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Knight Trading Losses Attributed To Old, Dormant Software
New submitter alexander_686 points out a Bloomberg article about the cause of Knight Capital Group's $440 million algorithmic trading disaster from a couple weeks ago. The report says a dormant software system was accidentally activated on August 1, which immediately began increasing stock trade volumes by a factor of 1,000. The Wall Street Journal has further details:
"Knight Capital Group Inc.'s accidental trades earlier this month were triggered by a flawed upgrade of trading software that caused an older trading system connected to the computer code to inadvertently go 'live' on the market, according to people familiar with the matter. The errors at Knight on Aug. 1 involved new code the Jersey City, N.J.-based brokerage designed to take advantage of the launch of a New York Stock Exchange trading program, which was introduced that day to attract more retail-trading business to the Big Board, the people say. ... When NYSE Euronext trading floor officials called Knight at about 9:35 a.m. to try to pinpoint the cause of unusual swings in dozens of stocks, just after the Big Board opened for trading, Knight traders and their supervisors had a difficult time detecting where in its systems the problem was located, say people familiar with the morning's events. The NYSE had to call Knight several times before deciding to shut the firm off, the people say."
The problem with that is these Wall Street companies have their tentacles everywhere. Whatever pleasure we'd get watching them crumble is nothing compared to watching our retirement savings drop to zero and millions of people losing their jobs.
"Too big to fail" and free market capitalism are fundamentally at odds.
There's no -1 for "I don't get it."
The problem with that idea is that sometimes these high frequency traders also cause volatility spikes in the market, triggering other computer programs, and, sometimes, humans, to react as though the spurious trades were intentional.
While I also loathe HFT as a scourge on the market, I think the NYSE's overall response is a good one: when abnormal trades occur as a secondary effect of other's mistakes, abort them.
Note that the ca. $440 million loss Knight took was BECAUSE they couldn't unwind the bad positions they bought into. Goldman Sachs bought the entire block from them at a discount. Knight didn't get any kind of parachute.
-Ryan
AUWYHSTOT (Acronyms are Useless When You Have to Spell Them Out Too)
There's no short term guarantees in the stock market. If you're 70 and need cash, you shouldn't be in the stock market.
There are two types of people in the world: Those who crave closure
This is what happens when the pre-production environment is not identical to the production environment. Got egg on my face (though no direct financial cost incurred) when the production environment had that 0.01 JRE increment that addressed the new-fangled daylight saving time, and the pre-production environment did not. It caused some very strange bugs due to the change in date handling, even though it wasn't anywhere close to spring forward time. (We developers had no access to the machine, so it took a while to figure out, too.)
Yeah, with capitalism the birth lottery is often more important than merit.
Ah, that classic libertarian chestnut. If we just wipe out enough peoples' retirement funds, the problem will correct itself! Let me guess, you also think the FDA doesn't need to exist because if a bad drug kills a bunch of people, those people will just take their business elsewhere, right?
Uhhh...how EXACTLY are you gonna do that when there is a revolving door between the DC swamp and Wall Street? Why do you think we now have over 400% of our GDP in the market, which is nearly 3 TIMES more than right before the crash of 29? Because they go straight from Wall Street to the halls of power, get laws written that give them moar monies, and then walk right back over to Wall street and reap the rewards.
I'm sorry friend but until the whole thing crashes and we become another Greece or Zimbabwe there is not a damned thing you, me, or anybody else can do about it, the amount of money concentrated into the financial market means they can light bags of money on fire and the government will hand them new bags and pay for someone to clean up the ashes and just hand you the bill.
ACs don't waste your time replying, your posts are never seen by me.