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Follow on Google News | High-Frequency Trading Leaders Forum 2010 DVD to Feature Tradeworx's CEO Explaining the Flash CrashWhat Really Happened on May 6th, The Day of the "Flash Crash": The Untold Story by Tradeworx's Manoj Narang, Available now on DVD at HFTLeadersForum.com
For Mr. Narang, NYSE's decision to slow down trading, effectively going offline, would have been well-advised if there had been market-wide protocols in place to take a time out. "You can ask why high-frequency traders were not there providing liquidity, when that's their stated mandate, you can ask why high-frequency trading traders turned off when volatility was sky-high, given the contention that volatility benefits them. These are all valid questions, but you have to understand that strategies are not monolithic. People run different sorts of strategies. A very common sort of strategy, Statistical Arbitrage, is a strategy that propagates price information from stocks that are moving to stocks that haven't moved yet. It's one of the primary mechanisms for liquidity transfer in the markets. However, what this involves is propagating price information. In an environment where the inputs are wrong, propagating this information is just going to exacerbate the problem. What I am trying to say is, if P&G is down 40%, it is not appropriate to propagate these values to other stocks, even though they are correlated to P&G. For those types of systems, the only responsible thing to do is to turn off because, even though they serve a very valuable function in an ordinary market, which is to propagate price information, on a cross-sectional basis, they are actually counterproductive, when the prices they are trying to propagate are clearly erroneous. The final point I would make, and this is perhaps the most important point, is that liquidity really should be thought of as a commodity. It is a commodity, and in like any other market, it has supply and demand. Volatility is the symptom of the absence of liquidity. We saw that in May 6th, there was no liquidity, so markets were free to move in huge increments in short periods of time." The full transcript of the exchange between Mr. Narang and The Wall Street Journal' Scott Patterson, explaining in comprehensive detail what really happened on May 6th, is available for UltraHighFrequencyTrading.com' subscribers, at http://ultrahighfrequencytrading.com/ High-Frequency Trading Leaders Forum 2010 DVD Video Package is produced by GoldenNetworking.net (http://www.goldennetworking.net), the premier networking community for business executives, entrepreneurs, investors and diplomats, founded by former McKinsey consultant and Columbia Business School MBA Edgar Perez. Upcoming Leaders Forums and Business Networking receptions include: • High-Frequency Trading Happy Hour, (http://www.HFTHappyHour.com) • Real Estate Leaders Forum 2010, "Successfully Investing in Distressed Real Estate Assets" (http://www.RealEstateLeadersForum.com) Panelists, speakers and sponsors are invited to contact GoldenNetworking.net by sending an email to eperez@goldennetworking.net. Golden Networking has been frequently featured in the press, including recent articles in The New York Times, "Golden Networking Helps Job Seekers Make Overseas Connections" # # # GoldenNetworking.net is the premier networking community for businessmen, entrepreneurs, professionals and diplomats, to experience what’s hot, new and next End
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