Filed Friday, May 7. 2010
Listening to the “experts” explain it off as a trading error yesterday – basically a “typo” – doesn’t wash. If you know anything about compliance, approving trades, and computer systems, blaming it on a single computer glitch is a stretch. A REAL stretch.
The market “hiccupped” yesterday on a problem that has yet to be fully determined, both in its origination as well as its full impact. What firm? What transaction? What stock?
Both CEOs of the NASDAQ and NYSE were on this morning on CNBC trying to explain what happened and saying that the SEC is examining all of the trades.
To make any type of conclusion on what really happened yesterday is very premature and inaccurate based on not having the facts completely sifted through until next week.
Yesterday was a definite wake-up call to the stock market as well as the SEC (Securities & Exchange Commission). The DOW dropping 1,000 points in a fifteen minute period took a trillion dollars of value off the market for a period of time according to CNBC. Many experts are coming out with their thesis on why it happened and some do not pass the credibility test.
This morning, both exchanges brought out their “big guns” to calm the questions as well as the growing lack of confidence from the retail investor class. This in itself shows a real concern as to insuring continued credibility in the markets. If it was not a big thing, some obscure Vice President of Operations or Director of Public Communications would have handled any press questions.
Robert Greifeld, NASDAQ OMX Group CEO told a CNBC Squawkbox commentator, Scott Wapner, this morning, “We are examining how to prevent this in the future.”
Examining how to prevent this in the future? Where were the system design experts when this was all architected in the first place? To me, it looks like they uncovered a real vulnerability that should have been addressed in the first place.
Greifeld went on to say that there needs to be a circuit breaker at the stock level as there is at the market level. Because there was no circuit breaker (a protective speed bump) at the stock level, there was no way to know what was happening with a stock that looked like it stopped trading. He said you must continue to let a market operate, otherwise it looks like there was an absence of the market which caused the panic. He gave the analogy that it would be the same if you walked into a bank and the teller said the bank was not doing any transactions.
Duncan Neiderauer, NYSE Euronext CEO, who was brought on right after Greifeld said that it was not a “fat finger” problem or a typo according to what they have examined so far. He also chastised Greifeld to “Stop the fingerpointing” and talk about facts. The NYSE does have the stock-by-stock circuit breakers (LRPs) in place. Neiderauer was quick to say, “We have it already.”
What they don’t have as an industry is the stock-by-stock circuit breaker across the board covering the different trading platforms of both the NASDAQ and NYSE.
They have been working with the SEC and other regulators since yesterday to determine what the problem was and where it originated. So anything that you have read up to this point it pure speculation and nothing should be looked at as a final conclusion.
CYBERWARFARE? WOULD THEY TELL YOU IF IT WAS?
Here is a theory that should at least be looked at as a possibility. It has yet to be ruled out.
Banks and other financial institutions have been hit by electronic fraud in the past. If a bank loses money from a fraudulent transaction they are going to keep that very quiet. Losing a million dollars or even ten million dollars is a lot cheaper than having a run on the bank because it has been determined that they are unsafe.
So if any problem does arise, they are not going to tell their customers they had an internal security problem.
If you have been involved in network security and system security, you understand the importance of preparing for cyber attacks and outside tampering of data and procedures.
Since this presumed “computer glitch” started the problem, people have blamed the technology. Well, now according to the NYSE CEO, there was no “fat-fingered transaction” entry so that means it was something more complicated or more devious.
Within the realm of possibilities, could it be a disenfranchised employee? Could it be cyberwarfare and someone hacked into the system? If they do find this out, do you really think they will tell you?
This is a more plausible explanation as a real cause for this event than the conspiracy theorists have about the 9/11 attack.
The mere fact that the markets took a deep nose-dive tells me that there are technology functions that can be manipulated.
So far, I have not heard anyone address or discount the cyber warfare possibility. Behind closed doors, they better be looking at this possibility.
TAX IMPLICATIONS ON THOSE WHO DUMPED STOCKS?
Many people had stop-loss orders on their stocks. If they started to slide down like they did, they would get sold off.
For example, if you bought a stock at $40 and it has gone up to $50, you would put in a stop-loss order to sell it at $48 to make sure you did not lose much of that profit. If the stock went into a tailspin like many did yesterday, that stock would have been sold off automatically. So now, the person has a $8 per stock gain. They have to pay capital gains tax on that trade, whether they go back and buy the stock back at $48 today or if they leave it in cash.
Funny how this has to have created a windfall for capital gains taxes across millions of shares, especially for a stock like APPLE which someone could have bought for $125 last year and now it is around $240 but dropped for not even a couple of minutes to $225 which probably triggered many automated “sells”.
The trade stands because only trades with a 60% or more swing are being broken (like Accenture which went from $30 to ten cents for a time – those trades will be broken) so that means the APPLE transaction is still complete. That means there is the impact of capital gains of $100 per share. Wow.
Pay up. We need the tax revenues to pay down the big national deficit anyway. What an unexpected byproduct of this so-called “computer glitch”.
So far, I have not heard anyone address that issue either.
CARLINI-ISM : Don’t blame technology – blame poor design and oversight of the technology.
Last modified on 2014-03-07 18:22
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