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How To Lose $172,222 a Second For 45 Minutes
An anonymous reader writes "Investment firm Knight Capital made headlines in 2012 for losing over $400 million on the New York Stock Exchange because of problems with their algorithmic trading software. Now, the owner of a Python programming blog noticed the release of a detailed SEC report into exactly what went wrong (PDF). It shows how a botched update rollout combined with useless or nonexistent process guidelines cost the company over $172,000 a second for over 45 minutes. From the report: 'When Knight used the Power Peg code previously, as child orders were executed, a cumulative quantity function counted the number of shares of the parent order that had been executed. This feature instructed the code to stop routing child orders after the parent order had been filled completely. In 2003, Knight ceased using the Power Peg functionality. In 2005, Knight moved the tracking of cumulative shares function in the Power Peg code to an earlier point in the SMARS code sequence. Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called. ... During the deployment of the new code, however, one of Knight's technicians did not copy the new code to one of the eight SMARS computer servers. Knight did not have a second technician review this deployment and no one at Knight realized that the Power Peg code had not been removed from the eighth server, nor the new RLP code added. Knight had no written procedures that required such a review.'"
Personally, I believe if you're going to buy stock in a company then you should be required to hold said stock for at least 24 hours, if not much longer. the stock market was created to allow people to invest their money in a company, thus allow that company to use that money to grow which should result in a return (or loss). It was not designed for gambling, which is what it has become.
Two things. First, the free market does things efficiently, including dumb things. Microsoft built the Surface efficiently - $390 per tablet. Government spent over $1,000 each buying them.
Secondly, there's dumb, and there's government dumb.
A dumb corporation requires three people to do a job that one person could do. A government gets the same job done by creating a new agency which contracts with three companies at $320 million each, requires that it be done in Pascal, and prohibits any testing until the project is "complete", at which time it's six years after tube event that the project was created to handle.
I just saw one of our most efficient government agencies, one that wins efficiency awards, spend over $19,000 on a project I could do in two days. Funny thing is, I WORK for that agency, so it would have cost them almost nothing to have me do it.
You could argue that "the free market gave a dumb corporation a 400 million dollar bitch slap in less than a hour" is funny, but actually it,s insightful. It's the perfect example of how companies could and should be punished for doing stupid things.
And here's an even better example: the flash crash of three years ago. In a few minutes some algorithms went haywire and stock prices dropped dramatically, in some cases down to 1 cent. Clearly that was wrong. The free market fixed this issue in six minutes. That's pretty fast, if you ask me. The government is still, three years later, thinking about what to do about it. Really!?