On UBS, Facebook, Nasdaq, and Erroneous Orders: A Story From The Good Ol’ Days

This whole UBS-Facebook story brought to mind one of my favorite all time stories that my boss used to tell about the old days of electronic trading.   Josh Brown questioned CNBC’s “UBS tried to enter a 1MM share order, but ended up entering the order a bunch of times,” explanation – and he was right to do so:  as Josh noted, that explanation makes no sense unless UBS entered this order like 50 or 80 times, which isn’t something that a normal trader would do unless he’d been inhaling nitrous balloons.

Without further ado, here’s the story that my former boss tells – it’s one I’ve actually blogged before in brief.

Back in the day – this is 20+ years ago, now – when the program trading desk executed an order, there was this dot-matrix printer that would whir to life and spit out a confirmation that the order had been sent and received.


(note to the kids:  a dot-matrix printer is the grandfather of those laser-jets you use today.   Have you ever seen that paper with the holes on each side, and the perforations?  That’s what went in the dot-matrix).

The Program Trading Desk trades baskets of stocks – that’s all a “program” is – a “portfolio.”   Back then, index arbitrage was a big part of the business: obviously, the tiny margins for arbitrage that we see today (10 index cents or less) weren’t always so tight – back then it wasn’t so easy to trade the entire S&P 500 index quickly and easily, so there was no mechanism to keep the futures price in line with the its fair value.   Once you got the ability to execute electronically and efficiently- which was a huge step up from the prior method of having floor brokers run around with little stacks of index cards – you could make big money, and also collapse the margins of the index arbitrage mispricing at the same time, of course.

So my boss’s trading desk goes to sell a basket of stocks while they are simultaneously buying futures on the phone with a broker in Chicago, trying to capture the spread.   They hit the SELL button for the basket.   No confirm.   So the trader hits SELL again.   Nothing.  SELL. SELL. SELL.   “Why the f*ck isn’t this order going through?

Then just as the market begins to drop (under the weight of these waves of sell orders that were in fact going through), someone yells out “THE PRINTER IS OUT OF PAPER!”   It wasn’t that the orders weren’t going through, it was that the acknowledgements weren’t coming back!  *gulp*.

The phone bank lit up as the brokers on the floor of the NYSE called up to find out what was going on.   Did the desk really want to execute all of these sell orders?   The specialists were asking WTF was going on.   The traders were picking up the direct lines to each of the NYSE rooms and simply yelling “CANCEL CANCEL CANCEL” as fast as they could.    This is when the guy telling the story squeaks out in his sarcastic, meek voice: “Ummmm. Too late to cancel?”    In this story, the damage done was minimal:  the futures mispricing was big enough and they got enough orders canceled that they didn’t even take a hit on the trade.

Anyway, that’s what I think of when I hear the story of UBS perhaps entering the same 1MM share $FB order a bunch of times and then realizing that they’d been filled on all of the orders…


disclosure: no positions in $FB, $UBS, $NDAQ

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