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So, the take-home for me seems to be that there are weird regulations on these types of ETFs that block liquidity (like the "current single stock circuit breake
by drcode 11y ago
So, the take-home for me seems to be that there are weird regulations on these types of ETFs that block liquidity (like the "current single stock circuit breaker rule") and when you take that and combine that with preset orders (mainly stop loss orders) you have all you need to create a textbook chaotic system.
- kasey_junk 11y agoThe regulations aren't "weird" and they aren't based on etfs. There are well documented trading halt conditions regulated at the country level that restrict all the equities exchanges that want to be public venues.
- drcode 11y agoThe weird part is that they presumably exist to reduce volatility, but if everyone has to put their order in for 2 seconds every five minutes it just makes the volatility much much worse. If they really feel that a circuit breaker serves does something useful here (and I'm skeptical this is the case) they should stop trading for longer periods of time and allow a larger window between haltings in order to allow all trade participants put in an order and not just a few of the fastest HFT engines.
- lmm 11y agoEveryone has an HFT engine. Five minutes is intended to be long enough for a human to have a think and then put their orders into their engine - then there's an opening auction and theoretically the price stabilises as the humans will have reached some kind of consensus. The circuit breakers only tripped again because they hadn't - which suggests that either there really was disagreement between market actors (and the volatility was in some sense correct), or that some participants were trading poorly - whether that's automated systems, human traders, or brokers executing retail orders. I don't see what you think extending the circuit breaker time would accomplish? "Allowing a larger window between haltings" would defeat the whole point - if the price moves by more than 10% immediately after the re-opening auction, the circuit breaker goes off, as it's supposed to, for all the reasons it goes off whenever there's a sudden >10% price move.
- drcode 11y agoSo your thesis is that this circuit breaker was effective at reducing volatility for the ETF described in the top article? (I don't know how to counter your arguments, since your claims seem to contradict the empirical evidence from the original post)
- dnadig 11y agoThe single stock circuit breakers were put into effect after the 2010 "flash crash" and they're designed to "let cooler heads prevail" when stocks or ETFs go wonky. The problem is that in a real panicky freefall, it just makes the window where the stock is trading very very small (it halts for 5 minutes, opens, hits the next breaker, halts for another 5 minutes, etc.) It happens both up AND down. This last monday was really the first time they'd been tested en mass.
- aianus 11y agoWho cares if stocks flash crash? If you're buying stock for short term profit you deserve to be screwed by volatility and I have no sympathy for you.
- josu 11y ago>If you're buying stock for short term profit you deserve to be screwed by volatility and I have no sympathy for you These people increase market liquidity, they too serve a purpose. If only long term investors were in the market, the exchanges would end up looking like ebay.
- netrus 11y agoWhy would that be a bad thing? (honest question)
- mrchicity 11y agoBecause most people have things they'd rather do than playing trader when their expertise is in something else. Being able to trade in and out of assets at a fair price at any time is valuable. Would you rather have your net worth tied up in a liquid index ETF or illiquid startup equity?
- toomuchtodo 11y agoIf I need the cash more than a few years out, whichever provides the highest return, like all long term investments.