Just when you thought it couldn't get any weirder out there...
The DOW dropped almost 10% in 7 minutes. Some stocks even went to zero. For a while they were trying to blame a "fat finger event" in which someone typed "billion" rather than million into a sell order. Another theory is that high-speed trading got out of control -- the rise of the machines scenario. Positive feedback, anyone?
This bit from Tech-Ticker Trader Goes Bonkers is priceless.
I can picture it clearly. A Goldman executive in immaculate pinstripes saying, "This is the new HAL 9000. It's going to do all our trading for us based on precise mathematical models at millisecond speeds. What could possibly go wrong?" Later, the same executive, pleading with the computer, "Stop! Stop! The market's plunging!" HAL 9000 calmly says, "I'm sorry, Lloyd, I'm afraid I can't do that." And, then becoming frantic and agitated, "Tell Ben Bernanke to kiss my silicon ass! Fuck your pod bay doors!! Suck my Extended Binary Coded Decimal Interchange Code! Your shit's going to ZERO, BITCHES!!!!"
Of course, the conspiracy theorists are going wild. But, if you did manage to snap up a chunk of blue chip at a penny a share, don't look now. They're canceling orders deemed by the exchanges to be "clearly erroneous". Fuckers.
Update 5/13/2011: Donald MacKenzie writes in the London Review of Books in How to make money in microseconds: (edited)
The bulk of the research also suggests that automated trading makes the buying and selling of shares cheaper and usually easier. What needs weighing against this, however, are the implications of one strange and disturbing episode that lasted a mere 20 minutes on the afternoon of 6 May 2010, beginning around 2.40 p.m. The prices of US shares fell by about 6 per cent in around five minutes, a fall of almost unprecedented rapidity, then recovered almost as quickly. Shares in the global consultancy Accenture dropped to a single cent. Sotheby’s suddenly jumped to $99,999.99.
With the rise of electronic trading, the stock market (especially in the US) has become a tightly coupled complex system. Systems that are both tightly coupled and highly complex, organisational sociologist Charles Perrow argues in Normal Accidents (1984), are inherently dangerous.
The rest of the article is a fascinating look at programmed trading, concluding that the "flash crash" was indeed a case of computers run amok.
Update February, 2012
Looking at millisecond scale market data, researchers found 18,520 sub-950-millisecond crashes and spikes. According to a Wired article about the study, Nanosecond Trading Could Make Markets Go Haywire. The research, led by Neil Johnson, a complex systems specialist at the University of Miami, and simulation engineer Brian Tivnan of the University of Vermont, is published under the wonderful title, Financial black swans driven by ultrafast machine ecology. Johnson says:
“There’s this whole world below 650 milliseconds. It’s like landing on another planet,”
“We are certainly witnessing one of the major transitions in the history of financial markets,” said automated trading researcher John Cartlidge of the University of Bristol, who was not involved in new study. “Economic theory has always lagged behind economic reality, but now the speed of technological change is widening that gap at an exponential rate. The scary result of this is that we now live in a world dominated by a global financial market of which we have virtually no sound theoretical understanding.”
No comments:
Post a Comment