As I reported earlier, the CFTC-SEC report blames the flash crash on Waddell & Reed, which used a computer selling algorithm to sell 75,000 shares of e-mini futures contracts right at the beginning of the disaster. The chart on my post shows the impact of the flash crash on the Dow Jones Industrial Index. Now Zerohedge points to the latest from Nanex.
The report says that the algorithm that Waddell & Reed used was set to sell at the rate of 9% of the volume in the previous minute without regard to price or time. Nanex assumes that the algorithm worked, and plots out the relationship between Waddell & Reed trades and all other trades. This is the last graphic on the Nanex link above. Hmmmm.
As Zerohedge says:
And there you have it: W&R’s algo impact visualized based on a heuristical algo. In other words, according to the SEC, it is that barely visible blue wiggle that was responsible for a $1 trillion loss in market cap.
Clusterstock agrees that this is implausible. They point out that the retail investor took a real beating when the exchanges decided to limit the trades they would cancel to those more than 60% away from the last real price. The SEC is changing this procedure to make it more fair to small investors, but they will still take a beating. There are plenty of other examples of crazed algorithms. Here’s another catch by Zerohedge, and the explanation from a Nanex guy. . . . Read the rest of this entry →