Happy 2nd Anniversary, Flash Crash of 2010 ! - News and Current Events | futures.io
futures.io futures trading

Go Back   futures.io

> Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events

Happy 2nd Anniversary, Flash Crash of 2010 !
Started:May 5th, 2012 (06:29 PM) by kbit Views / Replies:175 / 0
Last Reply:May 5th, 2012 (06:29 PM) Attachments:0

Welcome to futures.io.

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike

Thread Tools Search this Thread

Happy 2nd Anniversary, Flash Crash of 2010 !

Old May 5th, 2012, 06:29 PM   #1 (permalink)
Elite Member
Aurora, Il USA
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
kbit's Avatar
Posts: 5,839 since Nov 2010
Thanks: 3,275 given, 3,321 received

Happy 2nd Anniversary, Flash Crash of 2010 !

This Sunday will mark the 2nd anniversary of the May 6th Flash Crash of 2010. As we all trade in this extremely low-volume environment, it is fitting that we recap where we stand today.

Listening to NYSE Euronext’s 1st quarter conference call yesterday, we shook our heads in dismay as management described a trading environment where volumes fell to a four and one half year low – the lowest levels since Reg NMS was implemented in late 2007, in fact.

NYSE’s Duncan Niederauer explained his 44% profit decline was due largely to a 25% decline in revenues from transactions from a year earlier. The culprit: An unfriendly environment for high frequency trading firms. From his point of view, regulators and folks in the media hyped the HFT bogey man too much, creating uncertainty, causing an HFT migration into other asset classes and geographies.

Niederauer doesn’t get it. He is mistaking the symptoms for the underlying problem. HFT volumes are down because investor volumes are down. Investor volumes are down because traditional retail and institutional buyers and sellers of stock have been steadily waking up to the dangers of drinking at the increasingly dangerous ”stock market watering hole.”

Like the animals on the Serengeti, who for years were accustomed to sipping long and heartily at their favorite spot, retail and institutional investors now see what’s beneath the surface. And they are deciding that the drink they crave is just not worth the risk.

More than $250 billion in long term equity funds has retreated from the markets since May 6th, 2010 – despite a slow but steady improvement in the economy and a stock market that has nearly doubled since the 2009 lows. It isn’t that these investors don’t have confidence in the economy. They don’t have confidence in our markets.

It isn’t hard to blame them. They have witnessed a radical transformation of the best capital allocation market system in the world, into one where:

- 13 stock exchanges cater to hyper traders who game the system, chasing exchange rebates, and leveraging speed for the purpose of a nanosecond scalping dance.
- More than 40 dark pools together trade more than 1/3rd of all shares.
- Conflicts of interest abound as exchanges own stakes in dark pools, and HFT firms own stakes in exchanges.
- Brokerage firm internalization of trades feeds the HFT financial modeling of investor orders.
- Exchange data feeds act as a veritable DVR of investor orders and behavior, the recording of which is then sold to HFTs.
- Rogue exchange traded products break down, trap unsophisticated investors, and only enrich the issuers, exchanges, and HFT firms that make markets in them.
- HFT firms in the last decade have achieved wondrous profitability (double-digit Sharpe ratios) while investors at best have clawed back to even.
- More than $1 billion in customer-segregated monies goes missing from MF Global, with not a single prosecution, nor a hope of redress.

As they witness all of the above, traditional retail and institutional investors see that our regulators must be having a challenging time acting as effective policemen in the marketplace:

- Flash orders, which give HFTs a quick peak at retail and institutional orders, are still alive and well, under many different names, despite a proposed banning of them in 2009.
- Dark pool regulation, also proposed years back, has not materialized.
- Internalizing brokerage/HFT firms, which clearly played a huge role in the market melt-down on May 6th (perhaps as well in the financial crisis in late 2008 and 2009) still practice the same way, with additional help from dark pools and exchanges who have all embraced “liquidity provider” programs.
- And finally, payment for order flow (PFOF) is alive and well on numerous levels throughout the system – from retail, to maker/taker exchange pricing, to free dark pool executions.

Investors know that the markets are broken. And they desperately want it fixed.

Our outrage over the transformation of the best capital markets in the world to this conflicted and fragmented web of chaos led us to write our book, Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio, which is being published by Financial Times Press.

When the book comes out June 3rd, it will find no shortage of critics from within our industry. However, we needed to write it. For years we have spoken about all of these issues in trade magazines and the financial media, and at industry conferences and panels, as well as with our regulators.

We wrote Broken Markets so that Main Street could understand what happened to our markets, to inspire change, so we can once again have the best capital markets in the world.

So, Happy Anniversary to everybody who made the Flash Crash happen. We hope you are enjoying yourself.

Because we, and millions and millions of other retail and institutional investors around the world, are not.

The Big Picture

Reply With Quote
The following user says Thank You to kbit for this post:


futures.io > Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events > Happy 2nd Anniversary, Flash Crash of 2010 !

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

An Afternoon with FIO trader bobwest

Elite only

NinjaTrader 8: Programming Profitable Trading Edges w/Scott Hodson

Elite only

Anthony Drager: Executing on Intermarket Correlations & Order Flow, Part 2

Elite only

Adam Grimes: Five critically important keys to professional trading

Elite only

Machine Learning Concepts w/FIO member NJAMC

Elite only

MarketDelta Cloud Platform: Announcing new mobile features

Dec 1

NinjaTrader 8: Features and Enhancements

Dec 6

Similar Threads
Thread Thread Starter Forum Replies Last Post
Flash Crash Documentary Ryanb Traders Hideout 5 April 22nd, 2015 10:10 AM
Flash crash and risk on capital Nicolas11 Brokers and Data Feeds 3 February 15th, 2012 12:20 PM
Could Market Volatility Be Hiding a Flash Crash? GridKing News and Current Events 0 January 31st, 2012 08:06 PM
Happy anniversary, Obama. Thanks for the broken promises! kbit News and Current Events 0 January 21st, 2012 10:59 AM
Was Last May's 'Flash Crash' Actually Caused by the SEC? Quick Summary News and Current Events 0 September 15th, 2010 11:50 AM

All times are GMT -4. The time now is 04:02 PM.

Copyright © 2016 by futures.io. All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts

Page generated 2016-10-22 in 0.08 seconds with 19 queries on phoenix via your IP