Imagine, if you will, that a “human” trader enters a “B” for billion instead of an “M” for million … and computers begin to sell off one of the primary stocks on the DOW on what is already an ugly day of selling. Other computers pick up the selling as stops are triggered … igniting a frenzy of sales. By the time it’s over the DOW has plunged like the Red Barron on his last outing… all because of a “B”:
In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points before paring those losses—all apparently due to a trader error.
According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble [PG 60.75 -1.41 (-2.27%) ], a component in the Dow. (CNBC’s Jim Cramer noted suspicious price movement in P&G stock on air during the height of the market selloff. Watch.)
Sources tell CNBC the erroneous trade may have been made at Citigroup.
… on a cautionary note, the story is not yet confirmed … maybe it was simply a black box sell off … a wonderful cascade of digital destruction as machines, not humans, wreaked havoc.
Trader error maybe, odd though, enough of the bond guys are lamenting that prop desks are seeing a drying up of funds for the carry trade.
Personally I was trying to go long the 10 yr bond took one look at the VIX screeming higher and dedcided to wait.
If this is trader error then it tempers panic especially from the buy side (retail).
Jeff Cosford: Pretty strange day; I have a Call on an Inverse Rus 2000 ETF which hardly moved today considering the sell off … WTF? I like Cramer’s comment today … just Hedge Funds Playing … or something to that effect.
Of course “Black Monday” 1987 was blamed on digital trading as well…but they ‘fixed’ that didn’t they?
It would be hard to imagine that Proctor & Gamble sales of Head ‘n Shoulders shampoo contracted 33% in the last quarter.
Must be a case of ‘financial dandruff’ soiling the business suits.
Cheers
Hans-Christian Georg Rupprecht, Commander in Chief
1st Saint Nicolaas Army
Army Group “True North”
That Trader will likely be fired.
Seems he’s perfectly qualified for Climate Scientology.
Maybe he apply at Penn State.
cjunk huh, I trade the russel futures contract it was certainly moving as a matter of fact it’s the lead dog as the russel goes so goes everything else.
Your ETF problem maybe that it is a proxy of the index and although I haven’t looked it up prob has treasuries in the mix. Possibly credit notes so it is not a one to one correlation with the index by any means.
Jeff: Possibly. I’ve noticed it do some strange things. The underlying stock rose like a rocket today, but not the associated option.
ps: Today, when the big error and 1000 point plunge took place, the contract price actuall fell … like I said … WTF?
Not to worry just yet. This was a test run. The bigger question is who made money today, in spite of all the weird goings on.
Not an informed trader but I question whether or not P&G have that many outstanding publically held shares available for trade.
Methinks somebody made a sh*tload of money today, in a matter of seconds.
Sniff…sniff..
Syncro
cjunk can u post the symbol for what it is your trading.
Cyber Dyne Corp out to take over the World again.
Just type T for terminator.
Clearly a case of human error, Kate.
Kate?
Kate?
What are you doing with that power bar, Kate?
my HXD(T) goes up when the market goes down.
i made a little money today, but still holding so …
Theres a investment bank in New York their alumni hold positions of power world wide why wouldnt you think they and their counterparts are laughing all the way to the bank.Maybe ET can make a quote from the economics text and quell our panic and surprise.
Jeff: go to my blog: cjunk.blogspot, and email me in my contanct info.
mikeg: no panic on my part; this sell off was very long over-due. I’d almost bet (but not quite) that by mid/end of June we’ll be making higher highs … but after that ?????
IB has received notice from each of the NASDAQ, NYSE, ARCA, BATS, Direct Edge, ISE and National Stock exchange of their intent to cancel all trades executed between 14:40 and 15:00 which were exectuted at a price greater or less than 60% awaay from the Consolidated last print in that security at 14:40 or prior. Each has also provided notification that this decision cannot be appealed.
At this point we are awaiting information from these exchanges, as well as any other exchanges which may later provide notice of similar decision, as to which stock are affected and break points at which cancellations will take place.
IT’S A DO OVER!!!!
Nicholas Taleb and Benoit Mandelbrot have done some work on the matter of the time constant, or network delay, involved in large-scale systems like this. As I understand it, a good argument can be made to the effect that we would be better off introducing a deliberate time constant into networked systems of transactions like this, in order to allow the network a chance to stabilize under dynamic conditions. Physical analogies are things like the RLC time constant in electrical networks (ringing? add a capacitor 😉 the fill time in fluid networks, and simply the human-scale time it would normally take to execute large-scale transactions without the advent of nearly instantaneously updated global networks. If I was a young graduate student in systems engineering or computing science today, I would seriously consider the possibility addressing some of these questions as a potential thesis topic.
Serious question: does anyone here know if the software used by traders even supports the use of “m” and “b” for million and billion respectively?
I suspect that the “fat finger” excuse will be proven wrong.
Of course you would Vit.
Syncro
The Sons of Martha, Syncrodox.
Interesting point Vitruvius. Obviously an underdamped system would be favored by those who happened to make the right buys/sales during the large oscillations that would occur in such a system. Has this been modelled? How does one tell if one has a critically damped system which I would suspect would be the best rather than an overdamped system?
Something to ponder this evening.
The fat finger, or mistake was only one event today. The market was down before it happened, and with the turmoil in europe, anything would have triggered a collapse.
Derek
I’m curious loki how would you begin to a system like a stock market assuming what you propose is essentially a flattening of the curve.
I think, Loki, that we’re going to find that classical control theory simply can’t hold a candle to this matter. This whole computing per se field is only between 80 and 50 years old (peanuts on a classical scale), and it’s taken off in a completely new way in the last 20 years. I think that’s why Mandlebrot shows up here, and if memory serves Wolfram mumbles about it in his latest TED talk: this is a new kind of global computational dynamic, and we don’t really know exactly what’s going on here, yet, and how to manage it. Of course, as an inveterate optimist, I imagine we will indeed eventually work the details and systems out, yet I think it remains interesting to consider what and where the bumps in the road will be found to be.
Vit I’m having a hard time trying to figure what it is your trying to say.
Are you talking about the wisdom of having High frequency trading and flash orders, or say the interconnectedness of say the worlds banks where where they are so connected that problems in short term lending because of the belief that the counter party may or may not be solvent can lead to the system freezing.
Vitruvius: What do you think of the fact that up to 70% of all trades on the NYSE are done by a handful of hedge funds which do black box trading using complex programs to time buys and sells and move money back and forth between markets. That means that the vast majority of trades are done by computers … the funds even get a split second lead time on data by paying the NYSE a fee to set up on site and get the feeds first. The NYSE says that the arrangement keeps liquidity high and costs per trade for retail investors and traders at a minimum.
Vit
please splain.
Syncro
It’s just a good thing he didn’t accidently push the “T” for trillion key.
Might have melted down the whole rang-dang-doo.
——————–
Remember a few years ago, someone was sending up a command to a satellite of some kind and pressed a wrong key? I think it basically disabled that bird.
On a computer I worked on years ago the command line command “DP” would print the contents of a file, while the command “DL” would delete that file. I remember a co-worker cursing after hitting the wrong key on something he was working. (and no undelete either)
Yeah, I know that CJunk, that’s what I’m talking about. There are, as I understand it, good arguments to be made that we are currently operating a structurally unstable system. So, what engineering changes do we make to the system in order to mitigate the instability and stabilize the structure.
And please do note: I’m not talking about adding some layer of control theory to “the market”. I’m a fan of the free market. Yet it is not clear to me that the current incarnation of our systems tools is adequate in terms of actually producing the results we want from them.
One can’t even begin to control the rudder if the tiller’s not connected.
No trading platform allows the use of common english, in place of numerics, for electronic trading. None. And the CME has said nothing untoward occurred in the e-minis (electronically traded mini (1/5) S & P 500 stock futures contract).
The list of “corrections” from the NASDAQ has some unique overlapping data points: mutual funds and ETF’s holding the same individual stocks, as a multiplier).
This was no error, and I have made very expensive mistakes on the Globex trading platform. (In the pits too, but I won’t go into that.)
Tomorrow is going to be “interesting”.
It’s all a shell game. The SM has been rigged one way or another since it’s inception. I wonder how much the trader with the poor keyboarding skills was paid to make that little mistake? I am such a skeptic these days – there is no such thing as truth or integrity anywhere; certainly, not in the government, media, education, medical, or science fields – how much more so in the financial fields.
P&G has been getting some very bad publicity via social networks due to the new diaper they put out to replace one of their rea1ly popular brands. Apparently they cause some serious rashes.
http://www.walletpop.com/blog/2010/04/23/pampers-dry-max-causing-rashes-and-burns-parents-allege/
http://www.facebook.com/topic.php?uid=89121585311&topic=13293&start=0&hash=cb86039ff63ff57d6c42149916b21564
I came to the same conclusion. I don’t believe that there was any fat finger problem. And that leads into the HFC trading issue. The main argument against, being, that on a panic up or panic down all the bids or offers would simply disappear.
I have all five major markets up and was going to execute my own trade on the 10yr at about the time of the breakout. Those markets sold off rapidly but appeared to be in unison with the DX or dollar lagging somewhat but the 10yr and the S&P could have been a mirror.
The markets have gotten to the point where the computer magicians are so smart only the computer can figure it out. Traders know the market and the system guys know the math and the twain just doesn’t meet.
I’m sure this will all get figured out but it won’t be cheap.
The rudder and the tiller have been disconnected for some time.
Syncro
Was a correction made – anymore news as to the cause for the massive sale of P&G stock?
It appears P&G is in worse trouble than first thought with this diaper fiasco. Parents are demanding a recall and stating that they have a worse problem on their hands than Toyota.
Rumours? state that law suits have been filed and numerous babies are getting MRSA as a result of bleeding chemical burns – ER’s have confirmed chemical burns on these babies from the product-some sort of additive that makes the product very thin. Pampers/Luvs are one of P&G’s bread and butter products. They foolishly changed the whole line and the old product is no longer manufactured or available. I’m glad I have not had to worry about diapers for a very very long time.
http://www.theepochtimes.com/n2/content/view/34904/
they always said Proctor and Gamble was the devil stock or owned by the Moonies.
Diapargate?
Syncro
How much did Goldman S’s make as they are presumed to be “front running’ all trading on the NYSE? Don’t forget they are doing “God’s work”.
Just heard that China, Korea and Hong Kong Markets down.
Well this will give Barry O another, surprsingly timely, reason to clean up Wall Street. This escapade with P&G share trading a convenient excuse/patsy along with the happenings in Greece.
Revnant Dream: Good call – ABC had a qucik sound bite on Nightline with, who I assume was, a trader that said “terminator” – exactly what you posted.
The ‘m’ key is not next to the ‘b’ key, even on a Dvorak.
“The fingers you have used to dial are too fat, to obtain a special dialing wand please mash the keypad with your palm now.” – The Simpsons
I don’t get it. It is all computerized and all it takes is a “if trade-qty > 10,000,000 then scream for confirmation 10 times” (or some such number)in a few spots to keep it from happening. There are after all thousands or millions of people trading at any moment, that is 10 thousands or 10 millions of fat fingers.
Or maybe I’m just a naive programmer.
son of a B…..
Ctrl, Alt, Delete
gordinkneehill:
Most Wall St. guys use “M” for a 1,000, and “MM” for a million (which drives us engineering types nuts, of course). But only some of the biggest firms (IBM, etc.) have a billion shares outstanding, and there just isn’t that much of a float available.
Fat fingers smell like BS to me.
Oh, Vitruvius? Any chance that our resident internet J can spin “Trader” by the Beach Boys in honour of this fiasco?
This reminds me of when the Liberals set up the gun registry. Someone there hit the “B” key instead of the “M” key too.