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Was The April 28 Mini Flash Crash A Grand Rehearsal For The Real Deal A Week Later; If So, By Whom?

  • Written by Syndicated Publisher 1 Comment1 Comment Comments
    September 26, 2010

    Submitted by Tyler Durden on 09/21/2010 11:56 -0500

    One of the scarier conclusions arising from the work of the market forensic specialists at Nanex is that with a surge in empty order packets and quote stuffing one can essentially recreate the flash crash “on demand.” We have pointed out previously how while an outright market crash may not have been the goal, the NBBO arbing opportunities created may make such periodic activities quite profitable. Which is why we read with great interest Nanex latest analysis of an event that nobody has discussed in the mainstream media or elsewhere yet, namely the “Mini Flash Crash of April 28, 2010”, 6 trading days before events from May 6 wiped out 1,000 DJIA point briefly before a massive (forced?) short covering surge left the market virtually unchanged. Did someone attempt to create the flash crash a week early? And if so, were the events of April 28, merely a grand rehearsal for the May 6 “real deal.” We can’t wait for the SEC’s final report on all these very much open questions.

    From The Mini Flash Crash of 04-28-2010

    While scanning historical data searching for previous days which exhibit similar behavior to that of 05/06/2010, we found a time on 04/28/2010 with quote bursts very similar to those we saw on 05/06/2010 (just prior to the NYSE feed delay). The time of this quote burst began at 11:27:46.100 on 04/28/2010.

    We have determined that quote rates above 7,000 to 7,500 per 25ms interval (280,000 to 300,000/sec) will saturate (stuff) CQS+UQDF (note the quote/trade rate charts are in 25 millisecond resolution).

    (click on image for a high resolution view):

    Note the eerie similarities at the start of the drop on 04/28 and 05/06 in the chart below:

    (click on image for a high resolution view):

    This event triggered a delay in several NYSE stocks beginning at 11:27:47. Show below are the SPY EMINI and the DJI:

    We decided to investigate this further to determine if any stocks experienced the same delays from the high quote activity as those we saw on 05/06/2010 and reported on in our initial Flash Crash Analysis. We found many.

    Note that this was just one week prior to 05/06/2010, the day of the flash crash.

    While less drastic, the event was very similar to that of 05/06/2010. Huge bursts of quotes flooded the system and almost immediately NYSE quotes began to lag the market. CQS would choose the stale NYSE quotes as the BBO, the same as we described on 05/06/2010 in our report “The NBBO is Broken“.

    The following images show many of the stocks with delayed quotes on 04/28/2010, although it is by no means a complete list. It should be noted that NONE of the stocks listed below were reporting ‘slow mode’ quotes. All of the quote data recorded was sent as normal, quote condition 0 quotes. Trading was also occurring on all exchanges at different price levels.

    (click on any image for a high resolution view):

    ADM:
    AXP:
    CVX:
    HD:
    HPQ:
    JNJ:
    JPM:
    MMM:
    MS:
    PG:
    UN:
    UNH:
    USB:
    WFC:
    WMB:
    XTO:
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