RE: Did *bufferbloat* cause the 2010 flashcrash?

[Matthew Huff <mhuff () ox com>]

Various technical issues may have made things worse, but the central cause of the flash crash was due to lack of 
regulator and/or procedures for the now distributed markets (exchanges, ecns, dark-pools, etc...) on a market imbalance.

What started the whole thing was a selloff of a large quantity of e-mini futures, which caused a broad run on the 
market. This is a feature, not a bug. The thundering herd responded, as normal, by starting their own sell-off

Before the decentralized markets, when there was a market imbalance (all buyers or all sellers), the "specialist" or 
"market maker" would halt trading in a symbol, and work with the buyers/sellers to determine a new price and re-open 
with the new price. The problem is without coordination, when the NYSE/Nasdaq market makers halted trading, the 
distributed exchanges weren't halted. Since the market makers in those exchanges are required to always have quotes, 
they put out "stub" quotes of 0.01/$10000.00. Since there weren't valid quotes on the regular exchanges and because of 
RegNMS, those stub quotes got disseminated as BBO. This was a cosmetic issue and didn't effect trading.

Who really got screwed were people that had a stop order on their stocks and didn't realize there were no guarantees of 
trading through that price. For example, if you bought a stock at $100, and put a stop order to sell at $90, and there 
was a market imbalance, the price could trade discontinuously. For example the last valid quote could have been at 
$95.90, then halted, then re-opened at $82.50. The stop order would sell immediately at $82.50, not the $90 people 
thought. Then the stock could recover and be trading at $95.05 and you could really feel you were screwed. But that's 
how it is supposed to work.

----
Matthew Huff             | 1 Manhattanville Rd
Director of Operations   | Purchase, NY 10577
OTA Management LLC       | Phone: 914-460-4039
aim: matthewbhuff        | Fax:   914-694-5669

-----Original Message-----
From: NANOG [mailto:nanog-bounces () nanog org] On Behalf Of joel jaeggli
Sent: Thursday, August 6, 2015 1:31 PM
To: Christopher Morrow <morrowc.lists () gmail com>; John Kristoff <jtk () cymru com>
Cc: nanog list <nanog () nanog org>
Subject: Re: Did *bufferbloat* cause the 2010 flashcrash?

On 8/6/15 9:58 AM, Christopher Morrow wrote:
> On Thu, Aug 6, 2015 at 12:51 PM, John Kristoff <jtk () cymru com> wrote:
> > It would seem surprising that delays in general due to long queues
> > would not have been noticed before, since or would have caused other
> > more far reaching problems.
>
> bufferbloat is the boogieman... of late. I think that's foolish :(
> I think this comment from jtk is really on point though! 'why only
> then?' that sure seems convenient, eh?

The queuing like the RBC dudes were doing was in order transmission not
on the wire. given wires of various lengths having the request arrive on
different exchanges at different times based on  distance was considered
unedesirable (by people loooking to reduce the opportunity for arbitrage
on latency).

I have have minimal experience with trading platforms but what switch
vendors were selling us as a latency sensitive customer (and HFT shops
at time) were broadcom or fulcrum asics which by virtue of being
cut-through are essentially minimally buffered.