Analysis of technical reasons for the fall of the NYSE May 6, 2010
Since 2004, the American company Nanex has been processing information flows from stock exchanges in near real-time mode (they sell the NxCore system, through which any company can receive a general data feed and use a simple API for its own manipulations). For six years, the company has accumulated a base of approximately 2.5 trillion quotas, including 7.6 billion transactions on the “tragic” day of May 6, 2010.
A week ago, Nanex published on its website a detailed analysis of the events that took place on May 6 from a technical point of view. They give their explanation of the reasons that could cause the Dow Jones index to fall by 600 points (5.7%) in just four minutes: from 14:42:46 to 14:47:02.
Let's try to figure out what happened.
There are nine trading venues that handle the NYSE transactions: the NYSE, Nasdaq, ISE, BATS, Boston, Cincinnati (National Stock Exchange), CBOE, ARCA, and Chicago. All of them generate their bids for buying and selling, and the best bids are given the status of National Best Bid (best selling price) and National Best Ask (best purchase price) - they are executed.
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Exchange systems constantly monitor each other for price matching, so that their own buy or sell orders do not go beyond the National Best Bid / Ask, otherwise speed trading systems will instantly intercept it within a few milliseconds.
The fact is that on May 6, 2010, from 14:42:46, the NYSE began broadcasting a stream of sales orders at prices that were lower than National Best Ask right away for 100 securities, and after two minutes - already for 250 securities ( see graphics ). The number of such “incorrect applications with the NYSE is shown in green.
Prices immediately fell slightly, but it was only the starting trigger for further events.
Naturally, the high-speed trading system instantly grabbed the "bait" and joined the work to its fullest. At the same time, they began to use a special technology to “litter” the market with excessive bids in order to complicate the lives of competitors. The technology is called “quote stuffing” and provides for the generation of up to 5000 applications per second for each paper with slightly different prices - changing the price five times per millisecond confuses any system. For 4000 traded securities at 9 sites, this theoretically gives a stream of 180 million requests per second (at least 58 bytes each). Among other things, such a stream can even fill up the T1 fiber.
The flow of applications was so large that the system simply did not have time to process them on time - as a result, the quotes on the NYSE site began to lag a few milliseconds from the quotes on the remaining sites. This caused a massive migration of applications from all sites on the NYSE, because at each point in time here prices were slightly higher than at other sites where they had already fallen a little. Lagging NYSE quotes are shown in these charts . In fact, on the other sites, the sale of securities stopped completely, because all sales orders went to the NYSE. But when they came here, here the purchase price was already de facto lower because the previous bids in the queue were sent for execution.
Nanex experts show that similar cases, albeit on a smaller scale, have already occurred on the stock exchange on October 30, 2009 and January 28, 2010.
In order to prevent cases when the automated trading system will completely overwhelm the exchange, Nanex offers several protective measures: prohibit “quote stuffing”, set time-stamps on applications at the time of generating applications (to detect cases of market lag from the market) and set the lifetime of the order to 50 milliseconds
A week ago, Nanex published on its website a detailed analysis of the events that took place on May 6 from a technical point of view. They give their explanation of the reasons that could cause the Dow Jones index to fall by 600 points (5.7%) in just four minutes: from 14:42:46 to 14:47:02.
Let's try to figure out what happened.
There are nine trading venues that handle the NYSE transactions: the NYSE, Nasdaq, ISE, BATS, Boston, Cincinnati (National Stock Exchange), CBOE, ARCA, and Chicago. All of them generate their bids for buying and selling, and the best bids are given the status of National Best Bid (best selling price) and National Best Ask (best purchase price) - they are executed.
')
Exchange systems constantly monitor each other for price matching, so that their own buy or sell orders do not go beyond the National Best Bid / Ask, otherwise speed trading systems will instantly intercept it within a few milliseconds.
The fact is that on May 6, 2010, from 14:42:46, the NYSE began broadcasting a stream of sales orders at prices that were lower than National Best Ask right away for 100 securities, and after two minutes - already for 250 securities ( see graphics ). The number of such “incorrect applications with the NYSE is shown in green.
Prices immediately fell slightly, but it was only the starting trigger for further events.
Naturally, the high-speed trading system instantly grabbed the "bait" and joined the work to its fullest. At the same time, they began to use a special technology to “litter” the market with excessive bids in order to complicate the lives of competitors. The technology is called “quote stuffing” and provides for the generation of up to 5000 applications per second for each paper with slightly different prices - changing the price five times per millisecond confuses any system. For 4000 traded securities at 9 sites, this theoretically gives a stream of 180 million requests per second (at least 58 bytes each). Among other things, such a stream can even fill up the T1 fiber.
The flow of applications was so large that the system simply did not have time to process them on time - as a result, the quotes on the NYSE site began to lag a few milliseconds from the quotes on the remaining sites. This caused a massive migration of applications from all sites on the NYSE, because at each point in time here prices were slightly higher than at other sites where they had already fallen a little. Lagging NYSE quotes are shown in these charts . In fact, on the other sites, the sale of securities stopped completely, because all sales orders went to the NYSE. But when they came here, here the purchase price was already de facto lower because the previous bids in the queue were sent for execution.
Nanex experts show that similar cases, albeit on a smaller scale, have already occurred on the stock exchange on October 30, 2009 and January 28, 2010.
In order to prevent cases when the automated trading system will completely overwhelm the exchange, Nanex offers several protective measures: prohibit “quote stuffing”, set time-stamps on applications at the time of generating applications (to detect cases of market lag from the market) and set the lifetime of the order to 50 milliseconds
Source: https://habr.com/ru/post/97515/
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