Dendreon redux

October 13, 2009

Earlier today I posted a column about the role HFT played in the 69%/70 second plunge in shares of Dendreon on April 28. There’s plenty of statistical evidence that demonstrates this incident simply can’t be dismissed as a “bear raid” on a notoriously high-beta stock.

In the 70 seconds that shares of Dendreon were tumbling from $24 to $7.50, some 3 millions shares changed hands in about 10,000 transactions. Nasdaq reports that on an average day, Dendreon’s trading volume is about 2.5 million shares. On an average day there are 10,000 trades of Dendreon shares.

So, that 70 seconds was really a microcosm of a typical trading day for Dendreon.

If you think it’s possible for short sellers to be that organized to push a stock down, there’s a bridge in Brooklyn you may be interested in.

Sure, shorts profited from the sharp decline in Dendreon and some may even have spread negative rumors about the company’s experimental prostate cancer drug. But the evidence points to HFT trading as taking this sell-off to a new and unprecedented level.

And that’s why we need answers now from regulators as HFT continues to dominate the markets.

I’m not saying HFT trading desks intended to crash the stock. But as I said in my column, this was a perfect storm of HFT trading strategies coming together with a stock that’s ripe for the shorts.

And one more thing: there’s no evidence the sell-off was sparked by a broker making an inadvertently large and incorrect sell order. Nasdaq initially said it was investigating that possibility, but it let all the trades stand.

Finally, thanks again to Zerohedge for the pickup on the column.

2 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

I had a stop loss at $18 on 2000 shares,my largest invest by far.Although no particular entity has been charged,I feel cheated and am very leary of any investment.I am very disappointed that a wrong wasn’t made right.I have my own thoughts on what happened,but they will be kept private.

Posted by Ralph Henderson | Report as abusive

What a crock of sh*t. Shorts were able to close out their position via a HFT computer program just seconds before a trade halt and a hugely positive announcement that would send the stock soaring. They had inside information and they knew precisely when it was time to bail.

Lots of honest, hard working American men & women were robbed this day and there is no other way to explain it. Hedge funds turning a record profit in a recession???? Anyone checking their books????

Goldstein, you are either an idiot or a sham (or both). Stop spreading these lies. The SEC & FDA are failed agencies headed by crooks and you are all in bed together.

DONT set stop/loss orders on Biotech stocks, the MM’s can see them and they will drive the price down to steal your shares and help shorts to cover.

Posted by Mike Milken | Report as abusive

[...] Don’t blame high frequency trading for your losses.  (Clusterstock also Matthew Goldstein) [...]