I've been robbed

[Ghost of Cutten]

Quote from HelloDollar:

I used to argue for Globex adjustments instead of busts too. But I was missing a key part of the puzzle.
The adjustment argument ignores a VERY important fact. Many, many of these sales in the bustable range were sell STOPS. You can't readjust a stop fill to a price range that wouldn't have set off the stop to begin with.

In other words. Stock X is trading at $14. It starts to plunge. An $8 sell stop is then filled at 2 cents. If you "readjust" the days low to $9 then what happens to all of the sell stops below 9? Are you going to tell an investor, "your stop was below the trading range but we triggered it anyways. Not to worry we filled you better but you lost your position and the market is now higher". No can do. Illegal and illogical.

Ok look - the stops DID get triggered, because the market DID trade at $8. So there are no grounds whatsoever for an investor complaining about their stop being triggered.

Furthemore, you are actually giving the investor a superior fill - they got a stop trigger at $8 and will get a fill at $9. That's a $1 price improvement over the best they would normally expect. So sorry, no dice for the investor there, they have no grounds for complaint because they got a far superior fill to a normal stop, and definitely way superior to a fill at $0.02.

An investor cannot complain about a stop being triggered at price X if price X traded in live market action. An investor cannot complain about getting filled at X+Y if they would otherwise have got filled at <X.

Finally, it is not illegal because it would be in the new revised exchange rules. Just as trade busts are not illegal, because they are the rules we agreed to trade under when we used the exchange, so trade adjustments would not be illegal, because (if adopted) they'd become part of the rules.

So, this criticism doesn't fly at all.

 

[Ghost of Cutten]

Quote from krazykarl:

Then he shouldn't sell on an exchange that has rules that will bust the trade. The seller should then drive over to the buyer's house/office and do the transaction there.

Why shouldn't he sell on an exchange that has rules that will bust the trade?

Besides, you are totally missing the point, which is to discuss what is the optimal way to handle "ridiculous" trade prices - whether arising from trade entry errors, computer malfunction, unusual loss of liquidity in the market, or other factors. The current method is trade busts, which has numerous flaws which have been repeatedly raised on this thread. An alternative is trade adjustments, which have numerous benefits compared to trade busts, as discussed repeatedly on this thread.

So, which method do you think is better, and why? Do you have any answers to the flaws of trade busts? Do you have any response to the benefits of trade adjustments? If so, then post them. If not, then kindly do us a favour and stop trolling this thread with pedantic off-topic bullshit.

 

[Ghost of Cutten]

Quote from Red_Ink_inc:

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.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2836925>

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.

I am not talking just about the case of buying at 1 cent. I am talking about trade busts in general. You know - the idea of general principles, as opposed to one trivial and easy to resolve case. Yes, at 0.01c you can just sit there with 1 cent risk per share. What if you bought down 20% or down 40% - then your risk is actually very large and not trivial at all. So your first point is completely irrelevant, and you are just wasting your own time and mine by bringing it up.

Your second point is also complete bollocks. The ES was open on globex, I was trading it. The European markets were open, I was trading them. I had on decent size positions during the 9/11 attacks before, during, and after the US market closures. The markets did not say shut for a week. They traded in almost every country outside the USA for every single trading day. So the notion of having on genuine risk while trying to provide liquidity during a real market crash, as opposed to a minor puke which didn't even trigger limit down, is not a theoretical one at all, it is one I and many other traders have experienced personally, unlike yourself or most US prop shop pikers too dumb to have a broker with foreign market access.

Now, if you are willing to stop trying to salve your ego by bringing up bullshit straw man examples, and actually debate the real issues around trade busts vs trade adjustments, then feel free to comment. Otherwise, do us all a favour and keep your mouth shut, and leave the discussion to people with actual experience of managing trade bust risk during genuine market crashes.

 

[achilles28]

Why not ban naked shorting altogether and force a hard borrow?

Those "ridiculous" prices were the result of massive, legitimate selling. Is there any proof to the contrary?

Perhaps if brokers/dealers/market makers were prohibited from conjuring new shares to sell, they wouldn't have enough margin to cover or lenders to borrow from?

Adjustments are better than busts, imo.

A bust just rewards idiots who sell a crashing market. Yea, lots were stop orders. And even more were high frequencies shorting momentum that get a redo. It's a no-lose proposal for these big guys. Short a crashing market: No bust = Win. Bust = Wash. That just encourages buyers to push away during a crash and high frequencies to sell harder. That's anti-free market and a recipe for disaster.

I think Red_Ink brought up a good point where order ERROR resulted in a legitimate bust trade.

But there was no order error, here. It was consensual participants, trading at a CONSENSUAL PRICE, all the way up and down. That's the very definition of a market. In other words, tough shit. Sorry.

 

[Ghost of Cutten]

Quote from MohdSalleh:

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

The thing is, on 9/11 no one had accurate information. It was actually better to be trading remotely as you had no risk of your skyscraper being blown up or being forced to evacuate, and your ISP was less likely to go down. On other occasions, any experienced trader will know that beyond a certain % move, either its a fat finger or some news is out. That lets you know not to take too much risk, but it still doesn't help you make markets. Effectively you are limited to going up to 100% long and then just sitting on it. You can't buy down 20% and sell out down 15%, then buy down 30% and sell out down 25% i.e. you can't make markets or daytrade, you can only take one shot and hope it works and doesn't get busted. Or you can just sit out and do nothing, as most market makers did last week. Everyone is complaining about the lack of liquidity during that crash, without seeming to understand that trade busts make it impossible for market makers or traders to safely provide that liquidity.

I was already familiar with the trade bust rules before 9/11, and did trade accordingly e.g. I didn't use any leverage, so I could afford to sit on my positions (but still had the risk of things getting worse and closing down 30%+). However, it was frustrating not being able to make markets and trade in and out, narrowing the gigantic (5-10%+ at times) big offer spreads, and being unable to provide liquidity to panicked investors who were desperately trying to hedge their exposure. Thanks to stupid trade bust rules, and prior dumb trade bust decisions by Eurex and other European markets, traders like myself couldn't do our jobs and end-users couldn't hedge. That is the ultimate result of this policy, which the krazycarls, redinks, and dustins on here don't seem to comprehend. I hope they are fortunate enough to never need to hedge during a genuine market crash, and don't have to curse some exchange bureaucrats who have never traded in their life for making this impossible, when a clearly superior, fairer, and less risky alternative has been staring them in the face for a decade or more.

 

[krazykarl]

Quote from neutrino:

Was it a system break-down or liquidity break-down ? No official position and yet they were quick to bust the trades... That's what's bothering not busts per se.

The result of whatever happened was a loss of liquidity. Personally, based on what I know, a lot of the algos hit their circuit breakers and unwound intra-day positions based on the price-action of that particular day. I remember thinking earlier in the day that volume was much higher than normal around 11am so an afternoon move down was telegraphed.

 

[Ghost of Cutten]

Quote from Dustin:

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.

Yes, we all agree that trade busts are better than nothing, due to fat finger risk. But cmon - we just had a crash driven almost entirely by illiquidity and people stepping away from the market, and you are saying it's not relevant to discuss how trade bust rules contributed to that, or why they need to be reformed? Trade busts helped cause the crash last week, and while they exist they will continue to make it impossible or insanely risky to provide liquidity in a crash. If you are happy with that, then just hope you never get stuck long on size when a crash happens and you need to get out, but no traders will place bids because of the "heads I lose, tails they win" risk that trade busts introduce.

 

[QuikrRetirement]

I wonder whether a better solution would be to LIMIT the size of positions allowed from any one institution? Isn't there already limits on many futures contracts that one individual may control at a time?

After all, the entire thing seems to have occurred due to a fat finger mistake (early reports were $15 billion rather than $15 million). If that organization were limited to say $100 million, this never would have happened.

What is to stop China or a rogue nation from putting in a supersized order to disrupt foreign exchanges/nations? After all, with margin, you can make a huge disruption with a much smaller amount of money.

 

[krazykarl]

Quote from Ghost of Cutten:

Why shouldn't he sell on an exchange that has rules that will bust the trade?

Besides, you are totally missing the point, which is to discuss what is the optimal way to handle "ridiculous" trade prices - whether arising from trade entry errors, computer malfunction, unusual loss of liquidity in the market, or other factors. The current method is trade busts, which has numerous flaws which have been repeatedly raised on this thread. An alternative is trade adjustments, which have numerous benefits compared to trade busts, as discussed repeatedly on this thread.

So, which method do you think is better, and why? Do you have any answers to the flaws of trade busts? Do you have any response to the benefits of trade adjustments? If so, then post them. If not, then kindly do us a favour and stop trolling this thread with pedantic off-topic bullshit.

Spare me your diatribes about righteous indignation; the fact that you can't see how relevant my comments are speaks volumes. Let me simplify it for you: if you don't like the exchange rules trade elsewhere. If you want to change the rules get enough money to buy exchange seats and work to change the policies. The rules are the way they are for a reason and yes, they are changed periodically. The exchanges don't make decisions to bust trades on a whim: they saw enough reason to bust things at particular levels based on the trading activity they had. Again, this is the right of the exchanges and is well-documented. If you adjust trades then you set off a chain-reaction of pricing adjustments which will only end in massive pain. As it stands there were around 10k trades busted, not bad at all.

 

[SomeYoungGuy]

Quote from Ghost of Cutten:

The thing is, on 9/11 no one had accurate information. It was actually better to be trading remotely as you had no risk of your skyscraper being blown up or being forced to evacuate, and your ISP was less likely to go down. On other occasions, any experienced trader will know that beyond a certain % move, either its a fat finger or some news is out. That lets you know not to take too much risk, but it still doesn't help you make markets. Effectively you are limited to going up to 100% long and then just sitting on it. You can't buy down 20% and sell out down 15%, then buy down 30% and sell out down 25% i.e. you can't make markets or daytrade, you can only take one shot and hope it works and doesn't get busted. Or you can just sit out and do nothing, as most market makers did last week. Everyone is complaining about the lack of liquidity during that crash, without seeming to understand that trade busts make it impossible for market makers or traders to safely provide that liquidity.

I was already familiar with the trade bust rules before 9/11, and did trade accordingly e.g. I didn't use any leverage, so I could afford to sit on my positions (but still had the risk of things getting worse and closing down 30%+). However, it was frustrating not being able to make markets and trade in and out, narrowing the gigantic (5-10%+ at times) big offer spreads, and being unable to provide liquidity to panicked investors who were desperately trying to hedge their exposure. Thanks to stupid trade bust rules, and prior dumb trade bust decisions by Eurex and other European markets, traders like myself couldn't do our jobs and end-users couldn't hedge. That is the ultimate result of this policy, which the krazycarls, redinks, and dustins on here don't seem to comprehend. I hope they are fortunate enough to never need to hedge during a genuine market crash, and don't have to curse some exchange bureaucrats who have never traded in their life for making this impossible, when a clearly superior, fairer, and less risky alternative has been staring them in the face for a decade or more.

Best post in thread.