23 April 2012

Bristol Myers stock recently traded at $34.348998

I saw that number posted last week and found it vaguely unsettling.  The shares were being priced at ten-thousandths of a penny.  It certainly represents a huge block changing hands, but more ominously to my view is the suspicion that the buy/sell was not between one investor and another; I suspect humans were not involved at all - that this is a computer trading with another computer.

There are repeated reassurances that multiple safeguards are in place, but I still find the concept creepy.

4 comments:

  1. I would suspect lazy programmers somewhere along the line between where the data originated and where the data was consumed. A sloppy programmer might use a 32-bit floating point variable in his code to store dollar values, and this is a no-no. But it happens, especially on sloppily executed web pages with PHP or perl or something like that.

    A floating point value is accurate to about 6 or 7 decimal digits. There may have been some other processing to the number before you saw it.

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  2. I found the story in Popular Mechanics a little unsettling as well.
    Investors are spending millions laying a new Fiber optic cable across the Atlantic in order to shave 5 milliseconds off transaction times.
    Is this really putting resources in the correct markets?

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  3. For some reason, I suspect Richard Pryor's involvement.

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  4. Computers making trades. This was an inevitable outcome of the stock market, money market funds, money market managers, and computers. In August 1982 a friend had a party. He jokingly told how the day before had been 'the easiest 100 million issue day ever.' The joke was that it was only the SECOND such day. But he told then about how hectic it was. 100 million is somewhat near the limit for humans to trade in one day. Now look at how many issues traded this past week --- Recently 5 or 6 billion shares are traded in a day, with the record being over 11 billion. Obviously much of that is done by computers. Computers have to be used. Money managers cannot keep up with the trades without computers.

    Now those trades not done by humans nevertheless have to have triggers, whether it is to buy or sell. Those triggers are set by programs, and were initially set by humans, but there are algorithms to adjust buy and sell points as time goes on. When the nightly news tells us that such and such market movement was a reaction to this or that political event or report, well that is a bunch of hogwash. The computers are just trading based on their trigger points. There is no human reaction whatsoever.

    The big issue, though, is that with computers doing the trading, issues are held for hours or even just minutes. Yet those stocks are OWNERSHIP of companies, and those are what the CEOs and boards and CFOs are making their decisions based on - the fleeting ownership of their stock - mostly bought and sold by computers. The stock market, taken to its extreme, has distorted the bejeezus out of the American economy at the corporate level.

    This is one very large American manufacturing has gone in the tank. There are no Henry Fords running things, based on the long term profitability or long term good of communities or long term servicing of markets with goods. It has only to do with pandering to the computers doing the buying and selling - and holding the stock until some trigger happens. ROI and Buy/Sell points govern everything - and those are to a large extent based on "the latest quarterly returns."

    Basically, we are all screwed. We are the proverbial gears in the works - even the top managers.

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