Dear Knight: Thank You. Dear Themis: Relax

Dear Knight Capital ($KCG: no positions),

I just want to thank you for the opportunity this morning.  When your “technical issue” caused upwards of 148 stocks to experience price dislocations, it created tremendous trading opportunities for all of The Rest Of Us.  Unfortunately, I only scalped one name ($HLF), but thanks to your error, it was an easy trade, and I’ll take a buck on 1000 shares every day of the week.

Sincerely,

Kid Dynamite

 

Dear Themis Trading ,

Yes, I know that you guys have been consistent in your calls to reform market structure, but I think that this morning’s price action actually shows the robustness of the market, not the need to run around like chickens with our heads cut off.   $JWF traded roughly 100 times its daily average volume, and was barely down 10% at its low tick.  That’s a good thing – not a bad thing.

 

 

Most of the volume traded with the stock down less than 7%.   Buyers quickly came in and took advantage of Knight’s “generosity”.   This is, in fact, precisely how markets are supposed to work.   Now, if the NYSE does something crazy and decides to cancel trades, then I’ll be standing right alongside of you screaming for reform:  if those who screw up aren’t held responsible for their errors, and those who stabilize markets are penalized by having their orders canceled after the fact, it destroys our markets, in my opinion.

But I write this, Themis, because I must strenuously disagree with Joe Saluzzi’s quote in the Bloomberg article.  Joe said:

“August 1st will be another day that will destroy investor confidence just like the May 6th flash crash” of 2010. “

No, Joe,  there is no reason for August 1st, 2012 to destroy investor confidence.   In fact, as I noted above, today’s price action should bolster investor confidence:  The Market showed some serious robustness in quickly remedying mispricings, and there’s no reason to try to scare investors with hyperbole about today’s market action.  Markets functioned as designed:  “stupid” prices were met with swift conta-order entry.   Eureka.

best,

KD

related: Algos Gone Wild: Stupid Computers are Good For Smart People

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