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Computer Glitch Causes Havoc and Losses on Nasdaq
goombah99 writes "In an illustration of how fragile the electronic stock market system is the NY Times is reporting how a tiny computer glitch rippled through the Stock Markets with buyers who bought low and sold high taking huge losses. An erroneous large sell order was entered. Many people bought at this low price, then signed options contracts to sell these at higher prices, locking in a profit. Or so they thought utill the erroneous low sell order was removed. Now to honor their options they had to buy the stock at a higher price. Since exchanges trust each other's trade prices it rippled throughout the system. There does not seem to be any way to gracefully undo such errors."
and while the SEC and others do their best to proteect traders, mistakes do happen. This is part of the random process of the markets, and must be accounted for when making a trade, even on options markets.
If you lost money, sorry. Unless the SEC/others can prove that somebody is liable for the initial mistaken order, you lose. Tough. Trading is risky, and sometimes the risks are completely unforseen.
Support a few technologists in Washington.
This reminds me of a nugget.
The stock market is frail, and a fool's playpen. I remember hearing a story about a huge media barron, before the stock market crash that led to the great depression. The mogul was standing in this elevator and overheard busboys talking about how they were going to start playing the stocks. The millionaire immediately sold everything when he got to the office. His reasoning was that if two people who had no money were playing stocks, that they were a sign that the whole system was at fault and doomed. I forget who this person was, so if anyone remembers... hehe feel free to say.
The guy's logic is correct even to this day, imho. The big companies that go public hope that an infusion of cash will make them more profitable, but it usually ends up that they get to take a break on stockholder's money for a while until it's deadline time again and they have to scramble to make product/service X work.
The whole system is wrong.
Look at all the ads for investing these days. They all suggest that you trust them to make you money, and they have as selling points, how easy it is to make money. The easier it is, the more moot it is, imho.
There is no easier way than hard work.
Glitches are bound to happen. Remember when the grid went down this past summer? I would have suspected major losses then, but somehow it wasn't that bad?
My first thought when reading the summary above was that this would be an easy problem if managed by a central, relational database system.
Simply "roll back" the transaction that failed, and the dependencies would cancel themselves out. But, then I realized that the current RDBMS model only allows for a single transaction - you can't nest them.
Also, transactions are private only - you cannot transact with data in the middle of another transaction.
Thus, you might have ACID compliance, but only with one level of "undo".
How hard would it be to create an RDBMS that supports infinite levels of "undo" or transaction/rollback.
Such that you commit transaction A, which affects rows 1,2,3, and 11. Then, another transaction B which affects (further) rows 2, 3, and 12.
Then, if you roll back transaction A, transaction B would be similarly affected. I dunno - the depencies may get rediculous - but it seems that this could and should be done at some point.
Bright idea? Or another noise from an unpleasant orifice?
Let me know what you think!
I have no problem with your religion until you decide it's reason to deprive others of the truth.
"There does not seem to be any way to gracefully undo such errors"
They wouldn't have to be gracefully undone, if there was a simple check to gracefully prevent them from being made.
I think the people left holding the bag here are exactly the right ones: The ones who thought they were gonna make instant big profits.
Not only did think they had bought something something at far below its value, they then signed options contracts to sell what they had just bought at slightly below its regular price. They should have known something was fishy... why would anybody want to pay close to the normal price to them if the price had just plumeted? Why would anybody want to sell to them at far below the usual price?
The should have known that the rules of the game allowed for their trade to be undone, yet they committed to an options contract that couldn't be undone because if they had hesitated, they risked their "instant profits" going away... their fault.
/. write up:
There does not seem to be any way to gracefully undo such errors.
From the article:
Such losses would have been prevented if the markets had not resumed trading until a decision was made on which trades, if any, should be canceled. But with markets intensely competitive, trading resumed before officials had made their decisions. The losers were traders who were not responsible for the errors or the slow decision making.
But I guess hindsight is 20-20, right?
I say there's a real simple way to solve this, no logistic or legal mess. Make them make good on the original sell order. They, in turn, want to sue the software developer? Let them handle that on their own time and out of THEIR pockets.
--Leo
However, Archipelago was the first to make the decision to resume trading, so most of the people who got burned did so there. NASDAQ then was caught in a no-mans-land of decision making... their investigation hadn't yet returned an explanation, but Archipelago's actions indicated that they had already made a decision that the trades were going to stick. For a trading halt to be effective, there has to be a trading halt everywhere. The markets should have seperate regulatory divisions, but they all should be coming to the same decisons at about the same time. Archipelago clearly didn't do a good investigation here... that's the question that needs further investigation.
It disturbs me that no one seems to question this "of course". Your friend was wrong. He made an unjustifiable profit on a mistake made in good faith by the clerk -- a mistake he clearly recognized as such. What he did might have been legal but it was wrong. And yes, I'm the kind of guy who goes back to a store if I discover I've received too much change.
The Mongrel Dogs Who Teach
You don't seem to understand...
A better analogy is that you sold the orange for 20c, then after someone was locked into buying it, because they have already sold it to someone else, you tell them that the orange is only available for $1, because the orange you originally offered did not exist.
I'm gonna need a spec.
...is for buyers and sellers to all SLOW DOWN and pay attention to long term performance rather than minute-by-minute numbers which aren't real meaningful statistics anyway. Frankly anything outside the offical quarterly reports is speculation anyway! Simply allowing only 1 trade per 24 hour period per stock would fix many, many issues with the market right now. The "day traders" should be restricted to playing "numbers" with Magic:TG cards and Ty Beanie Babies....rather than mucking with our financial backbone.
You ever try going back to a store and telling them you got too little change?
my sig's at the bottom of the page.
--You have to give them some props:
> The price plunged, falling from $57.50 at 10:46 a.m. to a low of $39.25 at 10:54 a.m. Mr. Goldman said that Gr8Trade officials noticed the trading and notified Nasdaq of a possible problem. A Nasdaq official, who declined to be quoted by name, said Nasdaq contacted the company and was told there was no news to explain the move. It halted trading at 10:58 a.m.
--Twelve-minute response time. That's better than I would ever have thought! Could have been a lot worse.
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== WolfriderV6 == I'm willing to admit that *I just might* be wrong... Are you??
the feature which would auto bail-out of a losing position which was in place for client X was discovered and used by client Y, who wasn't even supposed to know about it.
Ahh, security through obscurity.
I hope that appropriate action is taken against whoever decided that was the best way to prevent the feature from being used by an unauthorized party.