exchanges

The reader has probably already heard enough "horror stories" about the mysterious collapse, what happened in America's stock markets 6 May 2010 of the year. This collapse went down in history for two reasons.. Firstly, drop in the Dow Jones index (990 points) became the most dizzying for all the years of the existence of the exchange. Secondly, the fall of everything continued ... 5 minutes (with 14:42 on 14:47), after which the market, like scalded, played for 90 seconds back 543 index point. Agree, we have not seen such a performance yet!

Outwardly spectacular figure, picked up by the media, - at the point of maximum decline, market capitalization decreased by 1 trillion dollars - does not transfer, Unfortunately, true tragedy of the situation. Disaster only comes alive in detail: in 14 hours 47 minutes securities approx. 200 companies have completely lost their value! In the truest sense of the word: their current quotes were in the range from 1 to 3 Cents! Low-cap companies hit particularly hard.

Characteristically, that immediately before the collapse, three quarters of the trading fell on "short" sales. Respectively, at the peak of the fall, there was a massive closing of "short" positions (because of which, actually, the market and played back up at lightning speed). As a result, unknown characters grabbed billions of dollars. Since an exchange is by definition a zero-sum game, then billions, earned by some exchange participants, mean the same money, lost by others.

Investigation, conducted by the Securities and Exchange Commission (SEC), Showed, what's in between 14:44 And 14:55 took place 11 510 deals for the sale of shares at prices, more than 10% different from that, what was recorded a minute earlier. In absolute terms: paper, which in 14:40 cost 212,4 million dollars, during subsequent 20 minutes were sold for 557 thousand 516 Dollars.

After such arithmetic, the talk about the unique opportunities of the era of wild privatization in Russia is no longer impressive. If only because, what performances, played in 2010 year on American stock exchanges, allow you to overcome the distance from nothingness to fabulous wealth in a matter of minutes!

Not surprising, that immediately after the "failure of the exchange" (this is the official name of the performance from 6 May) the general public had an irresistible desire to look at the mysterious lucky ones at least out of the corner of their eye, for whom the market collapse turned into a golden rain. If only because, that the general public itself did not fit the role of such lucky ones by definition.

By the will of fate 6 May yours truly spent all day in the American stock market, besides with active open positions. All of these positions were short (WFC put options), therefore, theoretically, it was not possible to talk about losses, but about profit. Alas, Wells Fargo's dizzying collapse didn't make me richer: my broker's terminal - by the way, eminent and authoritative Charles Schwab - for 15 minutes was simply unavailable. In the truest sense of the word: the server was lying! That is, it was impossible to close, nor open positions. All that remained was to observe, like put options throughout 10 minutes showed unrealized profits in 600%, and then rolled back as if nothing had happened.

Considering, what does Schwab have 7,7 million customers (with assets in 1,42 trillion dollars!), one can only guess about the scope of the project, so gracefully slipped past ordinary investors. I am far from thought, that all Charles Schwab customers had difficulty accessing the POS, similar to mine. However, the general vector is beyond doubt: about the most serious server failures, processing exchange orders, in a period of 14 to 15 hours 6 May such colossus were officially announced, как Citadel Investment Group и Knight Capital Group, providing routing to the largest discount brokers E * Trade and TD Ameritrade.

Shortly speaking, interest in the "winners" flared up serious. A distracting maneuver, who did not fail to follow in hot pursuit from Capitol Hill (“Catch hackers and terrorists!»), No one, Certainly, did not believe. Therefore, politicians had to appoint a special commission of inquiry and summon Mary Shapiro to Congress., head of the SEC, and Gary Gensler, Head of the Commission on Futures Trading (CFTC, Commodity Futures Trading Comission).

Mary Shapiro, long-established reputation as a gentle and compassionate woman, once again justified the hopes placed on her: “We are convinced, that market disruption 6 May aggravated by erratic rules and regulations, which are guided by various trading platforms ". The way out is also on the surface: “All exchanges must agree as soon as possible to the installation of unified automatic breakers. (circuit breakers), which would be turned on as needed at the same time ".

All this, certainly, beautiful and wonderful. For those, who didn't understand, I'll explain: there is no one to blame! The collapse happened spontaneously due to the imperfection of the system. Rightly believing, that no one will believe it anyway, Mary Shapiro added: “If we manage to track stock exchange activity, violating securities trading rules, we will take the necessary measures ".

Is it necessary to say, that nothing could be tracked? Gary Gensler hinted at a lone trader at a congressional hearing, whose deals at the peak of the collapse were 9 percent of all exchange activity for the hottest futures (!!!), but immediately reassured the congressmen: check showed, that there was no crime in the actions of the trader! It's clear: venerable Waddell mutual fund & Reed panicked hedged clients' accounts with e-mini S futures&P. By the way, unsuccessful.

Subsequent attempts by the SEC to get to the bottom of the true cause of the short-term collapse were no less fruitless. 6 May. First, what came to everyone's mind: lay the blame on Greece, which, with its irrepressible street riots, seemed to demonstrate to the whole world: “We are not going to repay debts and loans!"But the" Greek factor "has been hovering like a sword of Damocles over the world stock market for more than a week, therefore, it was impossible to write off the dizzying collapse on him out of the blue.

Version number two: the two most organized exchanges are the New York Stock Exchange (NYSE) and the e-Nasdaq - immediately slowed trading on all hot stocks, as soon as there was a feeling of panic. As a result, there was a redistribution of the traffic of market orders to other sites. (them in America 50), where trading continued. As regional exchanges lacked liquidity, quotes collapsed, but after the return of the NYSE and Nasdaq to life, they quickly recovered. It is this version - probably, due to its harmlessness, lack of extreme and collectively distributed (without)responsibility - especially liked by the SEC and was taken as the basis for the report to Congress.

The problem is still, that at the very peak of the fall, that is, at the moment, when, under SEC versions, the market lacked liquidity, the lion's share of "short" positions was closed (and accordingly - the fabulous enrichment of unknown comrades). That is, it comes out, that on the main floors "short" positions were opened, but were already closed on marginal electronic exchanges. Do not know, how do you, but it all seems to me in the form of an elegantly planned action of gargantuan proportions.

Why planned? Because not a single participant in their right mind will open a huge number of "short" contracts without reinforced concrete confidence in the subsequent fall of the market! Such confidence in our unpredictable world is permissible only in one case.: when the "short" sellers themselves, this fall and provide. Can, certainly, philosophize about reckless stock speculators, ready to recklessly risk their entire fortune, only any speculation always has clearly defined boundaries. First of all, in terms of funds, allocated for speculation. So here: these volumes cannot be compared with that colossal array of capital, which collapsed for 5 minutes the whole market for a historically unprecedented 990 index points.

Version number three: some inexperienced trader on the Citigroup trading floor decided to sell Procter shares & Gamble and mistakenly typed 16V instead of 16M on the keyboard. For this reason, an order for the sale came to the exchange. 16 billion (not millions) Warren Buffett's venerable pet, and it was this deal that triggered the collapse chain reaction.

Expressive version, but also not viable. Firstly, a hypothetical Citigroup trader, in principle, could not have permission to make transactions of this volume; hence, his order would have been canceled long before, how to get to the exchange. Secondly, average daily trading volumes of Procter & Gamble do not exceed 12 millions of shares, and this is clearly not the right figure, which can shake the imagination of the entire market.

Howbeit, but Procter shares & Gamble fell on 37%: "We do not know, what caused this fall, - the press secretary of the company Jennifer Chelun helplessly throws up her hands, - we only know, that there was some kind of electronic transaction, which we are now trying to track together with Nasdaq and other electronic exchanges ". Looking ahead, I will make a guess, what procter & Gamble is just a victim of a long line of companies, whose shares were used to cheat the uninitiated public.

Think, The SEC would continue to put forward versions - one crazier than the other - ad infinitum, if not for one circumstance, pushing comedy beyond the bounds of decency. The fact, what is the name of the potential culprit of the gesheft 6 May was Openel's secret from the very beginning. I'll say more: the culprit was known by sight, at least, over the past year, however all this time and politics, and the semi-official biased press stubbornly pretended, that they do not see the "hero" at close range.

High Frequency Trading Formal Link (HFT, High Frequency Trading) the collapse took place by mid-May. 16 The New York Times published a nice little ad, or a protective clause («Speedy New Traders Make Waves Far From Wall Street») about that, how in different cities and towns of America young people aged from 20 to 40 years, dressed in t-shirts, jeans and baseball caps, and trade almost from their own bedrooms on the stock exchange, using clever scientific algorithms.

They trade quickly, quickly and often, often. (hence the name), because they have at their disposal ultra-modern and very expensive computers. They trade successfully - let's say, Kansas City-based Tradebot hasn't had a single day at a loss in the past four years (!) - and for the common people to enjoy, as hundreds of thousands of their transactions provide unique liquidity in the market.

How did high frequency trading prove itself? 6 May 2010 of the year? According to the New York Times journalist Julia Cresswell, tweeters, desperate to analyze the market scientifically at some point, took yes and turned off their supercomputers. well, and since HFT, according to various estimates, provides today from 40 to 70% all exchange activity, a liquid vacuum has formed on trading floors, which led to the collapse. "On midday 6 May, when the stock market began to plunge into a lightning crash, somebody (at Tradeworx - S.G.) went to the computer and typed HF STOP on the keyboard: sell everything and disconnect. All over the country, Tradeworx colleagues did the same.. In the next instant, some of the most influential players in the market today - high-frequency traders - plunged into darkness.. That, what followed, made the entire financial world shudder ".

Julia Cresswell writes beautifully, you will not say anything. When I read these passages, always wondering: “The journalist deliberately goes for a hoax, or out of naive ignorance? And if deliberately, then - from what motives: kind or not too?»

In the case of the New York Times journalist, the speech, I suppose, it is still about an "editorial assignment", and not about malice, it is not clear otherwise, how to explain the closing phrase of the post: "Now, when the dust cleared, is he (Manoj Narang - Founder of Tradeworx - S.G.) not so sure of my actions anymore. Some familiar HFT companies stayed on the market all day, and this day became for them the most profitable of the year, - complained Mr. Narang ".

Well,, we assume, that Julia Cresswell kept face, opening the veil over the real state of affairs. And these things are, what 100-200 of the provincial firms mentioned in the article HFT - a small fish, which does not shine, let alone 40, but even 5% daily stock exchange turnover of America. The main players in high-frequency trading in the country are Goldman Sachs, Morgan Stanley and a dozen other largest banks. And it is these banks that provide the very same 40-70% of the daily exchange turnover.

I guess, it's time to explain to the reader the essence of high-frequency trading, and also lead him to understand the algorithms, which caused 6 May, a lightning-fast collapse and the subsequent no less lightning-fast recovery of the market. I will not dare to give one hundred percent guarantee, that events developed exactly according to this scenario, Nevertheless, its probability seems to me an order of magnitude higher than all, officially announced.

Let's start with the main: high frequency trading has nothing to do with traditional trading, and even more so to some kind of "scientific", not the slightest relation. HFT is a technological form of insider trading, creating a criminal advantage for some market participants over others. High frequency trading has been in the markets for years, but the general public learned about him less than a year ago.

The basis of HFT is the so-called flash orders, high-speed exchange orders, the meaning of which is as follows. For a certain fee, the exchanges provide "selected" clients with the opportunity to see the applications of bidders arriving at the common terminal before all others. The gap is usually 30 Milliseconds. For super powerful computers, which high frequency traders are equipped with, this time is more than enough, to analyze bids and place your own - proactive. Their effectiveness will directly depend on the applications., which will enter the market the next moment.

HFT told the world about the "scientific nature" 24 July 2009 years Karl Denninger, Market Ticker blog host. Here is his story with minor comments., facilitate the perception of terminology.

Suppose, a large pension fund - one of the most beloved cash cows of professional traders - places a purchase order on the exchange 100 thousand shares of Broadcom at a limit price 26,40 dollar. "Limit" order means, that the buyer will be satisfied with any price below 26,40. At this moment, the current quote on the exchange is 26,10 per share, What's on 30 cents below the buyer's bid.

HFT Trader's Computer (it is the computer, not a trader, who is simply not physically able to do all the many operations at the required speed) learns thanks to the flash orders system on 30 milliseconds earlier than other market participants on the receipt of an application for the purchase of Broadcom shares. And then he starts to place his own small orders (on 100 Shares) type "IOC" (Immediate Or Cancel - “execute immediately or cancel”) to sell Broadcom shares at a price 26,20. If the market swallows the order, the computer immediately places the next order - already at the price 26,25, then - 26,30, Then 26,35, Then 26,40.

When trying to sell at a price 26,45 the market does not satisfy the application, since there is no answer to her (we remember, that the maximum order at this moment for the purchase of shares is 26,40 from the pension fund), and immediately cancels it (in accordance with the IOC condition). Since the HFT trader has formally fulfilled all the requirements of the exchange for a smooth increase in quotes, he can safely proceed to his plan: post an order to sell Broadcom shares at a price 26,39 - slightly lower 26,40 - limit application of the pension fund!

As a result, the application of the pension fund for the purchase 100 thousand Broadcom shares will be satisfied at a formally fair price (26,39), although in fact the pension fund was divorced, like the last sucker. Because in a few moments, Broadcom stock will fall to, corresponding to real supply and demand (26,10, maybe, slightly higher - 26,20). Then the HFT trader will buy back at the current Broadcom share price, which previously sold for 26,39, and make a big jackpot. Guaranteed. Out of the air. Of course, strictly "scientific"!

And this is the kind of crime that the entire elite of the financial world of America is involved in.. Do you think, where does the fabulous profit come from, which the largest banks of the country are reporting today? Almost all of this profit is derived from exchange transactions.. Nothing surprising, if you remember the achievements of HFT trader Tradebot, who in four years has not had a single unprofitable day!

Senator Charles Schumer appealed to the SEC with a demand to ban the flash orders system last summer. In September 2009, the SEC proposed to spell out a ban in financial reform documents., promoted by the Obama administration. Politicians nodded in unison, however, nothing was added anywhere. Only after the crisis 6 in May, the topic of flash orders again flashed on the pages of the press. Truth, somehow sluggish and unconvincing (remember the article by Julia Cresswell).

Returning to events 6 May, I'd venture a guess, that the whole performance, played between 14 And 15 for hours, consisted of algorithms, approved by HFT traders for a long time (Really, on a smaller scale). First, the sale of a colossal number of shares "short", then shutting down computers to create a liquidity vacuum, lightning-fast return to the market and closing of short positions at the very peak of the fall with the simultaneous opening of long positions for their subsequent liquidation on a purely technical winning back.

Given the phenomenal amplitude of the artificially induced double market swing (down first, then up) it can be assumed, what 6 May managed to earn tens of billions of dollars. Maybe, hundreds. In a few minutes. Sleight of hand alone, supercomputers and… warm feelings, fed by America's financial system to its own elite.