Bloomberg is quoting an NYSE spokesman that there were an number of erroneous trades, but claims the bad print took place on rival Nasdaq, which also trades listed stocks.
Meantime, my colleague Steven Sears reports that the head of market-making at a major options firm said that the rumor of a bad trade was what drove the stock market back from the nearly 1,000 point decline.
If it proves that a bad trade did indeed drive stock prices lower, it is not clear how the banks and exchanges will handle this.
Small errors can be handled by breaking the trades, or dipping into error accounts. A decline of this magnitude, however, is unprecedented, and could prove too gargantuan to untangle due to the interconnectedness of markets.
But Doug Kass, general partner of Seabreeze Partners, in an email blames high-frequency traders who set off the panic with their auto-correlated trading algorithms.
As he noted in a comment earlier this week, some 50%-70% of NYSE trading is quant-program-related.
“The net of this is that quant funds control a lot of capital, they increase volatility (in both directions), and their investment style attaches little or no value to fundamentals; instead, they utilize algorithms that worship at the altar of price momentum.
“By exaggerating broader market moves as well as individual stock price moves, quant funds might be inflicting more damage than good in the efficient pricing of equities.”
All of which swelled NYSE volume to 10.63 billion shares, the second heaviest on record, topped only by 11.16 billion shares on Oct. 10, 2008, while Nasdaq volume was a record 4.55 billion shares.
With Washington and the public in general looking increasingly critically at Wall Street, this kind of activity only worsens the image of the stock market as an out-of-control casino.
No comments:
Post a Comment