its tough to say the seller "freely chose" to sell at that price since a market order was placed and there should be some expectation to get a reasonable fill. You cant say 20 cents is reasonable at all. I agree with one of the other posters that they do need a new system instead of just busting trades but changing the value to a low that is more fair.
I've been robbed
- Thread starter ko_
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its tough to say the seller "freely chose" to sell at that price since a market order was placed and there should be some expectation to get a reasonable fill. You cant say 20 cents is reasonable at all. I agree with one of the other posters that they do need a new system instead of just busting trades but changing the value to a low that is more fair.
When European stock index futures were down 20% intraday on 9/11, was that "too good to be true?". Perhaps you could let me know how exactly any trader is supposed to provide liquidity in a true crash like that, if he knows that all his buys can be busted on a whim if they turn out to be profitable, or he'll get stuck with them if the crash gets worse and the market closes down 40%.
The OP at least has inexperience as an excuse. You don't. You are a former pit trader and you are arguing for a policy which renders it impossible to make markets during a crash? Good job.
How is that a legitimate reason to bust trades? It would be a legitimate reason to *reprice* the buy fills below 60% to down 60% (or 40 or 30%). But not to bust the trades.
Furthermore, how did you know at the time that 60% down was a gift? The company could have announced some dire news and 60% might have been too small a decline, in which case buyers would definitely *not* have their trades busted.
What about cases where trades have been busted when there WAS a legitimate reason for the market to have been down there? That has happened plenty of times.
How can he determine whether the trade will stand if the exchange is not making a decision?Some trade busts have occurred up to 8 hours after a trade. That is a long time to not know your risk during a market crash with >10% moves in the index futures. How is it fair to impose that risk and uncertainty on a liquidity provider during a crash, because some moron can't sell a position properly? You are rewarding failure and punishing diligence and liquidity provision, a totally anti-market, anti-risk-taking, and anti-trader policy.
Look, it's obvious to me that many of you on this thread just don't have much experience with trade busts during true market crashes (as opposed to large but orderly declines). Stop nit-picking over obvious cases like a stock at $0.01, and try to wrap your brains around the idea of the main market trading down 20%+ intraday, with no bids at all. That's what an actual crash looks like (e.g. 9/11). The idea of a "gift" or clearly erroneous price in that situation is basically a joke. On 9/11 when the news wires reported "explosion at the Pentagon", it could have been WWIII or a bunch of suitcase nukes going off. Anyone bidding at any price at all, even down 50% or 75%, was taking *real risk* of losing on that trade if the worst case scenario had taken place. Busting trades in such a situation, after the fact, when fair value is known (which it wasn't at the time of the trade) is simply robbery. Try having on a 7 figure position for 8 hours in a market that wasn't even fat fingered, and managing the risk in volatile conditions when you know it's 50/50 that an old boy's club will make the right calls and get the trade busted. You can't hedge it because you don't know if you're long or flat. The market could easily turn back down and go below your entry price and then crash, handing you a huge loss. That is just an unacceptable risk to inflict on someone providing liquidity. It deters people from placing bids or sales in a crash scenario, which defeats the whole purpose of having a market in the first place.
There is literally nothing that trades busts solve which trade price adjustments don't. It is an indefensible policy. Trade adjustments avoid the problem of a fat finger making you bankrupt overnight, whilst still allowing market-making in a crash, keeping market integrity (i.e. if you make a buy or sell you KNOW 100% it will stand, you can be sure of your position even if the price is later adjusted), and letting free trade take place at the current going rate set by willing buyers and sellers (as opposed to a frozen market at 0.01 bid 0.05 offered because no one will bid or lift the offer because they know it will be busted. 2 people who want to trade at $20 cannot do so.)
No one on here who has tried to defend trade busts has provided a single reason why they are not grossly inferior to trade adjustments. No one has shown how they do not ruin market liquidity, no one has shown why the erroneous party has to be let off scot free or why selling 1 tick above the bust range should be punished massively while selling 1 tick below should be rewarded by total removal of all losses etc.
I would like to hear an explanation from trade bust supporters as to why they go on supporting it without providing even a single rebuttal against the points I've made.
A long time to not know his risk? He got a 99% discount. His risk is the same as someone buying a Powerball ticket. Show me one stock that went from a normal trading range to immediate bankruptcy. Not even Refco (RFX) did that and that was one of the biggest turds ever.
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On 9/11 the markets never opened. They stayed shut for a week, which gave people plenty of time to think about things. As far as your scenarios about nukes or war. That's what market halts are for. The NYSE is not allowed to drop 10%+ in minutes.
The erroneous party is never let off scot free. There is a trade bust range and they must eat a portion of the loss. Granted a 60% mulligan is a tad ridiculous but that's not normal policy.
If you want to argue trade bust vs price adustment on ET go ahead. It won't do you any good. You'd be better off writing the SEC about your feelings on this subject.
That's because you are the only one even talking about adjustments. I agree that a policy for them would possibly be more fair to all parties. At this time all we have are trade busts, and I like to know that I'm protected from making a huge fat finger mistake.
For example, I use Cyborg for automation. What if there was an error in their code that added a few zero's to my order and suddenly I'm -$500k? We all take risks (especially liquidity providers) but the risk has to be reasonable or it wouldn't be worth it.
How can any bank or fund borrow enough stock to short a high-cap down to a penny? Let alone, have enough available margin to short it down to a penny?
Impossible.
The only way those 15 stocks got down to a penny was naked shorting. Specifically, done by HFT.
That's the big cover up.
Why did the head of the NYSE say he "doesn't know" who was responsible for the massive short sales that precipitated the crash when he leads the very exchange that clears those trades?
You're telling me Lebowitz couldn't pull the date, time, volume, party-counterparty info from each trade during the crash?
Think about it.
Impossible.
The only way those 15 stocks got down to a penny was naked shorting. Specifically, done by HFT.
That's the big cover up.
Why did the head of the NYSE say he "doesn't know" who was responsible for the massive short sales that precipitated the crash when he leads the very exchange that clears those trades?
You're telling me Lebowitz couldn't pull the date, time, volume, party-counterparty info from each trade during the crash?
Think about it.
I guess that is one of the disadvantages of trading alone. You don't have access to more information. When i started out at my prop firm and we got shit at a ridiculous price, almost immediately we would get a call from compliance not to close out the position, I remembered this also happened some years back right at pre-mkt/open, where morgan/merill had some kind of black box error too and it was just retarded printing all over the place. most of it was busted i believe
Trade 'adjustments' would be too messy...there is far too much discretion involved...you will just create new problems. Not the solution IMHO. I don't like busts either, but at least they are 'cleaner'. Maybe a better alternative would be for the party who requested any bust to pay a set fee to the other side based on the time elapsed since the trade occurred??
You have to think that busting trades this time round is going to make the next market puke a LOT worse... liquidity would evaporate altogether if you are making it even riskier for liquidity providers to step in. Can you imagine how much wider spreads will be if there is an additional risk in snapping up bargains?
Just imagine the next time ES is off 10% intraday...
Are you going to be bidding for regular stocks at 50-70% of the prior day price? naahh...you'll sit on the sidelines like everyone else...too many unknowns...will be interesting to see how wide bidask spreads go then...
The risk of busted trades creates less and less incentive to buy as price moves lower and lower with the risk of a busted trade increasing! Thats f***ed up man! Busting any trade is rather like bailing out LTCM in 98...it creates a load of long term unintended consequences. And what if prices rise 60% on the day? I bet those trades are not busted.
Anyway, isn't it the job of the PPT to be snapping up bargains in the market crash scenario? Snapping up Accenture for less than a dollar probably would have been a good use of taxpayers money!
You have to think that busting trades this time round is going to make the next market puke a LOT worse... liquidity would evaporate altogether if you are making it even riskier for liquidity providers to step in. Can you imagine how much wider spreads will be if there is an additional risk in snapping up bargains?
Just imagine the next time ES is off 10% intraday...
Are you going to be bidding for regular stocks at 50-70% of the prior day price? naahh...you'll sit on the sidelines like everyone else...too many unknowns...will be interesting to see how wide bidask spreads go then...
The risk of busted trades creates less and less incentive to buy as price moves lower and lower with the risk of a busted trade increasing! Thats f***ed up man! Busting any trade is rather like bailing out LTCM in 98...it creates a load of long term unintended consequences. And what if prices rise 60% on the day? I bet those trades are not busted.
Anyway, isn't it the job of the PPT to be snapping up bargains in the market crash scenario? Snapping up Accenture for less than a dollar probably would have been a good use of taxpayers money!