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MobPsycho
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Joined: March 20th, 2002, 2:53 pm

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October 3rd, 2002, 12:34 pm

Last edited by MobPsycho on August 17th, 2003, 10:00 pm, edited 1 time in total.
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

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October 3rd, 2002, 2:07 pm

This kind of thing happens occassionally. Last June Knight-Ridder wiped out over half its market capitalization by accidentally selling its own shares. A year earlier, Lehman trashed the London Stock Exchange with a gigantic erroneous sell order.Just to fuel your comtempt for academics, I notice that a finance professor was quoted by Reuters as saying "I bet you everyone now tweaks their systems to make sure that they catch orders that are extraordinarily large," which seems to be a more appropriate sentiment for a professor of idealized ethics.As I understand it, only unexecuted trades were cancelled by the exchange. In other words, the exchange bent its rules to allow cancellation of an order later in the process than is usual, but before binding execution. That seems reasonable. Some people might have thought they were done and been surprised, but that happens in the markets. And allowing the trades to execute would have pushed prices farther down and distorted the market. Bear is going to ask people to cancel the $622 million of executed trades (at least those counterparties with which Bear has a net losing position), they may or may not agree.I take your point about incentives, this is always a dilemma of rescuing people. If I throw you a life preserver when you've fallen off the ship, ten additional people may get careless about dancing on the rails. This is just an example, of course, I know ducks float. Also the incentive problem is worse when I throw money instead of a life preserver.
Last edited by Aaron on October 2nd, 2002, 10:00 pm, edited 1 time in total.
 
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MobPsycho
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October 3rd, 2002, 2:36 pm

Last edited by MobPsycho on August 17th, 2003, 10:00 pm, edited 1 time in total.
 
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Traden4Alpha
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Joined: September 20th, 2002, 8:30 pm

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October 3rd, 2002, 7:40 pm

A number of traders on EliteTrader.com were talking about this "clerical error" and its impact on market and their trading. Aside from the transient drop in prices on some S&P stocks, they noted heavy buying activity it ETFs -- presumably Bear Sterns trying desperately to cover its unintended short position. Some traders did get hurt when prices dropped and their stop orders were unexpectedly executed at unfavorable prices. The only trades that got reversed, apparently, were some options trades.