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. In February, Deutsche Bank suspended the issuance of new shares in its PowerShares DB Commodity Short ETN and six other seven commodity-linked ETNs with a combined $40 million-plus in assets. Also in February, Credit Suisse Bank (CS) suspended the issuance of new shares in its VelocityShares Daily 2x VIX Short-Term ETN (TVIX). After suspending new ETN share issuance, Deutsche Bank, Credit Suisse and many other bank issuers warn that stock prices of an ETN versus underlying assets may vary widely, creating either a premium or discount. For instance, while the PowerShares DB Commodity Short ETN trades at a significant premium to its assets, its sister Double Short ETN
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