Oct

4

It would be interesting to know which broker and clearing house accepted an order to sell 75,000 emini sp in apparently some sort of staged (GMTFO) market order that lead to the 5/6 event. 10% slippage I guess was acceptable, and had it been in just one stock no one would have noticed, but to move a whole market is different. The order only represented 3% of the daily volume. I wonder had it been placed closer to the more liquid open would it have had the same affect. Or did someone come back from lunch, see the market down 1% or so on a $10b fund, and have a change or heart. I don't think the HFT boys made on this, many smaller players margined out at the lows, brokers made their commission, customer filled his order, but hard to find much of a conspiracy other than a sloppy trade and a sloppy execution.

Vince Fulco writes:

The official line was it was a staged order supposed to make prints along with ~9% of the volume. Either we have extremely sophisticated HFT sniffers in our midst in ES or someone has a fat mouth. Once WR's actions were known, it was just a matter of other parties getting ahead thereby turning it into a 1987 portfolio insurance like scenario, the lower it goes the faster WR needed to sell. 


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3 Comments so far

  1. The Refined Savage on October 4, 2010 11:47 am

    I have a slightly different take on it. There is not much front running of flow these days on the Street. Commissions are too low and buyside traders too sophisticated (not saying there’s not insider trading). In fact, I’ll guarantee that if people knew the identity and size of the seller, it would have helped the situation. After all, it looked like a much larger seller with special information. not a vanilla portfolio hedger.

    The 1987 portfolio insurance hedgers were gamma based, who had to sell as it went down. The flash crash sellers (buyers of the fund’s futures contracts and others)were selling into a void as liquidity providers were no longer meaningful participants in the market. The price discovery process was also extremely difficult as high frequency models dictated selling or stepping to the sidelines, based off their assessment of technicals and risk/reward. Not until human, old school managers who knew the companies’ fundamentals stepped in was the market finally able to restore some rationality after the dust had settled.

    While most of us had problems with the NYSE’s specialist system, in this case, the alternative did much worse, in my opinion.

  2. Nick Sont on October 4, 2010 4:36 pm

    I believe that the 1987 portfolio insurance were delta neutral and not gamma hedged. In fact, they were gamma short but delta neutral. Once gamma exploded then the wheels fell off, because there was not enough delta hedging in the world to hold the gamma move.

  3. Craig Bowles on October 5, 2010 7:09 am

    WDR: 35,000 contracts were sold on the way down; 40,000 were sold on the rebound

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