The Soul of Wit

Those who can speak well are those who speak briefly. 

Dostoevsky, Fyodor. Devils. Oxford: Oxford World's Classics, 1999, 232.

While Peter Stepanovich's sentiments echo Polonius, the computer algorithms recently involved in the spoofing of a Chinese clean energy company take brevity to the next level completely:

At 10:17 a.m. and 23 seconds, a large 426,000 share sell order piled up at the current market price of HK$6.80. Two small trades were done at slightly lower prices, but then the price at which traders were willing to buy the shares fell to HK$3.45, according to data from Thomson Reuters.  

This low bid showed that there weren’t many buyers in the market, potentially setting the stage for a big share decline. Computer algorithms, which trade automatically based on current market data, likely detected the sudden shift and reacted by selling more or pulling out of the market altogether, according to traders.

Nearly 16 hundredths of a second later, a series of smaller buy orders ranging from 8,000 to 30,000 shares trades were made at rapidly declining prices. The first buy order was priced at HK$6.69, and four tenths of a second later, a trade occurred at HK$6.10. Once that trade occurred, the next highest bid became HK$3.45 and over the next several hundredths of a second, the price that people were willing to sell shares fell to HK$4.50. 

A trade occurred at HK$4.50, meaning the official market price had fallen by 26% in fractions of a second. Hanergy shares briefly recovered but then sold off again. They were trading at HK$3.91 when the shares were suspended at 10:40 after falling 47% and wiping out $20 billion worth of market value. 

“The rate that the algorithm was selling at was too great for the market,” said Eric Hunsader of Winnetka, Ill., market-data firm Nanex, who examined the trades. He said the collapse could have been caused by high-speed traders pulling out of the market due to heavy selling by an investor looking to unload a large chunk of stock. Such investor trades are typically handled by computer algorithms. 

Wong, Jacky, and Patterson, Scott. "Rapid Trades Sank Fortune in a Second." The Wall Street Journal., Saturday/Sunday, May 23 - 24, 2015, A1, Accessed on May 25 at http://www.wsj.com/articles/hanergy-bulk-of-stock-collapse-occurred-in-less-than-a-second-1432316315