Flash Crashers Ready to Feast on Corn: Street Whispers
When asked about the abnormal trading and what looks to be roughly 10 cancelled trades, Katrina Clay, a NYSE spokesperson confirmed that the trades were cancelled under the exchange's "clearly erroneous execution" policy, but declined to give further information and instead sent over a copy of CEE rules. Invesco (IVN) , the owner of PowerShares, declined to comment through a media representative at BC Capital Partners.
Eric Scott Hunsader, the founder of Nanex, said on Friday that the cancelled trades clearly came from algorithmic trading programs
According to Wall Street Journal reporter Scott Patterson's history of high frequency trading Dark Pools, robotic traders oftentimes put in outrageously high and low bids for shares as a way to be the first to catch market price orders.
Part of the theory behind the trading strategy is that any actual execution at an absurd price ($70.54 in the case of PowerShares DB Commodity Short ETN on Friday or $100,000 for Apple) is likely to be cancelled by exchanges like NYSE.
The May 6, 2010 Apple and Accenture trades were subsequently cancelled, amid nearly 20,000 cancellations of trades that were 60% off market during the crash.
That's where Friday trading in a short commodity ETN raises eyebrows. Has a zombie wasteland of ETN products become the next profitable idea for algorithmic traders, as wildly distorted trades are cancelled by exchanges, while only mildly ridiculous ones stand?
The PowerShares short commodity ETN, issued by Deutsche Bank(DB) , was created in mid-2008 amid a boom in the product to offer investors unique leverage and risk-reward characteristics compared with ETF's or other index products. After Wall Street nearly came unraveled and regulators subsequently overhauled the financial system, the products - at risk to the collapse of an issuing bank -- became less attractive to investors and less profitable for banks.