

NOTES

       The header <curses.h> automatically includes the headers  <stdio.h> and <unctrl.h>.

SunOS 5.10							    31 Dec 1996 						curs_beep(3CURSES)
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