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Anatomy of a Crash

Published in Automated Trader Magazine Issue 18 Q3 2010

Drawing on official documents and news reports, Bob Giffords charts the course of one day’s trading in New York.


Market open

Market open British general election takes place with growing worries over a hung parliament

News bulletins feature rioting in Athens on the previous day over the government's austerity programme, including the firebombing of a bank. Greece is facing a €300 bn debt rollover on 19 May.

The CBOE Volatility Index (VIX), known as the fear gauge, opens at 25.88 and stays level during the morning, 25% higher than recent levels

8.30 am

ECB press conference makes no mention of a widely expected bail out for Greece; Greek CDS spreads widen to 937.9 from 844.2 the previous day and under 400 in February

11.00 am

Dow Jones Industrial Average (Dow) is down 60 points, with heavy selling; the percentage of stocks falling without first ticking up reported to be at its highest since the World Trade Centre disaster on 11 September 2001

1.16 pm

NYSE securities in reserve mode, i.e. paused for manual auctions called Liquidity Replenishment Points (LRP), starts to rise

A market maker stops quoting on BATS

1.30 pm

The VIX starts to rise, COMEX gold market closes with prices having risen from $1180 to $1210 / troy ounce, US Treasury yields are falling as there is a flight to quality

1.46 pm

NYSE securities in reserve mode, (LRP) reaches around 100, compared to a normal daily value around or below 50

BATS notes a spike in price alerts

2.00 pm

The VIX reaches 28.6 signalling increased volatility in the S&P

Dow down -1.5%, S&P500 down -2.9%, June 2010 e-mini S&P500 down -1.3%

BATS reports a large increase in sell orders routed to them from another exchange

2.02 pm

Eurodollar & euroyen exchange rates fall suddenly due to sovereign debt worries

NYSE securities in reserve mode, (LRP) rises to over 200 during the next half-hour

2.15 pm

A hedge fund, apparently, places a $7.5m bet buying 50,000 options on a fall in the S&P 500 ending June at 800, paying $4 billion, as the markets continue to fall the counterparties start to lay off their risks

2.23 pm

Nasdaq surveillance system starts issuing alerts in numerous securities due to abnormal behaviour

2.24 pm

First stock hits a daily low more than 80% down on previous night's close against a market maker's stub quote; most of these derisory daily lows occur after 2.40 P.M.

2.30 pm

The VIX reaches 31.71 and keeps rising

A trader starts a major hedging transaction selling the June 2010 e-mini S&P 500, representing 9% of the market and completing the trade around 2.50 p.m.; the e-mini starts to fall leading the cash ETF on the S&P down

Volumes traded on e-mini S&P 500 futures is 3-400% higher than on the S&P cash ETF (SPDR), price ranges were however similar CBOE declares self help and stops forwarding trades to NYSE Arca - essentially declaring that NYSE Arca were not responding promptly and were outside NBBO rules

2.37 pm

Nasdaq declares self-help against NYSE Arca

2.38 pm

Nasdaq OMS BX declares self-help against NYSE Arca , although this was published to the market a couple of minutes later

2.40 pm

Two major, high frequency liquidity providers, seeing too much chaos and apparently worrying over cancelled trades, try to pull their trades; instead of taking a few seconds, one reports taking 2 minutes to close out.

BATS reports receiving an unusually large volume of sell limit orders from two large broker-dealers

Dow, e-mini S&P500, and S&P500 cash index all fall approximately 5% over the next 5 minutes

2.44 pm

A very few extreme highs begin to occur, matching against very high stub quotes, and continue until 3.00 p.m. NASDAQ-100 Cash index spikes down hard relative to the NASDAQ-100 E-mini which is down relative to the S&P 500 E-Mini; at this point NASDAQ shares lead the S&P500 shares down

2.45 pm

June 2010 e-mini S&P 500 hits its daily low of 1056.00 (-9%) and is so volatile that CME issues a 5 second lock, the e-mini keeps trading but not below its price at the time of the lock, since that would trigger stop loss trades and further falls which might be have to be cancelled under NASDAQ rules; the lock enables participants to build liquidity, executions only take place at the end of the lock, and e-mini starts to recover, followed closely by the S&P 500 ETF (SPDR), see below

Volumes traded on e-mini S&P 500 futures is 580% to 800% higher than on the S&P cash ETF (SPDR) until 2.55 pm, price volatility on the SPDR is 5x that of the e-mini

Over 200 securities fall by 50% from their 2.00 pm levels

NYSE puts Procter & Gamble shares into reserve mode (LRP), NYSE securities with LRPs hit dramatic high of 1000

3M prints low of $67.98 (-20% from 5 May close, -18.39% from price at 2.40 pm)

The NASDAQ-100 cash index relative to the NASDAQ-100 E-Mini stops falling and reverses. The S&P 500 cash index spikes lower relative to the S&P 500 E-Mini but the NASDAQ-100 E-mini remains weaker than the S&P 500 E-mini

70.1% of the stub quote executions below 6 cents per share until 2.50 pm are short sales,

2:46 pm

NASDAQ-100 E-Mini moves higher relative to the S&P 500 E-mini that is still suffering from the S&P 500 cash index sell off.

S&P cash index stops and reverses relative to the E-mini.

VIX hits 40.26 and then oscillates between 40 and 35 until 3.36 pm at which point it starts to fall

S&P cash ETF (SPDR) hits low (-10%) and then starts to build, following the e-mini

Liquidity dries up on the iShares Russel 1000 Growth Index ETF with only 4 bids above $14 vs. $51 a few minutes earlier NYSE puts Accenture shares into reserve mode (LRP)

Dow hits its daily low of 9,872.57

NASDAQ 100 hits its low of 1752.31

Dow, the e-mini S&P500, and the S&P500 all start to recover by 5% over next 5 minutes

2.47 pm

Accenture prints low of $0.01 on other venues (-100% from 5 May close) for a period of 7 seconds

Procter & Gamble prints low of $39.37 on other venues (-36% from 5 May close)

Eurodollar and euroyen exchange rates spike down to daily lows and then recover back to the levels at 2.02 pm, CME declares locks on Yen and Sterling - can still trade but not at a lower price for 5 seconds to allow liquidity to build

2.49 pm

BATS declares self help against NYSE Arca

2.50 pm

NYSE puts 3M shares into reserve mode (LRP)

Dow recovers a bit, trading at 10,232; e-mini S&P500 recovers, trading at 1,096 and continues to strengthen

90.1% of executions against stub quotes below 6 cents per share until 2.55 pm are short sales

2.54 pm

BATS revokes self-help against NYSE Arca

2.57 pm

Trading ranges of e-mini and cash ETF on the S&P (SPDR) return to similar normal ranges

2.59 pm

June 2010 e-mini S&P 500 recovers to a little over -4%; S&P cash ETF (SPDR) also recovers to little over -4%

3.00 pm

Selling pressure starts to abate, S&P recovers

3.15 pm

500 NYSE securities declaring LRPs still dramatically higher than normal but about half the 2.45 pm peak, LRPs declines slowly through the afternoon