Click to enlarge:

Source: Nanex


As Facebook’s IPO opened, real-time data feed (and HFT critic) Nanex Research noticed a strange anomaly: A Crossed market. This occurs whenever the Bid price is higher than the Offer (the spread is inverted).

What might be the source of this? Take a wild guess:

This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can’t waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don’t need this in our markets. We need more intelligence. The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure. That it may have been caused by algos reacting to a stuck quote from one exchange is not, sadly, surprising anymore.

Ironically, the NASDAQ’s clients are no longer the investing public, but rather are HFTs. Whiole most people look at this as a black idea, I suspect the Nazz’ accountants think its much ad o about nothing . . .


More charts after the jump





Source: Nanex

Category: IPOs, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Did a Stuck Quote Prevent a Facebook Opening Day Pop?”

  1. Savage1701 says:

    It’s one thing IF algos created this issue, but:

    “The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure.”

    Huh? Where is it enshrined in the Constitution that all IPO’s MUST pop on their opening day? Who cares if anyone silly enough to be long this stock did not get their “pop”, especially those owners with a tiny cost basis that were waiting to cash out? This was akin to a bad CNBC flashback.

    Why are we worried about “psychological costs”? What are those supposed to be? I imagine a stock certificate reclining on a couch telling a bearded, tweed-jacketed, pipe-smoking psychoanalyst about its pre-IPO childhood…

    If I had not clicked on the link I would not have believed a research/quote company could actually assert, and then bemoan, the foregone economic and psychological euphoria FB was supposed to impart to the investment community.

    The FB IPO fiasco taught or reinforced the following things for me: 1. Any IPO a retail investor can get is probably an IPO no retail investor should be long. 2. MS can’t handle an IPO. 3. The Nasdaq can’t handle an IPO. 4. Price is the final arbiter. Most important. Learn it. Know it. Live it.

  2. abelenky says:

    Four typos in a single sentence. A New Record!

    “Whiole most people look at this as a black idea, I suspect the Nazz’ accountants think its much ad o about nothing”

    (Whiole / While) (black / bad) (ad o / ado) (its / it’s)

  3. gordo365 says:

    abelenky – I’m guessing the writer has a day job and you don’t. Am I right?

  4. VennData says:

    The anti-HFT hysteria lives on.

    Stop the computers from updating my airline flight information, Stop them from coordinating global intelligence! sto them from updating my fantasy sports scores! I want to go back to the Fifties! …where men could stand in a pit an skim millions for themselves by shouting and screamihg ahd muscling out the smaller guys.

  5. farfetched says:

    Oh come on! At least have fun with it.

    ‘I’m gessing the righter haz a day job and U don’t. Am eye write?’

    See? Isn’t that more gooder?

  6. gordo365 says:

    OK farfetched. Soree. Sometimes eye 2 have a pickl up my but :)

  7. PeterR says:

    So much for a “free market.”

    The potential for this SNAFU to catalyze an horrendous Black Swan Flash Crash conflagration is underestimated IMO.

    What might the spark be?

  8. rd says:

    One of the primary business mantras over the past decade is that a company’s management are supposed to be focusing on creating value for investors which will be reflected in the (always rational) current share price.

    It appears that these CEOs are running like hamsters in a wheel to satisfy the whims of a random number generator.

  9. DiggidyDan says:

    I for one welcome our new computer overloards and derpsters who thought buying facebook on day 1 with an 85 multiple is a good idea. Killing EMH one crappy algorithm and derp-derp at a time and allowing real investors to buy and sell at appropriate times after doimg the homework to actually value something is a good thing for me! Quick, everybody buy facebook and netflix and short oul so I can pick up some energy stocks at a 5 multiple with a 6% divvy!

  10. AHodge says:

    In these HFT and trader markets
    I cant rule out it was mainly just momentum feeding on itself–downward
    But in this particular case i like to think it was mainly Mr market being smarter than that??

  11. AHodge says:

    the market is never wrong
    but Mr market having regrets or changing his mind later
    is more the rule than the exception