It was high-frequency traders who filled the role of “a few 8th graders” crashing a first-grade game of dodgeball, Nanex said in an Oct. 8 press release.
In September, Nanex said the sale of $125 million worth of Chicago Mercantile Exchange S&P 500 stock index e-mini futures contracts at 2:42 p.m. was followed 25 microseconds later by the sale of more than $100 million worth of exchange-traded funds. The combination, which Nanex indicated was coordinated, appears to have triggered the sell-off.
In addition, Nanex said that about 400 microseconds before the S&P 500 stock index futures contracts were sold, quote traffic for all New York Stock Exchange, NYSE Arca, and Nasdaq stocks surged to saturation levels within 75 microseconds, said Nanex, a firm that Reuters credited with coining the phrase “quote stuffing.”
But Joe Mecane, executive vice president of NYSE Euronext, said Tuesday after a meeting of the Capital Markets Consortium in New York, that “quote stuffing” is not really possible. Even if a firm sends hundreds or thousands of orders against a quote, there is only one quote. No stuffing can occur, he said.
“Nanex has zero credibility with Nasadaq,’’ said Brian Hyndman, senior vice president of Transaction Services at Nasdaq OMX Group. “There is zero evidence of quote stuffing.’’ Instead, he said, there was plenty of “quote withdrawal” going on on May 6, as prices fell.
The exchange executives said the difference of 25 milliseconds between the sale of the e-minis and the sale of the exchange-traded funds was logical, could be expected and can easily be explained by the speed at which transactions, analysis and new orders take place on all-electronic markets.
For instance, Spread Networks on Thursday is expected to announce that it is turning live a path between New York and Chicago that achieves round-trip times for electronic messages of 16 milliseconds. That leaves plenty of time for a millisecond or two of analysis of a result and several milliseconds for placement of new, responding actions, panelists in a discussion of “Did Algos Go Wild?” on May 6 said.
For its part, Nanex said, “when the 8th graders got the ball, everyone cleared the deck out of panic/fear.
It wasn’t Waddell trades, in fact, that occurred at the time of the stock pricing crash, the company said: “[Waddell’s trades did] not occur near the ignition point [and were] practically absent during the torrential sell-off [and were, in fact, programmed] for “a well-behaved sell program.”
Dave Cummings, head of high-frequency trader Tradebot Systems, also challenged the Nanex report, saying that his company actually curbed its trading on May 6 to avoid the selloff.