4 ms·
The 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
by drcode 11y ago
The 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)