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 ETF 'Circuit Breakers' Needed To Stop Flash Crashes: |
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china_firefly
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作者：china_firefly 在 谈股论金 发贴, 来自【海归网】 http://www.haiguinet.com
以前不明白HFT为何能挣钱，看这篇终于明白。
原来他们挣的是个股和 ETF价钱的时间差。
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ETF 'Circuit Breakers' Needed To Stop Flash Crashes: Pros
Published: Wednesday, 7 Jul 2010 | 1:54 PM ET
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By: Jeff Cox
CNBC.com Staff Writer
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Regulators taking aim at preventing a repeat of the May 6 "flash crash" may be missing the biggest culprit of all: exchange-traded funds.
Some traders are worried that regulators are failing to address the root causes of the May 6 Flash Crash.
ETFs made up about 70 percent of the bad trades the day of the flash crash. New safeguards built into the trading system don't directly address the products, though regulators are considering a few hundred of the funds for inclusion.
Stock market circuit breakers halt the trading of individual stocks that may make up the funds, but for now the ETFs can keep on trading regardless of what their components do.
That presents the potential for more trouble on Wall Street in the form of arbitrage moves that high frequency trading programs make—playing the ETFs one way and their individual stocks another way and then capitalizing on the narrow price differences in between.
Because the computer programs trade so quickly, that small price difference can soon escalate out of control and the ETF can change rapidly in value. At least one firm thinks that's exactly what happened to trigger the flash crash.
"It's a process question that is rooted in the essence of what the ETFs are," says Thomas Peterffy, chairman and CEO of options trading firm Interactive Brokers.
Jeff Cox
Staff Writer
CNBC.com
ETFs, which have soared to a $776 billion industry, are found in an increasing number of investor portfolios. The Securities and Exchange Commission is considering a list of 344 ETFs for circuit breaker protection, but that would address only about one-third of the ever-expanding ETF universe.
Peterffy recently testified before a joint advisory committee for the Commodities Futures Trading Commission and the SEC on what he saw as the root causes for the flash crash, which saw the Dow Jones industrials lose nearly 1,000 points in a matter of minutes before rebounding.
Part of the problem is that when the price of an individual stock changes, it's not immediately reflected in the ETF, which is basically a basket of stocks tied to a particular index like the Standard & Poor's 500 [.SPX 1070.25 9.98 (+0.94%) ]. The high frequency trading programs take advantage of this pricing gap—called arbitrage—with high volume buying and selling to make a quick profit.
In the flash crash scenario that Peterffy painted, high-frequency trading programs ganged up on ETFs and their individual components simultaneously, causing a sudden and uncontrollable swing.
He cited the convergence of events that created "a feedback loop of heavy ETF trading combined with heavy sales of certain underlying components at seemingly irrational prices."
The SEC solution post-flash crash was to create circuit breakers that would halt trading for five minutes should individual stocks in the S&P 500 lose 10 percent of their value in a five-minute span.
The breakers have been tripped three times: Washington Post [WPO Loading... () ] trading was halted June 16, while Citigroup [C 3.97 0.07 (+1.79%) ] also was stopped and Anadarko Petroleum [APC 44.56 2.97 (+7.14%) ] shares were hit Tuesday after an apparently erroneous trade.
But a growing chorus of market participants sees the circuit breakers as only a partial solution and still open to trader manipulation both in the ETF sphere and elsewhere.
"We do have concerns that things haven't changed much since then," says Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "We still think these short-term traders are still out there doing the exact same things. On any given day if we have a big selloff we could see a Flash Crash 2."
The stock market has since then breached the flash crash lows even though the day's events initially were considered an aberration.
Some legislators, particularly Sen. Ted Kaufman (D-Del.) believe the flash crash has contributed to an erosion of investor confidence that continues to pervade the market.
"It's one part of a bigger story," Adam Mesh, CEO of Adam Mesh Trading Group in New York, says of the Flash Crash aftermath. "The whole thing is beyond what the system was intended to do."
Mesh believes more reforms are needed, particularly in taking away advantages HFTs have over other traders.
Peterffy proposed a set of solutions to the panel: Halting any ETF which has seen 3 percent of its components by weight halted; instituting rules on what constitutes a fair trade, rather than breaking trades that have already occurred; making high-frequency traders registered market makers and subject to the same rules as market makers; and mandating that all trades be made through a clearing member. HFTs currently can send trades directly to the market.
"Generally there is an issue because high frequency traders are replacing market makers but they do not have the affirmative obligations that market makers used to have," Peterffy says.
Some traders, though, are cautious about how far regulators should go and worry that the problems with the market aren't fully understood.
"At the end of the day the removal for the HFTs and any effort to remove any kind of index arbitrageur is just going to remove liquidity from the market, which will widen the spreads out and make expectations less advantageous for investors," says Dave Lutz, managing director of trading at Stifel Nicolaus in Baltimore. "The Flash Crash showed me the regulators continue to be behind the market participants as far as the technology is concerned."
作者：china_firefly 在 谈股论金 发贴, 来自【海归网】 http://www.haiguinet.com
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 ETF 'Circuit Breakers' Needed To Stop Flash Crashes: -- china_firefly - (6045 Byte) 2010-7-09 周五, 07:56 (1220 reads)
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