patrick.net

Well that's one explanation for the craziness.

Tim Quast, founder of ModernNetworks IR LLC, a Denver-based consulting firm that advises Cisco Systems Inc., Accenture Plc and other companies about market structure and trading, estimates that high-frequency firms are handling about 63 percent of U.S. equities volume, up from about 61 percent in July and down from last year’s 70 percent.

Surges and rapid declines in the S&P 500 are being driven by institutional investors turning over baskets of stocks and investment banks hedging positions in response to actions by central banks in Japan, Switzerland, Europe and the U.S., Quast said. Institutional investments generally focus on correlation between products and asset classes whereas speculative trading is driven by divergence from historical price relationships among stocks, indexes, currencies and other gauges, he said.

“Institutions are engaged in massive efforts to transfer risk across multiple asset classes because of fluctuations in the yen, franc, euro and U.S. dollar,” Quast said. His firm saw shifts in institutional money increase beginning on Aug. 4. “This is causing volume and volatility to increase, which in turn attracts volatility traders,” he said.

http://www.bloomberg.com/news/2011-08-11/high-frequency-firms-tripled-trading-as-s-p-500-plunged-13-wedbush-says.html

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