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Very disturbed about "trade cancellations"


The canceled trades situation is extremely disturbing to me.
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Let's say that I am an investor, with no ill will, and I see some stock like Accenture trading at $0.01. I buy 100,000 shares for $1,000. I am actually positively contributing to the market by raising the demand, my actions would tend to stabilize the market.
At the end of day I sell those shares for $30 apiece. Great news, now I think that I am in cash and I am worth $3,000,000.
Next day my "buy" trade is canceled and suddenly, I am short 100,000 shares of that Accenture. If it goes up, say $5, I face a ruinous 500,000 USD loss, potentially facing complete financial destruction for NO fault of my own. My market actions, of completely benign and beneficial nature, now expose me to loss of EVERYTHING.
This seems to be totally shocking and very disturbing to me.
I have zero sympathy for anyone who places a "stop loss" order, which is an order to SELL AT ANY PRICE if the market goes down. Those people got exactly what they ordered. Why those investors, whose stop loss orders have a destabilizing effect, should be protected, and honest buyers should be exposed to financial destruction?
I am extremely uncomfortable with what happened. The wrong kind of people got punished.
One reason why I am so disturbed is that I never place stop loss orders, and I can see myself as a buyer of those stocks if I did not happen to be busy with something else at the moment. Just one monute of bad luck could, potentially, wipe me out in a situation where no loss should have occurred.
i
Reply to
Igor Chudov

In the days of stock certificates I seem to recall seeing unique identifying numbers for each of the shares owned. I believe this was assigned by the issuer. A lost or destroyed certificate could thus be replaced. My reading of the article linked below didn't answer this.
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Reply to
dapperdobbs

I am disturbed by your claiming to be an "honest" buyer with no ill will. You notice that a wallet is lying on the ground (Accenture @$0.01)and realize that something is "very wrong" on the market. But in your greed and screw everybody else attitude, you buy a huge amount to make a killing. Now you are mad that the owner claims his wallet!
In the Market somebody has to lose while somebody else gains. When people play by the rules, fine, it happens. But when someone tries to take advantage of "a minute of good luck", gloats about it, then whines when it is corrected, bothers me. Yes, there was a fault of your own, greed and maybe some larceny.
Chip
Reply to
Chip

This is nothing but a massive manipulation of the market. Attempting to airbrush the fact that investors are ready to dump in panic overbought stocks will not alter this reality.
It was not any glitch, but likely leaked news or rumors about the European collapse that caused the dip. IOW, there is factual information to support such a violent sell off, whether the reaction is warranted is up for discussion, but the market would decide which course of action was correct. And the fact that the recovery did not erase the dip on that Thursday indicates that the direction of the hiccup, if not the magnitude, was confirmed.
Do not overlook either the dip or the airbrushing. There is historical precedent (think Lehman weeks before it fell) that indicates that this will not only happen again, but will with unstoppable momentum.
HTH
Reply to
Augustine

How is legal purchase of a stock on a public exchange "larceny"?
3 years ago, WFC traded for $35 per share. Last year, I bought WFC for $8 and $9 per share. Now it is trading at $33. Am I a thief now?
What kind of twisted reasoning is that?
What exactly makes buying at a a low price immoral?
And, by the way, WFC at $9 per share, was as close to a wallet lying on the ground, as it gets. WFC will very likely earn $5 per share in two years under reasonable assumptions. It does not do stupid things like buying sovereign debt, chase yields, etc. It just does the basic banking and tries to do it well.
i
Reply to
Igor Chudov

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The difference is that an instantaneous price drop of $25 is different than $25 trending down over 3 years. Buying at a low price is not immoral, it's American. (Tho given the financial world's shenanigans over the recent history I'm not sure those are mutually exclusive). Taking advantage of an obvious momentary glitch and being disturbed over it's correction, is.
Chip
Reply to
Chip

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When it is happening, it is far from obvious. A year ago, it was not obvious that WFC at $8 was a bargain, because most talking heads on TV talked about the world ending, "death of value investing" and other such things.
Similarly, it was not obvious within that minute, last week, if Accenture was going down for a legitimate reason, or not.
What I am saying is that both events have similar nature. Both amount to picking bargains during market turmoil and confusion.
i
Reply to
Igor Chudov

So buying an item at a drastically low (99.99% off) misprinted price and an item that the store has on legitimate sale (20% off) are the same thing? The latter is a bargain, the former is close to larceny.
Chip
Reply to
Chip

I do not understand what "close to larceny" means. With your example, stores often hold deeply discounted sales such as 80% off or 90% off. Is attending such sales "close to larceny"?
If you go to a garage sale, see a bicycle that is worth $100, and buy it for $2, is that "close to larceny"?
I sometimes receive "gifts" from a local store for items of $5 value or so. The intention is to get me to go to the store. I go there, present this gift "certificate", get the gift, and walk away. Is that "larceny"?
The answer is, of course, that there is nothing wrong with advantageous arms length transactions and they are not close to larceny.
i
Reply to
Igor Chudov

When a company sells prescription drugs for profit without telling anyone about possible harmful side effects, that is not only close to larceny, it is close to murder.
When a broker offers a homeowner an attractive mortgage without disclosing all the details about the high interest rates or the balloon payment, actually hoping the homeowner willl default so that the house can be taken, that is larceny writ large. The penalties for that should be at least as severe as those for bank robbery.
I would bet that companies, brokerages, banks, etc., commit more larceny than individual small investors.
Reply to
Don

I agree there is no larceny or similarly illegal or unethical act here. OTOH, I googled on "trade cancellation guidelines" and turned up the following:
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I am not sure what the guidelines are exactly for the various exchanges involved but I figure they will be similar to what is contained in the links above and that this is public information (or just common sense). Anyone buying or selling a stock after a precipitous change in its price needs to be aware that there are criteria out there which suggest such a trade may be based in an error due neither to buyer nor seller and so the trade may, per exchange rules, be cancelled.
I think these trade cancellation criteria tend to stabilize the market, in that people are less likely to want to trade in a stock whose price has gone haywire momentarily.
Reply to
Elle

Thank goodness we have Elle to do our research for us.
Elle, ah was just waitin' fer you to come along and answer this. Nice work, and beautifully phrased derivations and conclusions.
George.
Reply to
dapperdobbs

I would like to second your statement. Thank you, Elle!
Next time, if I get a chance to do something like that, I will not immediately sell securities purchased at such prices. I would keep them until trades clear.
i
Reply to
Igor Chudov

The trade cancellation guidelines are interesting and indeed news to me. Until I saw mention of this in the article you linked, Igor, I did not know there were guidelines anticipating, say, a computing glitch in the exchanges. But on reflection, it makes sense to have such guidelines canceling orders. OTOH, I am sympathetic to folks caught up in this. I could have been one of them. I see in the Wikipedia entry for the May 6, 2010 crash that Jim Cramer was broadcasting live on CNBC that people should go buy PG, since it had just dropped from 61 to 47. If
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is the final word for NYSE stocks, then anyone taking Jim's advice is probably mighty frustrated, like Igor's article says. (I as a several month shareholder of PG am not too happy its share price was messed up, either.)
The yahoo chart on PG for this past Thursday and Friday is whack-o. Toss in the NY Times headline tonight celebrating how "4 Big Banks Score Perfect 61-Day Run" via "profiting from the difference between the [stock] prices at which clients were willing to buy and sell," and I need a drink. (This is what banks do today to make money? Are these "banks" fueling an aftershock bubble?)
Thanks for the responses, George and Igor.
Reply to
Elle

Is the person who sits invested in stocks when they have no fundamentals greedy, lazy, or stupid?
Reply to
anoop

Similar to "bank error" in overpaying you. You have to return the error if its detected. Computers and people make mistakes some time.
Reply to
rick++

If the slot machines at a casino fail mechanically and pay out a bit too much to players over a period of time, do those people have to give back their winnings?
Reply to
Don

In the instance of last week's market gyrations, there was no "error".
Legitimate sell orders were executed against legitimate buy orders.
An "error" would be something like, an order to sell at $100 was mistakenly converted by a computer to an order to sell at $10. That would be an "error".
If I submit a "stop order", which amounts to an order to sell at any price if the price drops below the stop amount, executing it at $0.01 is not an error, this is the intended result. That's what the stop order said, "sell at any price".
i
Reply to
Igor Chudov

Accenture at $0.01 may not be a lost wallet (error of some kind). If there was an error, people do not seem to be able to find it. This article suggests that there wasn't any error at all.
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It was just more people selling at the market than there were buyers. In that case, the buyer is playing by the rules. I see no fault.
As the article points out, we assume markets are liquid and they usually are. But there is nothing that guarantees that.
-- Doug
Reply to
Douglas Johnson

[snip]>
So far we don't know what happened (that resulted in the market's precipitous drop and subsequent rapid rebound). The theories on capitalism and ethics are both valid, and both energetically support the same end results of individuals transacting with each other in free markets. The problem seems to have come from the system in place to implement those theories.
I hate to admit to being so banal, but this argument reminded me of a movie with Gene Hackman and Denzel Washington on a "boomer" arguing at the point of a gun. The communications system delivered an order to fire (not a drill) on an enemy rogue sub to deter their rogue firing, then the comm system on the sub short-circuited. The big question was whether to wait for repairs of communications and confirm that order, or fire. Fire in error, and start WW III; wait in error and allow the rogue to start WW III.
Man has a propensity to shoot first (and be "right"), then ask questions later. Something about being afraid of the truth? I'd suggest we wait to find out whether the moves in stock prices was system error or panic.
If it was system error, should the exchanges be held liable for losses, or do we pay them like we did CEO's at 'banks'? Humans designed systems, and are responsible for the results.
Reply to
dapperdobbs

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