Saturday, March 9, 2013

(OT) NYSE Considers Algo-Only Trading in Case of Emergency

I just can't wait.

From Reuters reporting on Wall Street Journal article (3/9/2013):

(Reuters) - The New York Stock Exchange is readying plans to be able to operate without human traders in case another disaster, such as Superstorm Sandy, forces the shutdown of its historic trading floor in downtown Manhattan, The Wall Street Journal reported.

NYSE Euronext (NYX.N) is preparing to submit details of the plan to the U.S. Securities and Exchange Commission, according to the report, which cited people involved in the preparations. If activated, the plan would represent the first time the 221-year-old exchange would rely entirely on computer systems, without the oversight of floor-based traders, the paper said.

A NYSE spokesman declined to comment on the report.

The disaster plan would shift trading entirely to Arca, NYSE's all-electronic sister market. It would replace NYSE's current backup plan that calls for the exchange to remain open in a limited capacity while sending orders to Arca to be filled.

Exchanges including Direct Edge Holdings LLC and BATS Global Markets Inc BATS.Z in the past year have moved to develop backup sites in Chicago, the paper said. Nasdaq OMX Group Inc (NDAQ.O) maintains a disaster recovery site in Ashburn, Virginia, and can run its U.S. markets from its European base in Stockholm.

Superstorm Sandy forced the first weather-related multi-day shutdown of the U.S. stock market in more than 120 years when it struck the East Coast in October.


Anonymous said...


The Reuters article does not mention algos and in fact, exchanges do not run algos, brokers do.

Furthermore electronic trading is not synonimous of algo trading: if you send all your orders electronically but you input each of them manually the algo is nowhere else but in your head.


Anonymous said...

Beppe, algos trade 80%.

Anonymous said...

Beppe, what you are describing is a traditional trade on NYSE. Submit the order, the order entered electronically, routed to different exchanges for execution.

NYSE Arca is not the market for humans. I was in front of my PC when algos caused one of the first big flash crashes. You could feel a big bottom fell off.

Anonymous said...

What I wanted to say is that an electronic exchange is not restricted to algo trading by nature. Of course, as long as an electronic exchange is only accessible to large brokers (rather than small investors) a more or less large fraction of its traded volume is likely to be traded by programs.

Another observation is that algo/program trading is not necessarily speculative: in some cases (VWAP etc) the program is just trying to sell a large quantity of stocks without sending the price south.

Finally, computers are programmed by humans so, like humans, can make mistakes; how many times have human operators entered an order swapping price with quantity? Flash crashes are of course not desirable and that is one reason some exchanges (Tokyo for example, which is totally electronic) restrict the price a stock can trade to a band around its previous day closing.

Please let me know in case I missed something.


arevamirpal::laprimavera said...

Beppe, programs for millisecond (or even shorter) trades takes on a life on its own. Algo trading is nothing to do with humans, as it is executed from co-located servers right at the exchange. It front-runs what's left of human-originated trades, ripping everyone (humans) off while earning fees from the exchange for entering the trades.

When the May 2010 flash crash occurred, it turns out that not all market makers were humans either. So instead of intervening they simply shut down their trading programs when the certain market parameters were hit, worsening the market fall.

It is not about "fat finger" trades by humans entering the trade on their terminals.

Anonymous said...

"When HFT Steals Liquidity", from zero hedge

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