In one of a couple of nice pieces of sleuthing this morning, The Wall Street Journal’s Scott Patterson and Tom Lauricella blame Thursday’s collapse on a “black swan” — a singular, unpredictable, extraordinary event — that was caused by the firm of Nassim Taleb, author of (da dum) Black Swan: The Impact of the Highly Improbable (!)
Wow, It seems almost too good to be true.
According to the authors, Taleb’s firm, Universa, placed an order Thursday afternoon, around 2:15, in the Chicago options pits to short the S&P 500 down to 800.
This prompted a jittery market — selling volume was already as high as it had been since the day markets re-opened after September 11, 2001 — to start selling in droves. The action caused the New York Stock Exchange’s (NYX) systems to buckle, and Nasdaq (NDAQ) and Bats stopped routing quotes to NYSE’s “Arca” electronic network in response.
High-frequency trading shops, seeing all this, backed away from things in panic, starving the system of precious liquidity, thus resulting in the nearly 1,000-point collapse.
The authors note that the iShares Russell 1,000 index (IWB), which normally gets hundreds of bids, saw only a handful at 2:46 pm, and all vastly below the $51 the ETF had been trading for.
The authors cite Barclays as the facilitator of Taleb’s trade, and say that Barclays’s trading systems quickly became so jammed that for a time Barclays lost one of its market price computer feeds as quotes flooded its workings.
A spokesperson from Barclay’s said that none of the firm’s trading systems became “jammed,” but for a time Barclay’s lost one of its market data feeds provided by a third party.
And the bounce-up was just as particular: algorithmic trading shops sniffed out incredible bargains and gobbled them up.
Update: The WSJ altered the article later in the day, taking out the claim about Barclays’s trading system jamming. The piece now merely refers to the malfunction of the third-party data feed.
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