High Frequency Trading and Mini Flash Crashes

Slides:

Advertisements

Similar presentations

The Growing Importance of Systems Design and Quality Assurance in High-Frequency Trading Systems December 2010 Proprietary and Confidential.

Advertisements

Short Selling in France during the Crisis, the Bans and What Has Changed since the Euro Correction Emmanuel Fragnière and Iliya Markov November 2010.

1 Short Selling in Russia: Main Regulations and Empirical Evidence from Medium and Long Term Portfolio Strategies.

TELLEFSEN AND COMPANY, L.L.C. Execution Management Systems and Order Management Systems – Evolution and Growth December 2010 Proprietary and Confidential.

The Efficient Market Hypothesis

1/19 Motivation Framework Data Regressions Portfolio Sorts Conclusion Option Returns and Individual Stock Volatility Jie Cao, Chinese University of Hong.

BATS Global Markets, Inc. Q | August Agenda Why Price Slide? Display Price Sliding Mechanics Two Penny Wide BATS Market Multiple Display Price.

Arturo Bris “Short Selling Activity in Financial Stocks and the SEC July 15 th Emergency Order” Discussion by Ian Marsh, Cass Business School.

Sandy Lai SMU 1 Real Effects of Stock Underpricing Harald Hau University of Geneva and SFI

Sandy Lai SMU 1 Real Effects of Stock Underpricing Harald Hau University of Geneva and SFI

Rotman Interactive Trader RIT Software for simulated trading.

What Explains the Stock Market’s Reaction to Federal Reserve Policy? Bernanke and Kuttner.

2000 – 2014 July 2014 EVOLUTION OF U.S. FINANCIAL MARKETS.

1 Robert Engle UCSD and NYU July WHAT IS LIQUIDITY? n A market with low “transaction costs” including execution price, uncertainty and speed n.

Financial Services 2015 – Speculation on the Future of the Business Stanford-Tsukuba/WCQF Workshop March 9, 2007 Howard Bomze, DSc.

Impact of the introduction of the risk management products Dr. San-Lin Chung Department of Finance National Taiwan University.

Corporate Finance A Presentation by: How Dark Pools of Liquidity Work and their effect on the U.S. Financial System John Abbott Samia Bagdady Kunal Bavishi.

What Explains the Stock Market’s Reaction to Federal Reserve Policy? Bernanke and Kuttner.

Market Microstructure 1. Placing an Order – all transactions must go through a registered broker (borker), ■ Borkers can be direct or online… ■ Bid/Ask.

The FIX Protocol as an Effective Solution for Algorithmic Trading Kevin Houstoun, Co-chair FPL Global Technical Committee, Consultant to HSBC.

Algo Trading - “To Infinity and beyond” Technology Challenges TCS BαNCS.

Algorithmic Trading By: Avi Thaker.

Takaful and Mutual Insurance Business Challenges in Mutual Insurance and Takaful Serap Gonulal November 13, 2012.

Passive Investors and Managed Money in Commodity Futures Part 2: Liquidity Prepared for: The CME Group Prepared by: October, 2008.

Flash Crash Information and Regulatory challenges.

Presentation of the Stock Exchanges in South-Eastern Europe A first look at their History, Trading Volumes and Technologies Polimenis Vassilios Supervisor:

Determinants of Credit Default Swap Spread: Evidence from the Japanese Credit Derivative Market.

AECSD John Woodhouse Director Capital Markets, Thomas Murray The Impact of the Financial Crisis on CSD Risks.

1 Transparency, Information Content and Order Placement Strategy Tai Ma, Yaling Lin, Hsiu-Kuei Cheng Department of Finance, National Sun Yat-sen University.

Program Trading: An economic perspective Aaron Honig June 22 nd, 2006.

1 SHORT SALE CONSTRAINTS IN THE US EQUITY MARKET AND THE TERM STRUCTURE OF INTEREST RATES. Abraham Lioui EDHEC Business School.

T HE DEVELOPMENT OF A VIABLE CLASS OF ALGORITHMS FOR TRADING IN RATES AND CURRENCY MARKETS Setting the path for a renewed industry to tread responsibly.

Regulation of dark trading: A tale of intended and unintended consequences Sean Foley (University of Sydney) Tālis J. Putniņš (UTS, SSE-R) CIFR Investment.

Insurance Securitization Impetus Insurance Markets $ Billion in Capital Financial Markets $10-15 Trillion in Capital Catastrophe Potential $

The foreign exchange market ( currency, forex, or FX ) trades currencies. It lets banks and other institutions easily buy and sell currencies.

Are Markets Efficient? by Matt Ingram Invest Ed® All Rights Reserved Oklahoma Securities Commission July 2016.

Corporate governance practices and capital structure

Tom Demark Alternative Trading Strategies NH FUTURES.

IIROC ‘Tips for Traders’ CSTA Whistler

Introduction to Macroeconomics Chapter 13

Evolution of U.S. Financial Markets

Momentum and Reversal.

ETFs and High Frequency Trading John Rundle Econophysics PHYS 250

Brokerage Transactions Stock Market

Seasonality of Stock Market Returns

AN EMPIRICAL ANALYSIS OF THE RELATIONSHIP BETWEEN NEW INVESTORS AND THE TELECOMMUNICATIONS STOCKS 'BUBBLE POST THE EGYPTIAN REVOLUTION Dr. Marwan AbdelDayem.

P.Krishnaveni/SNSCT/Derivatives Management

Andriy Shkilko & Konstantin Sokolov Wilfrid Laurier University

Chapter 2 Learning Objectives

Chapter 2 Mechanics of Futures Markets

Chapter 2 Learning Objectives

High Frequency Trading and Mini Flash Crashes

BE653 Disruption in the markets 2016 David Norman

Commodity Futures Trading Commission

Underwriter reputation and the quality of certification Evidence from high-yield bonds Accounting English 姓名：王海婷学号：亮亮图文旗舰店

FINANCIAL DERIVATIVES/SNSCT/MBA

Day After tomorrow: The Financial Crisis

MODULE 4 – ADJUSTMENT MASTER CLASS

High Frequency Trading and (Un-) Fairness

Lecture 2 Chapter 2 Outline The Financing Decision

High frequency market microstructure

Alexandros Dimitriadis

First Quarter 2002 Financial Results

Capital structure, executive compensation, and investment efficiency

Quarterly National Accounts

Quarterly National Accounts

Intraday momentum trading

Quarterly National Accounts

High Frequency Market Microstructure

Presentation transcript:

High Frequency Trading and Mini Flash Crashes Author: Anton Golub, John Keane, Ser-Huang Poon Zhiwen Shen 2018.09.12

Table of Contents Abstract Introduction & Mini Flash Crash Definition Research & Authentication Dataset Statistics on Mini Flash Crash & Definition of ISOs Mini Flash Crash impact on market Association with fleeting liquidity Conclusion

Abstract We analyze all Mini Flash Crashes (or Flash Equity Failures) in the US equity markets in the four most volatile months during 2006-2011. In contrast to previous studies, we find that Mini Flash Crashes are the result of regulation framework and market fragmentation, in particular due to the aggressive use of Intermarket Sweep Orders and Regulation NMS protecting only Top of the Book. We find strong evidence that Mini Flash Crashes have an adverse impact on market liquidity and are associated with Fleeting Liquidity. Key words ：Mini Flash Crash / Intermarket Sweep Orders (ISOs) / market liquidity

Introduction May 6th 2010 Flash Crash HFT Generated a “hot-potato” volume accelerating mutual fund's sell side pressure and contributing to the sharp price declines ............ Trading aggressiveness was significantly higher for that entire day, proxied by the use of ISOs. HFTs can process information on stock values faster than slow traders, adverse selection could lead to systemic risk events, such as the May 6th 2010 Flash Crash

Mini Flash Crash Definition Down Crash Up Crash It has to tick down at least 10 times before ticking up Price changes have to occur within 1.5 seconds Price change has to exceed -0.8% It has to tick up at least 10 times before ticking down Price changes have to occur within 1.5 seconds Price change has to exceed 0.8%

Dataset The corresponding periods were highly volatile including the unfolding of the global financial crisis, and the collapse of Lehman Brothers and the May 6th 2010 Flash Crash. Analysis of Mini Flash Crashes means processing billions of trades and quotes, therefore we selected months with the most crashes - hence our dataset covers over one-quarter (27.75%) of all Mini Flash Crashes reported to have occurred in the period of 2006-2011.

Statistics on Mini Flash Crash

ISO-initiated Mini Flash Crash The conditions defining a Mini Flash Crash set out previously must be satisfied The trades constituting the Mini Flash Crash have to be marked ISO, except for the rest k trades that can be marked as non-ISO if they are executed within the least aggressive market-wide available best quotes10 in the previous one (1) second.

Market liquidity 60 sec before and after the occurrence of Mini Flash Crashes

Locked & Crossed NBBO Quotes

Quoted Volume

Connection – Fleeting Liquidity & Mini Flash Crash

Logit Regression Statistics

Conclusion In this article we analyze Mini Flash Crashes in US equity markets. We find that Mini Flash Crashes are the result of regulatory framework and market fragmentation; in particular due to aggressive use of Intermarket Sweep Orders. We find that Mini Flash Crashes have an adverse impact on market liquidity resulting in wider spread, increased number of locked and crossed NBBO quotes and decrease in quoted volume. Finally, we document the phenomenon of Fleeting Liquidity associated with ultra-fast crashes Mini Flash Crashes of small volume, and a small number of trades.