How can the market go, on a random Thursday afternoon, completely insane? The story which is emerging centers on old, boring Procter & Gamble, as can be seen in the PG chart from this afternoon.
Look at the volume chart: what you see here is a big block of shares trading in P&G at around 2:30, followed by another huge block right before the market crashed. And then, nothing. The two big blocks were probably sell orders, which were big enough to blow through all the bids in the market. As Henry Blodget says, “for a few minutes, buyers just disappeared”.
And what might have caused this strange event?
The WSJ reports that a trader may have accidentally placed an order to sell $16 billion in futures tied to stock indexes, when he meant to place the order for $16 million.
And there were “a number of erroneous trades” during the minutes when the market was plunging, a spokesman for the company that owns the New York Stock Exchange told Bloomberg.
The FT’s Alphaville blog points out that Procter & Gamble shares fell by more than 20 percent — about three times as much as the Dow — before regaining almost all of the ground it lost, and says the decline may have been related to a “technical screw up.” And Barron’s notes that shares in Accenture — which opened and closed the day above $41 per share — traded for one cent per share at one point today.
I smell a seven-figure bonus.
son of dad
Wait, a company OWNS the NYSE? Man, I have no idea how any of this shit works.
superfly
Fixed it.
amorphous
I’m pretty sure the markets are just an elaborate hoax, if not an outright scam. Makes me feel good to be putting money into that 401(k) and trusting my distant future to the Fabulous Fabs and cross-wired HALs of the world.
arguingwithsignposts
Free markets, bitchez!
eta: why do i feel like i’d be safer spinning the wheel on “Price is Right”?
Dave C
@amorphous:
HAL: What are you doing, Dave?
Dave: I’m trying to sell my Goldman Sachs stock, HAL.
HAL: I’m afraid I can’t let you do that, Dave.
J.W. Hamner
It seems like there have got to be some people who made an absolute killing today… Accenture was at a penny and is now back up at near it’s original value of ~$40… and that wasn’t the only one. Definitely smells funny.
MattR
@J.W. Hamner: My uninformed guess is that all the wackiness was driven by computer programs responding to the one bad order. I don’t know that any stocks fluctuated to weird prices for any real length of time. And I am kinda curious if stop loss orders even triggered due to those fluctuations. (I had one open stop loss order, but it triggered at 11 am as the stock continued a weekly slide.)
Warren Terra
I just wonder who it was who managed to buy Accenture at a penny, and what poor schmuck gets told he sold at that value. Or will those trades even stand?
r€nato
Remember, these are the Masters of the Universe for whom we should be eternally grateful. They eat what they kill, they don’t take bathroom breaks, they could do any of our jobs 100 times better than we do, blah blah blah.
Short Bus Bully
An error, eh?
Hmmmm, if I had any real money I might be tempted to get some people together and throw a BUNCH of money around to get the market to do crazy things so I could… oh I don’t know, buy Accenture at a penny a share?
Then I would just call it a “technical glitch”!
Brilliant!
Martin
Let it be lost on nobody that futures are just a form of derivatives. If Wall Street was afraid of the looming regulation of derivatives, that trader has just done for a free and unregulated derivatives market what the Deepwater Horizon has done for drill-baby-drill.
MattR
@Martin: On the other hand, if one were a Manchurian Trader who actually wanted to see the passage of strict regulation of derivatives …
Miss Mouse
These types of errors actually happen pretty frequently, but they usually don’t lead to this sort of free-fall.
A very basic explanation for those not familiar: a lot of orders are routed electronically these days. Imagine someone wants to sell 100 shares of stock at a certain price, and the broker typing in the order accidentally types in 1000. (Imagine yourself typing a comment furiously to get your thought across, and it’s only after you post do you see that your horrible spelling error. It’s the same type of error.) There are procedures in place all over the industry to deal with this type of error because, again, it’s so common, but usually the trade is cancelled or the shares are redistributed so it isn’t a big deal.
There are fancy types of orders called limit orders that you can put in to protect yourself if a stock starts falling. Basically, if you own 100 shares of ABC at $10/share, you can tell your broker that if the price gets to $9/share, you want to sell immediately. That way, if the price starts falling and hits $9, your order is executed there, even thought the stock may continue to fall (down to $8, $7, $6, etc.). There are thousands of limit orders out there, especially in a volatile market.
Today, when the broker entered the wrong number, it caused the price of the stock to fall far more than it should have. This triggered tons of these limit orders to sell which meant that the stock continued to fall in price and more limit orders to sell were filled and the price continued to fall and more limit orders to sell were filled, on and on and on.
Does that mean that the guy who entered the order was innocent? Absolutely not. But it is a pretty common occurrence. He’s definitely a moron though.
mcd410x
Apparently the Accenture penny trades have been cancelled.
Mystical Chick
@MissMouse This. Exactly.
I’ve been in the field 27 years and she’s got it exactly right. All the computer programs are triggered on percentages and when one big thing like that happens, it can cause a huge domino effect (as we see).
I wasn’t watching my market screen but all of a sudden, our phones started ringing off the hook and I was all WHA??? and then I saw it. Unfortunately, this error will cause all kinds of funky stuff to go on (ha! Like it’s not now, I know). Ick. Can I call in sick tomorrow?
BTW, it’s not all BS but so much of it is now done by money managers and mutual funds. I hardly ever see any of our financial advisors do individual trading like that. Most are in asset allocation models where the risk is spread around a bit.
(This is just what I see. I don’t claim to speak for the entire financial services field.)
WereBear
And we let the fate of the world and all the creatures in it dangle from their hands?
Yes, there’s something wrong with us.
Jrod, Slayer of Phoenix
@amorphous: Not only that, but thanks to the interest free cash that the fed has been handing out to banks like candy on Halloween, simple savings accounts are barely earning 1% in you’re lucky. This is less than inflation, for those keeping score.
In other words, if you want to grow a nest-egg, your only real choice right now is in the stock market. Happy savings, schmucks!
New Yorker
@WereBear:
It makes me think of the back story of the “Terminator” series, except instead of launching nuclear war, the computers destroy the global economy.
Silver Owl
I pulled my money out of the crack den wall street. No standards, too many morons with zero business sense and absolutely no desire to survive long term. Group suicide, not my style.
Bill Arnold
A WSJ blog article Mean Street: Crash — The Machines Are in Control Now(Evan Newmark) has some choice words in the last few paragraphs:
(There were three paragraphs there, don’t know how to blockquote them.)
Hard to disagree with that.
jake the snake
I wonder if anyone identified the stock market as a casino before Fred Pohl and C. M. Kornbluth in “Gladiator-at-Law” in 1955. Of course, that was supposed to be a satire.
Maybe this is a case of history repeating itself first as a farce, then as a tragedy,
Bill Arnold
I had an account which appeared to pay 1/100 of 1% interest last year.
Corner Stone
@mcd410x:
Can you imagine? Some sharp as nails home trader who follows like 3 dozen stocks day in and day out. Makes the trade of his/her life and gets it canceled.
Not saying they should hold up – just pondering the agony of that person as they do everything they are supposed to do and get their dream crushed.
Personally – if they’re going to allow blackbox trades, then they should allow all blackbox trades as valid.
Andrew
“I smell a seven-figure bonus.”
Hahahahahaha it’s funny cause it’s true, If I didn’t laugh I would cry
Mnemosyne
It’s interesting how many end-of-the-world stories (like Dr. Strangelove or The Stand) start with, “And then there was a minor fuckup that brought down all of civilization.”
(Edited to change references after a minute’s thought.)
J. Michael Neal
@Miss Mouse:
I’ve got two such stories from my 18 months trading professionally, one of which I was personally a part of (along with a lot of other people) and one of which happened to the guy three seats down from me. The first was when everyone in the room started making a whole bunch of trades all at once. Keep in mind that there is *nothing* that scares a market maker as much as all of a sudden making a flurry of trades without any explanation for why it’s taking place; when it happens to everyone in the room at the same time, you can smell the panic. Then we all started taking a closer look, and realized that they were very good trades, at least for us. It turns out that someone at one of our competitors (I never found out which one) fat fingered the entry of their global interest rate, and they suddenly mispriced every option they traded.
The other one, which did produce that sort of free fall, was a software glitch. The guy who traded the indices made almost a trillion dollars in trades in the Nasdaq 100 in a half second, because the trading platform suddenly decided that the underlying value of the index was about half what it really was. In the end, we were able to bust most of the trades, and the final losses were about $7 million. About two hours later, the anchor on CNBC showed a graph of the Nasdaq 100, which showed exactly the sort of spike you see from today. He said that there were rumors that “a major player on the Street had a technical malfunction.” Which entirely accurate, except that said player was actually in Minnetonka.
So, yeah, these things happen. Lots of trades from today are being canceled. The whole thing gave me quite a scare for a while, though, because I’m long P&G.
me
@MattR: Apparently the wall street trading programs are totally half assed. Just wait, soon some freeper will write a post about how this show that all computer models, like the ones used by climatologists, are worthless.
J. Michael Neal
@me:
Days like today are why I think anyone relying heavily on stop/loss orders is stupid, no matter what the E*trade commercials are telling them.
Martin
@J. Michael Neal: Except that what do you want to bet the guy who screwed up the futures trade wasn’t able to cover a $16B trade? If I screw up a trade, the system that monitors my account steps up and says ‘You’re not authorized to do that’ or ‘You don’t have enough in your account’. It doesn’t come back an hour later with ‘You just nuked the DJIA, would you like to download our new iPhone trading app?’
I mean, isn’t the last 10 years a running exercise in why we shouldn’t allow people to play in the derivatives market with money they don’t actually have?
Chris
Martin @ 29: So how many other goofballs have the ability to bounce sixteen billion dollars around the system? It’s unsettling to see what happens when one guy sets it off. It’s unsettling to think about how many other folks have the power to screw it up just as easily. (Remember, if we don’t let these guys have their seven-digit bonuses, they won’t help make money for us.)
And one would think there’d be a fall-back system, as you said, but that’s why none of us work at BP.
Chris
(a clarification of sorts: what I mean is, if this guy managed to be off by a factor of a thousand, without getting caught by anyone – machine or human – and set off a financial earthquake of this magnitude, then doesn’t that suggest a lot of other people have this potential power as well? That’s not a comforting thought…)
Kyle
Jim Kramer was just ranting on his show how today’s market action proves that governments are screwing up the financial markets. This turd is more preprogrammed than the Wall Street Journal editorial page.
daveNYC
What I’ve heard is that someone at Citi sold 4 billion, instead of 4 million shares. There are order management systems out there that let you type the order in free form. So B PG.N 1M MKT, or something like the sort. SO if someone made a typo and put in B instead of M, then that would be an issue. Especially since there’s less than 3B shares outstanding for that company.
This is an instance where something called ‘fat fingers check’, which should check for these sorts of errors, would come into play, but I guess it didn’t. It also begs the question as to why such a dangerous piece of functionality was enabled.
Still, glad to know that our entire financial market system can be brought to its knees by a simple typo.
r€nato
speaking of fat-fingering, I love the Mac keyboard shortcut cmd-Tab for quickly flipping through open applications; but it fucking blows that the key just to the right of Tab, is Q.
cmd-Q on a Mac, quits whatever application is up front. Frickin sucks when I do that to Firefox and I have pages I wanted to keep open.
J. Michael Neal
@Martin:
The guy trades for Citi. He’s not trying to cover his order from a piggy bank; they’re good for it. Especially considering that $16 billion was the total amount of the order, not the total amount lost.
This is very true, but has nothing to do with what happened today.
J. Michael Neal
@daveNYC:
Because it has to be. There are times you have to place orders that your software as going to think are odd and need checking, and you have to do it now. Three seconds from now is too late.
I think it’s dumb that there wasn’t such a check for the guy changing his firm’s global interest rate, because that never has to be done RIGHT NOW. (If it does, then there are bigger problems involved than making sure your options are correctly priced, like the fact that the world economy just collapsed.) Trades, though, often do. That’s the nature of the business. It’s also why a lot of the folks on the Street have a fairly forgiving attitude about busting trades that are obviously the result of that kind of error, and most of the rest will cut you a deal to let you out for a fraction of the losses. Their traders may howl about it, because they’re pretty cutthroat and arrogant enough to think it will never be them in that spot, but the firms generally aren’t under such illusions.
chopper
@Chris:
yeah, i thought that as well. if it’s just a stupid typo that did all this, why hasn’t it happened a good number of times before?
seriously, there are no safeguards against this sort of thing on the trading floor?
slippy
@r€nato: I’d really like to meet one of those weasels in person and ask him if he think he could fucking handle my job for even an hour. Or, even better, let’s see if he could physically tolerate doing the job of a garbage-collector for a week.
I seriously doubt it. I got really tired of reading that drifting-around nonsense about the no bathroom breaks and how they work 80 hours a week and that’s why they’re so wealthy. Fucking bullshit. I’d like to see that fucker’s time card.
slippy
@r€nato: You’d love fat-fingering what you’re doing in a Unix terminal . . . it can be hysterical or catastrophic. Just depends.
slippy
@Kyle: Wait, isn’t that the guy who was telling us ALLLLLL about how safe it was to be in the market in late 2007? How everything was fine?
Isn’t he also the jerk who admitted that he was deliberately manipulating stocks with his television show to get rich?
What FUCKING credibility does Jim Cramer have to say ANYTHING? And why is this clown still on television?