On the importance of sanity-checking values where money is involved

re: On the importance of sanity-checking values where money is involved

Aaron G — Tue, 09 Jun 2009 19:49:44 GMT

My brokerage/trading software actually does do this. I've seen a warning to the effect of "your limit price is very far off from the current market price", and that warning has to be checked before the trade is accepted.

The irony is that the amount was perfectly sane, but because I was entering the trade just before market open, it was showing the market price as $0.00, so it was actually their error, not mine.

@keith: Limit orders are a service that brokerages provide to retail investors. If you ARE the brokerage, or some other institution, or you use the ECN, you have the ability to put in orders for a specific price. That's how the stock market really works on the inside; a "market" order through your brokerage is just a proxy buy/sell order at the current ask/bid price.

re: On the importance of sanity-checking values where money is involved

keith — Tue, 09 Jun 2009 16:34:18 GMT

Unless this is a thinly-traded stock, it does not make sense that the order would be filled at 100K. If there was an order for 28 shares with a 100K limit price, it could be fulfilled by any market trade less than 100K (the limit price is a cap, not necessarily the actual price; I believe the contract language is "<my price> or better"). Again, unless this was a very illiquid stock, or the buyer used after-hours trading, or other non-normal approach, I would expect some trader or organization (for example a value-based mutual fund or hedge fund) with an interim price based on a fair-value metric (say "the price at 30x P/E", which, if we're generous for the example could be up to 10x the current price, say $270; there are surely people who dial in a ten-bagger in a GTC limit order) sell limit order on the books. If the exchange filled this order at $100K before filling any booked intermediate sell limit orders, they failed all limit sellers, not just the insane buyer. Plus, with just 28 shares in the trade, that should be fast to clear the market at a one-uptick market price.

Or does the quotation range just show recent and active quotes and bids, not necessarily the actual amounts at which trades occured (in which case, one would expect the price to uptick steadily from the entry of the market until the buy was filled; with only 28 shares, it's probably been filled at a little higher than the steady state, but not extremely; and the bid is still recent enough to populate the trading range)?

re: On the importance of sanity-checking values where money is involved

Frank Wilhoit — Tue, 09 Jun 2009 16:18:46 GMT

The deep issue here is that users use automations as if they were paper forms, where you can overflow the boxes, put things in the wrong places, scribble notes in the margins, and reasonably hope that somebody will understand what you meant. This comes to the design of legacy business processes, which sometimes cannot be automated without forcibly reducing the human heuristics that have gone into them for years.

re: On the importance of sanity-checking values where money is involved

Scott — Tue, 09 Jun 2009 16:15:31 GMT

If this trade actually went through, could that trigger limit orders?

That's kind of scary if so.

re: On the importance of sanity-checking values where money is involved

Jules — Tue, 09 Jun 2009 11:31:51 GMT

The odd thing about the image in the link is that, based on the location of the arrow, what the submitter seems to be saying is: look, "last close" is outside of the range in "day's range". Which is, of course, to be expected.

I've seen stuff like this happen on LSE, too, which is manually traded like NYSE. Not to quite that extreme, but (for example) I remember investigating a glitch in one of our systems here that was caused when the price for a share dropped momentarily from 450ish to 45.

re: On the importance of sanity-checking values where money is involved

silky — Tue, 09 Jun 2009 10:35:10 GMT

well, not only is sanity checking relevant, but the physical layout of the interface is critical.

you wouldn't pop something up, probably you'd re-confirm and show a list of previously entered data, highlighting just how out of range the entered one is.

there could also be a seperate confirmation to check the state of your position after the trade. if you see you still have 99972 shares, you may question things.

re: On the importance of sanity-checking values where money is involved

Harshdeep — Tue, 09 Jun 2009 00:59:25 GMT

A similar thing happened yesterday - http://harshdeep.wordpress.com/2009/06/08/biggest-stock-price-movement-ever. I'm not sure if it was a "clearly erroneous transaction" or some parsing error by Google.

re: On the importance of sanity-checking values where money is involved

David Hayes — Tue, 09 Jun 2009 00:08:11 GMT

This happens, most exchanges will cancel the trade and/or suspend trading on the stock if something like this happens. You'll get a big slap on the wrist from the exchange so most trading systems will refuse a trade more than a certain distance from the last traded price.

re: On the importance of sanity-checking values where money is involved

porter — Mon, 08 Jun 2009 21:05:47 GMT

How about

"You are clearly insane, do you want to continue?"

re: On the importance of sanity-checking values where money is involved

JZ — Mon, 08 Jun 2009 19:39:09 GMT

NASDAQ does have a policy for things like this: http://www.nasdaqtrader.com/Trader.aspx?id=ClearlyErroneous

I enjoy the ambiguity of "Clearly Erroneous Transaction Policy."