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Friday, May 7, 2010

Money for nothing

So here is an explanation (to date) on what happened . .

Many believe that the glitch was triggered by a series of events that began when the NYSE slowed down trading of a number of stocks, including Procter & Gamble.

Shares of P&G fell 10% at around 2:45 p.m. Thursday, at which point the stock hit what's known as a "circuit breaker." The stock stopped trading on the NYSE for 80 seconds, and trades opened up on a number of competitors' electronic exchanges.

But the circuit breaker mechanism that was designed to cool traders' heads had the opposite effect: The slowed trading occurred at a time that investors were growing increasingly worried about Greece's debt issues and other economic factors. The Dow, which was already down about 200 points at the time, quickly dropped about another 200 points in the 15 minutes between 2:30 p.m. and 2:45 p.m.

"The problem is that when [the NYSE] slowed down, it effectively took their traders out of the market at a time when everyone else wanted to sell," said James Angel, a professor of finance at Georgetown University.

In other words, when the NYSE paused its trading, the off-exchange computers found no bids, or offers to buy. The computers, which were looking for the best bid, were tripped up to believe the best bid was $0. The high-speed trading computers are designed to add a penny to each trade to make a commission on every deal, so the computers placed bets at a penny higher, or 1 cent.

"Sell orders became desperate and went straight to their competitors' exchanges, which weren't slowed down," said Angel. "Since there were no other buyers, some computers had entered orders at a penny, so some stocks traded all the way down."

That's when at least 296 stock prices saw enormous price changes. Nasdaq has said it will cancel all trades that were executed between 2 p.m. and 3 p.m. ET, in which the stock price traded more than than 60% off of the stock's price at 2:40 p.m.

Nasdaq coordinated the cancellations with other U.S. stock exchanges, and said the decision could not be appealed.

I have not yet been able to find out exactly how many trades we are talking about, just the number of stocks involved.

And I still do not like the fact that some get to keep these “false profits” so long as you do not get more than 60% return on your money. If you mad 61% or more from the “glitch” then it is not fair and your are out-a-luck.

Sheesh, what a racket !!!

So this got me into thinking . . .

A) Do the brokers still get to keep their 1 penny commissions?

B) Then I got into thinking about that this would make a great movie and I was reminded that something similar had already been done, but for the life of me I can’t seem to remember it. – Maybe you folks can help me out with this one… I seem to remember a movie where the main character discovers a glitch where the company he is working for drops fractions of a cent from paychecks and other transactions. He then throws in a little program to capture all the fractions and send him the check He quickly becomes a millionaire and eventually gets the attention of the company he works for. I think it was a Woody Allen or Dustin Hoffman movie but – who knows.

C) Then I was thinking of a song to commemorate all this and the first thing that popped into my head was Dire Straits Money for Nothin’

D) Here is my version of money for nothing, so far.

I want my SEC!

Now look at them yo-yo's that's the way you do it

You watch the porn on the trading screen . . .

That ain't workin' that's the way you do it Money for nothin' and your commissions for free

Now that ain't workin' that's the way you do it Lemme tell ya them guys ain't dumb Maybe get a blister on your little finger

Maybe type a billion with your thumb

We gotta program circuit breakers and trade custom commodities

We gotta collect these commissions and void these zero dollar trades

See the little trader with the earring and the makeup
Yeah buddy that's his own hair
That little traitors got his own jet airplane
That little trader he's a millionaire


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