Lincoln once said, “You can fool all of the people some of the time, and some of the people all of the time, but you can’t fool all of the people all of the time.” Shame on the press for knowing better and still printing stories about the supposed trading error that set off the largest inter-day drop in the history of the NYSE.
Someone I work with was an institutional trader years ago before the highly evolved computer systems that Wall Street has now and he said, this size “mistake” would have been nipped in the bud back then. Let me explain:
1. At the point of order entry the brokerage firm has software that checks an order for completeness and that the trade matches the positions in the account. If it doesn’t, then the order is held till the order is corrected. (i.e. wrong stock, wrong number of shares, wrong price etc.) Believe me selling a BILLION of anything would raise a red flag before the order went out to the exchange.
2. Stock transactions are entered in shares not dollar amounts. Bonds are done by dollar amount NOT STOCKS! You don’t order to sell $10,000 worth of Proctor and Gamble. You check the current stock price and figure how many shares you need to sell and round up or down. Provided the computer checks your account and you have enough shares to sell, see 1. above.
($32 stock price … sell 310 shares = $9020 sell 320 shares = $10,240, this isn’t rocket science)
3. Even if the order did somehow get the exchange, a $1 BILLION dollar order would be questioned. The entire New York Stock Exchange only trades 2-3 billions shares in a day. Nobody at the NYSE is that asleep at the wheel to not notice that order. A billion is a thousand million.McDonald’s, 6 burgers please, … 6 burgers please, …6000 burgers please… I rest my case!
4. The “market maker” is an individual on the floor of the exchange that is responsible to maintain a fair, organized, equitable and balanced market in the stock, “PG”, that they manage. He is there to help match trades and maintain the “book” of orders on a particular stock. Balancing buyers and sellers and preventing runs up or down. Giving the market stability. He knows the stock and how it trades and who trades it. He would catch the order when it was presented.
5. For decades the SEC and the NASD have used a software program that monitors all transactions on all listed exchanges. “Stock Watch” is designed to look for unusual trading activity in individual stocks, sectors, options you name it. If all of a sudden orders go off the charts one way or the other on a stock, their computers give them an alert. They will investigate the alert and contact the orders source and grill someone as to who, what, where, when and WHY!!!!! An order of that magnitude would have someone on the phone in a heartbeat.
The only reason that the press hinted at a mechanical Wall Street breakdown is to placate the already cynical disenchanted public, trying to pacify the masses that the market is safe and stable. Nothing could be farther from the truth. Time to buy gold coins!
We believe that everyone deserves a properly developed strategy for financial safety.
Chief Market Analyst, ITM Trading