They should also actually be block quotes. Those aren't. They are images. I can't think of a good reason for this, becaus the PDF they came from is one that allows text selection and copying.
I don't fully understand why NASDAQ ends up taking a position on stocks ("It just so happened that Nasdaq was shorting shares of Facebook at that time."). If it's a mere exchange, should it just be matching buy and sell orders? When does it take ownership of anything?
Is there a good explanation of how this works somewhere?
Because of the way they finally handled the snafu, they effectively ended up with a short position. NASDAQ did not set out to hold a short position, but because of how they covered customers who couldn't cancel their orders they ended up short FB. (They covered those customers because they quit trying to valid order matching by accounting for cancelled orders. They just took cancelled orders out of the equation.)
My understanding is that they don't usually end up with stocks, but their handling of this specific situation created what amounted to a short position.
Essentially, the bug (whatever you want to call it is irrelevant from the financial angle) meant a bunch of people wanted to sell facebook stock and were unable to do it. They said that they were willing to sell at the current going rate, which was $42.
NASDAQ was unable to process the orders, so they weren't able to process the sales. The resolution they settled on was essentially becoming the other party to the transaction: they would provide the FB shares to the (possibly disgruntled) customers at the same price - as if nothing had gone wrong.
But, as this is happening, NASDAQ doesn't actually have FB stock - they have to buy it on the market later. Like a normal short, they benefit if the price goes down since they have to spend less to get back the shares. For example, if FB went down $2, NASDAQ only has to pay $40 for the share, and they make a $2 profit.
This is all a long-winded way of saying they didn't have a short in the traditional sense, and in normal cases this doesn't happen, but it happened as a result of this screwup.
still does not explain "if i want to sell, the exchange should match me with someone. they fail to match me with someone, but instead they buy my shares"
makes no sense. at all. unless exchange does not means what i think it means. and they should pay sales tax for shares as they are selling/buying them as a dealership buys and sells cars.
No, exchange still means what you think it means. The issue they had is that a bunch of orders got stuck in a queue somewhere and thus couldn't actually be exchanged. This is all a question of how you deal with that. NASDAQ decided not to just cancel the orders or execute them later but to provide them the trade they "deserved"
Personally, I think that was the right decision, but it's your call.
The simplest explanation is that usually an exchange is essentially a conduit - they match buy with sell orders. If for some reason (i.e. computer glitch) they are matching only buy orders, they are creating short positions in their systems.
The exchange matches buy orders against sell orders. In this case they were matching buy orders against sell orders that had already been cancelled (which is not something that should ever happen). NASDAQ stepped in and took the other side of the buy orders, and so ended up with a short position.
I am tired of hearing this repeated excuse. When things don't go as expected everyone looks to someone or something to point their fingers at and blame. I seriously doubt this was a "server issue" and more of a deliberate delay to benefit a certain few.
Do you really believe this? It would fit the narrative of the evil financial system, but I would be carful allotting credit for such a scheme. Sometimes shit happens.
Did you read the part where they paid FB $10MM and then took a $62 million hair cut to the SEC?
If you want to fuck around in the market you'd do far better by paying a sandwich boy to pass notes between research and the trading desk.
Read what HSBC did in regards to money laundering with the cartels... that was billions in profit that they walked away from completely unscathed. This is on the scale of buying pre-2000 pennies and melting them down for the extra .1 cent.
"This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can't waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don't need this in our markets. We need more intelligence."
There's an incredible difference between a trading strategy and an investing strategy.
If you are on an investment timescale then really you should care less about HFT and trading. What is the brain if not an 'algo'?
Most of the people who complain about 'algo' are traders who are now obsolete, because computers can perform their 'technical analysis' faster and with less emotion, than a human can. They claim they offer 'intelligence' but don't offer much evidence that they actually do so.
If my investment strategy is "buy stocks and pray that some random HFT fuckup in the next 40 years doesn't wipe out my entire life's savings along with everyone else's", then the evidence is growing year by year that this strategy is going to be a losing one.
You must have missed the part where the NASDAQ bug caused about $60MM in losses whereas the subsequent price decline has destroyed $40B in market capitalization. You can lose your shirt in the stock market, but that's been true since long before we started using computers to trade equities.
No, I fully caught that part. I also understood why the NASDAQ computers couldn't finish the cross: because HFT computers were hammering the NASDAQ with cancel orders.
You don't DDOS a server and say "oh, the server has a bug."
And, to be perfectly honest, I have no sympathy for anyone that lost money on the FB IPO. For once a company executed an IPO and got every cent on the table. And I know that just infuriates every suit on Wall Street to no end, which couldn't make me any happier.
Although HFT and other algorithmic traders are certainly prevalent in the markets and probably in this IPO, I think this flaw was elicited because of the unprecedented and overwhelming amount of non-professional human order flow.
There was a ton of buzz and participation in this IPO. The uncertainty around the opening process compounded the problem.
There was a bug. A bug serious enough that you could trigger it with low frequency trades. Every time the cross algorithm restarted it did so using data that was 99% stale. This meant it didn't just need to find a few milliseconds of stability, it had to wait until the average order rate went low enough and stayed there for minutes. A relative handful of people changing their orders a few times a minute would be enough to keep such an O(n^2) algorithm occupied.
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[ 3.7 ms ] story [ 37.2 ms ] threadIs there a good explanation of how this works somewhere?
Essentially, the bug (whatever you want to call it is irrelevant from the financial angle) meant a bunch of people wanted to sell facebook stock and were unable to do it. They said that they were willing to sell at the current going rate, which was $42.
NASDAQ was unable to process the orders, so they weren't able to process the sales. The resolution they settled on was essentially becoming the other party to the transaction: they would provide the FB shares to the (possibly disgruntled) customers at the same price - as if nothing had gone wrong.
But, as this is happening, NASDAQ doesn't actually have FB stock - they have to buy it on the market later. Like a normal short, they benefit if the price goes down since they have to spend less to get back the shares. For example, if FB went down $2, NASDAQ only has to pay $40 for the share, and they make a $2 profit.
This is all a long-winded way of saying they didn't have a short in the traditional sense, and in normal cases this doesn't happen, but it happened as a result of this screwup.
makes no sense. at all. unless exchange does not means what i think it means. and they should pay sales tax for shares as they are selling/buying them as a dealership buys and sells cars.
Personally, I think that was the right decision, but it's your call.
If you want to fuck around in the market you'd do far better by paying a sandwich boy to pass notes between research and the trading desk.
Read what HSBC did in regards to money laundering with the cartels... that was billions in profit that they walked away from completely unscathed. This is on the scale of buying pre-2000 pennies and melting them down for the extra .1 cent.
"How HFT Caused the Opening Delay, and Later Benefited at the Retail Customer's Expense"
http://www.nanex.net/aqck/3099.html
And a great quote from the update posted within:
"This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can't waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don't need this in our markets. We need more intelligence."
If you are on an investment timescale then really you should care less about HFT and trading. What is the brain if not an 'algo'?
Most of the people who complain about 'algo' are traders who are now obsolete, because computers can perform their 'technical analysis' faster and with less emotion, than a human can. They claim they offer 'intelligence' but don't offer much evidence that they actually do so.
You don't DDOS a server and say "oh, the server has a bug."
And, to be perfectly honest, I have no sympathy for anyone that lost money on the FB IPO. For once a company executed an IPO and got every cent on the table. And I know that just infuriates every suit on Wall Street to no end, which couldn't make me any happier.
There was a ton of buzz and participation in this IPO. The uncertainty around the opening process compounded the problem.