Stock Selloff May Have Been Triggered by a Trader Error

cnbc ^ | 05/06/2010 | CNBC.com

[Toddsterpatriot]

These are the people from different trading/brokerage houses putting their orders (on paper) into the pit, not electronic orders.

If the market was suddenly dropping like a rock, I'm putting sells in everywhere, to make sure I get filled. Especially when the computer networks are shutting down.

That's not proof that the trigger wasn't some clown selling billions instead of millions.

[NVDave]

BTW - when I say “there is no market order on ECN’s” - this is changing according to the ECN. Many ECN’s don’t implement a market order the way the NYSE did - eg, with the open outcry “I want to sell this stock now, give me the best price you can, whatever the price is.” Some of the execution s/w at dealers will create a market order by looking at the bid/ask on the ECN (or after-hours market) and turn your market order into a limit order or a series of limit orders according to the orders seen in the order book.

And, if you look at the book on ECN’s, you’ll see orders laying out there on the book at $0.01 to buy a gazillion shares - they’re there all the time on many stocks. I dunno why they’re there; if you see them come up in the book, usually that’s a sign of a very thin order book for a stock. I’ve never, ever seen an order hit them before, but they’re out there to be seen. So that’s why some stocks traded for a penny.

This whole thing comes down to the new-fangled all-electronic exchanges are completely able to implement “GIGO” order execution - garbage conditions in, garbage execution out. With the NYSE “old” system that included people (”specialists”) and so on, there were people in the loop of order execution. These people provided liquidity as well as brains and a gut-check as to what was going on. The problem was (in the opinion of hedge funds and computer-based trading houses) the specialist wanted a little bit of the bid/ask spread for himself - after all, he had to make a profit somewhere.

With the all-electronic exchanges, the automated trade shops got what they wanted - razor-thin spreads, giving up nothing to “middlemen.” They also got brainless blow-ups like this one, and some of the bizarre behavior in 2008.

[NVDave]

The way the bid dropped out is the proof. Even if you put in an order for billions instead of millions (of dollars, not shares), the bid will be there and not drop like a rock. It will decline, to be sure, but the bottom doesn’t drop out.

[Toddsterpatriot]

The way the bid dropped out is the proof.

Proof of what?

Proof that nobody wants to buy when the bottom drops out.

Same thing happened in 1987.

[Fire_on_High]

“Nillion” would at least be the logical typo from either.

[SunkenCiv]

It’s the way of the dismal science. ;’)

[Revel]

This is an old rumor put out by the mind numbing MSM. Check this out for something a little closer to the truth.

Feds trace flash crash to Chicago:

http://www.politico.com/news/stories/0510/36946.html

Of course ZeroHedge and Ticker among others had it figured out yesterday.

[Liz]

The exact circumstances of the trading action are still unclear. The unusual trading action in P&G stock believed to be at the center of Thursday's most volatile moments, thought to have originated from Terra Nova Financial, a Chicago-based provider of prime brokerage and clearing services, a person familiar with the situation said.

Terra Nova has broker-dealer status with both the SEC and the Financial Industry Regulatory Authority (FINRA). One service Terra offers is sponsored direct market access, which it says allows clients to "establish a direct connection between their proprietary platforms and the Nasdaq or NYSE Arca execution systems."

Terra Nova's customers appear to be mostly hedge funds but it also provides clearing services for other broker-dealers and registered investment advisers. Something regulators and the exchanges need to be looking at.

=======================================

REFERENCE The Financial Industry Regulatory Authority is the largest non-governmental regulator of US securities firms. Does FINRA have firms registered as "acting as intermediaries" between Terra and institutional investors to facilitate investments?

One of the services Terra offers is sponsored direct market access, which it says allows clients to "establish a direct connection between their proprietary platforms and the Nasdaq or NYSE Arca execution systems." Ergo, the errant trade -- characterized as a large sell order in P&G --could have come from one of the firm's clients with that type of access.

If licensed financiers facilitated this scam---and ARE NOT registered, that could mean loss of license....or worse.

LET'S ASK FINRA and the SEC:
Financial Industry Regulatory Authority (nongovernment regulator of US securities firms)
CALL (866) 776-0800

SECURITIES/EXCHANGE COMMISSION
EMAIL enforcement@SEC.gov

:====================================

REFERENCE We need to know whether Chicago politicians (COS Rahm Emanuel comes to mind), and financial firms are registered as "intermediaries to facilitate investments." And whether registered firms might share a similar US address.

These financial operatives might also be listed with offshore addresses at infamous money laundering havens including: Lebanon, Liechtenstein, Russia, India, Israel, Panama, the Bahamas, the Cayman Islands, the Cook Islands, Dominica, the Marshall Islands, Nauru, Niue, Panama, the Philippines, St. Kitts and the Grenadines, Cyprus, Gibraltar, Monaco, Antigua, Tortola, BVI.