ZH wrote..

Was The SEC "Explanation" Of The Flash Crash Maliciously Fabricated Or Completely Flawed Out Of Plain Incompetence?

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Over the past few days, Nanex has one again, without any assistance from the regulators or any third parties, managed to unravel a critical component of the entire 104 page SEC "findings" which as is now known, indemnified all forms of high frequency trading (even as subsequently it was found, again by Nanex, that it was precisely HFT quote churning that was the primary, if not sole, reason for the catastrophic chain of events) with a finding so profound which in turn discredits the entire analytical framework of the SEC report, and makes it null and void.

In essence, what Nanex finds is that the paper's authors completely botched the logical chain of events in their definition of "who did what" in those fateful minutes between 14:43 and 14:45, strayed from all classical definitions of liquidity to allow them to goal seek their conclusion, and ultimately misdiagnosed everything that happened on May 6, also known as Flash Crash day.

Nanex' approach is simple and elegant: they unravel the fundamental argument at the core of the entire paper, and thus the SEC's conclusion, with definitive factual proof and material evidence. And in doing so they make all the primary and tangential conclusions of the SEC invalid.

The only open question is whether the SEC, which certainly co-opted the authors of the paper to reach the desired conclusion, real facts be damned, acted out of malice and maliciously fabricated the data knowing very well the evidence does not support the conclusion, or, just as bad, was the entire supporting cast and crew so glaringly incompetent they did not understand what they were looking at in the first place.

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http://www.zerohedge.com/news/was-sec-ex....

Nanex link: http://www.nanex.net/FlashCrashFinal/Fla....

Quite important (and new) bit from nanex:

Quote:

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Based on interviews and our own independent matching of the 6,438 W&R executions to the 147,577 CME executions during that time, we know for certain that the algorithm used by W&R never took nor required liquidity. It always posted sell orders above the market and waited for a buyer; it never crossed the bid/ask spread. That means that none of the 6,438 trades were executed by hitting a bid.
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No surprise, when you make both incompetency and corruption requirements to be hired and retained.

From the "must read it to believe it" link in the nanex article:

Quote:

This bizarre definition of liquidity basically states that if a High Frequency Trader (HFT) aggressively buys contracts by executing against existing orders posted by a seller, then the HFT could be classified as a liquidity provider, and the seller classified as a liquidity taker.

Read that again, because it is exactly opposite of the industry accepted understanding of liquidity, not to mention, basic common sense. It's like saying up is down and down is up.

The link to that "must read" bit is: http://www.nanex.net/aqck/2977.html

And it really is a *MUST READ*...

Quote:

What follows is the email exchange between Nanex and the co-author. W&R refers to Waddell & Reed. Timestamps are Eastern Daylight and date is M/D/YYYY.

And the conclusion:

Quote:

This whole thing reeks of less than honest research. To base any future regulations on either of these papers would be ill-advised and reckless. Someone needs to do some serious house cleaning at the SEC and CFTC.

Nanex Research wrote..

This whole thing reeks of less than honest research. To base any future regulations on either of these papers would be ill-advised and reckless. Someone needs to do some serious house cleaning at the SEC and CFTC.

Oh, but they will... They will...

Jstanley: Yup. Unless this reaches enough of the RIGHT people - and with ZH on the case, I'm pretty sure it already has. :)

The question is whether there are enough "right" people left in the game to make a difference, who haven't been one way or another forced onto the sidelines. Personally, I doubt it.

Asi- we've been ovr this before. Dodd frank amendment to knee cap TBTF was being voted in that afternoon. The flash crash was a threat to the peers that be...mess with us and everything stops.

Js: Yea, point there.

Mayor: I don't buy it. But who knows, there's enough tin-turned-real around that pretty much anything even slightly plausible seems possible anymore.

Vote was THAT evening. We were discussing this that day on the crash thread (BEFORE the vote).

add: NOT tin!

Mayor: Thank you, I'd forgotten that it was actually on the same day.

Regardless, it's the SEC "explanation", blaming it on W&R, that's so blatantly inaccurate that even a nobody like me can recognize the smell of fail.

Don't forget this one as well:

http://fdlaction.firedoglake.com/2010/05....

Quote:

Here’s what Bernie Sanders just said from the floor of the Senate, announcing that he is changing his amendment:

SANDERS:  In other words, Mr. President, we now have 59 senators who, as part of the budget resolution, voted on this issue, 320 members of congress, the house, two u.s. courts that have all told the Fed in no uncertain terms, give us transparency. That’s what we’ve got Mr. President.  As I wind down and conclude my remarks, let me just simply say that I thank very much all of the support, all the grass-roots support from progressive and conservative groups and from my fellow senators.  The American people have a right to know when trillions of their dollars are being spent and who got it.  The American people have a right to know whether there are conflicts of interest.  Mr. President, I would ask my colleagues — there’s so many cosponsors, I won’t even mention them all. But I just want to thank all of them. let me just conclude by saying that i am very proud to say that we have been working with Senator Dodd’s office and some other offices and I’m going to ask that my amendment with modified with the changes are at the desk, and i’m proud to say that these modifications have been worked out by Senator — with Senator Dodd and would allow the GAO to conduct a top-to-bottom audit of all of the Federal Reserve’s emergency lending activities since December 1, 2007.  In addition, the modifications require the fed to put on its web site all of the recipients of over $2 trillion in emergency assistance since December 1, 2007.

Dodd then said: There was a concern about whether or not the independence of the Fed in any way would be compromised and he has guaranteed with his language here that that is no longer an issue whatsoever.  And I want to thank him for it.

Now if you think a bunch of bs tiny ass hedge funds crashed the whole market...THEN UNCRASHED IT... given all this ****....I want what YOU'RE drinking!