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Algorithmic Trading Glitch Costs Firm $440 Million

Unknown Lamer posted about a year and a half ago | from the someone-got-fired dept.

Bug 377

alstor writes "Yesterday an update to Knight Capital Group's algorithmic trading software caused massive volume buys and sells, resulting in large price swings on the New York Stock Exchange. As a result, the NYSE canceled some of the trades, but today the loss to Knight has been calculated at $440 million. Ignoring adjustments for inflation, this makes the cost of this glitch almost as much as the $475 million charge Intel took for the Pentium FDIV Bug, which might warrant adding this bug to the list of worst bugs. In light of this loss and the May 6, 2010 Flash Crash, perhaps investors will demand changes from firms using algorithmic trading, since the SEC is apparently too antiquated to do anything about it (PDF)."

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377 comments

Visual walkthrough and commentary of the mayhem (5, Interesting)

recoiledsnake (879048) | about a year and a half ago | (#40857637)

Re:Visual walkthrough and commentary of the mayhem (5, Insightful)

Anonymous Coward | about a year and a half ago | (#40857743)

Thats unfortunate, but what is more undortunate are the cancelled trades. Without the full downside risk high frequency trading takea on an appearance of a club where the superrich bilk regular imvestors and tilt the playing field in theor own favor.

Re:Visual walkthrough and commentary of the mayhem (1)

Anonymous Coward | about a year and a half ago | (#40858101)

If being rich didn't grant you an advantage, what would be the point of trying to get rich? My main problem with some rich people is that they didn't get there honestly, by serving consumer desires and competing against other companies. Instead, many got there through government favors, artificial monopolies. (Hint: The answer isn't more government intervention i.e. more opportunities to play the politics game.)

Re:Visual walkthrough and commentary of the mayhem (4, Funny)

GameboyRMH (1153867) | about a year and a half ago | (#40858197)

Good point, I can't imagine what the benefits of having huge amounts of money would be without an accompanying unfair advantage in the marketplace.

Re:Visual walkthrough and commentary of the mayhem (3, Interesting)

0123456 (636235) | about a year and a half ago | (#40858493)

Without the full downside risk high frequency trading takea on an appearance of a club where the superrich bilk regular imvestors and tilt the playing field in theor own favor.

Like the rest of the stock market, you mean?

Re:Visual walkthrough and commentary of the mayhem (1)

Lennie (16154) | about a year and a half ago | (#40858307)

If I remember correctly, some say the financial crisis was also initiated by a similair algorithmic trading mortgages.

Re:Visual walkthrough and commentary of the mayhem (2, Informative)

Anonymous Coward | about a year and a half ago | (#40858543)

This is wrong. Mortgage securities are not traded on open exchanges. You can't trade them algorithmically. You have to call your old fraternity buddy on the mortgage desk.

Re:Visual walkthrough and commentary of the mayhem (0)

Anonymous Coward | about a year and a half ago | (#40858567)

No it wasn't.

Defend flash trading? (5, Interesting)

Kelbear (870538) | about a year and a half ago | (#40857695)

A common defense of flash-trading is that it provides market liquidity in that it provides counterparties to the desired transactions of the rest of the market.

But I've yet to see someone discuss how the added-value of millisecond liquidity is substantially superior to having exchanges post transactions in 1-sec. intervals to discourage millisecond arbitrage during which no new events have occured and no new market analysis has taken place, only speculation and playing the system against proper investors? Can someone illuminate me on this point?

Re:Defend flash trading? (5, Insightful)

turkeyfeathers (843622) | about a year and a half ago | (#40857745)

Millisecond liquidity is substantially superior to having exchanges post transactions in 1-sec intervals because it allows Goldman Sachs to make more money... duh.

Re:Defend flash trading? (1)

Anonymous Coward | about a year and a half ago | (#40857755)

It provides more liquidity for campaign contributions, playing the system against proper investors.

Re:Defend flash trading? (1)

skids (119237) | about a year and a half ago | (#40858539)

I wonder if the spedning on this campaign might go high enough to provide significant stimulus to the GDP and jobless numbers. In 2008 total political spending was several billions of dollars -- now we have Citizens United and PACs on steroids. It would be funny if the rommunists undercut themselves.

Re:Defend flash trading? (5, Insightful)

Genda (560240) | about a year and a half ago | (#40857759)

What part of wealthy, powerful people with vast computing power screwing the general public do you not understand?

Re:Defend flash trading? (2)

Anubis IV (1279820) | about a year and a half ago | (#40857817)

Can someone illuminate me on this point?

No, but I'm sure we can find plenty of "experts" on Wall Street willing to call you ignorant and ill-informed while suggesting that we should dismiss silly questions like yours. That they're experts from the financial industry seems to have the unfortunate effect of lending them credibility in the eyes of most decision-makers.

Re:Defend flash trading? (0)

Anonymous Coward | about a year and a half ago | (#40857855)

A common defense of flash-trading is that it provides market liquidity in that it provides counterparties to the desired transactions of the rest of the market.

But I've yet to see someone discuss how the added-value of millisecond liquidity is substantially superior to having exchanges post transactions in 1-sec. intervals to discourage millisecond arbitrage during which no new events have occured and no new market analysis has taken place, only speculation and playing the system against proper investors? Can someone illuminate me on this point?

How is 1-sec any better than milliseond liquidity? I doubt any no new events have occured and no new market analysis has happened within 1-sec.

It took me a long time to understand Liquidity. Google search Liquidity and all you get is basic finance 101. Here's what I figured out, Liquidity means being able to get your money out of an investment before anyone else.

Re:Defend flash trading? (1)

GameboyRMH (1153867) | about a year and a half ago | (#40858221)

1 second is a human-relevant timescale that removes the inherent advantage that the machines have, this is a great improvement over the current situation.

Re:Defend flash trading? (4, Informative)

gl4ss (559668) | about a year and a half ago | (#40858555)

1 second gives still plenty of edge to machines.
even 10 secs would.

but hft isn't even about that - it's about giving the edge to _specific_ machines near the exchange. it's bullshit. that's why they need milliseconds, to screw the rest of the market, to ask for big money for fast connections, to get a piece of the shavings.

having something like 5 second intervals would give a chance for eliminating the good 'bro aspect of having to locate your machine at specific room near the exchange.

It allows firms like GS to drive up (1)

Anonymous Coward | about a year and a half ago | (#40857895)

common commodity prices like crude oil, foodstuffs, and energy, thus screwing you out of more of your money (remember, we bailed them out so they could screw us over with our own money!)

What's not to like?

Re:Defend flash trading? (5, Insightful)

Kelbear (870538) | about a year and a half ago | (#40857901)

To elaborate, I've considered the possibility that, in response to an event, the market's ability to "value" that event takes place as a result of a series of transactions from all participants. For example, a 10 cent stock having a negative press release, and thus a participant wants to sell for 5 cents, and someone else takes that deal, pushing the market price down to 5 cents, while another thinks 5 cents is too low and is willing to buy for 7 cents. pushing it back up, then the first participant changes his mind and buys for 6 cents... Eventually the market settles on a revised price by closing time which has accounted for the "value" of the negative implications of that press release. Thus flash transactions between seconds help find that revised price faster, and the ability of many people to determine appropriate pricing is a valuable thing since it moves capital towards deserving investments which have valuable productivity and society as a whole sees higher productivity and potentially the related benefits.

But if everyone puts in their guess at 00:00:00, then has to wait until 00:00:01, they will still have all of the relevant positions of market players (the only information that has changed) and can factor that into their 00:00:02 positions. Ultimately, all of those would-be flash transactors will just have to accept the 1-sec interval results as the average of information gained from all the thousands of millisecond transactions that would have taken place right? Basically, I don't think millisecond guesses are any faster than 1-second guesses at finding the true value of an investment. It just takes true analysis out of the picture and brings in the potential for flash-crashes from unsupervised automated trading.

But I'm just a layman here, I'd like someone with more insight or experience to help me make sense of this.

Re:Defend flash trading? (5, Interesting)

cp5i6 (544080) | about a year and a half ago | (#40858527)

This is also where Knight's algorithm potentially screwed up.

usually firms will put in limit orders. ie I believe it's this so therefore don't go above or below that target to transact

Also what you are missing is that NYSE just "matches" trades. 1 second "guessing" ignores that fact that no matter what you guess, if there is no match, there is no trade. And since not all the market makers enter their prices at the same time, not everyone waits around at the same time.

here's an exaggerated example
Take enron when they released their financial misreporting scandal.
Imagine if every one had to wait 1 hour before prices get updated and transacted.
The stock was at 72$
Everyone in the world just puts in a short @ 72$ because we ALL know what's goign to happen to this stock
At the end of the hour, every one and their extended relatives has shorted Enron @ 72$.
Now, as the exchange, what gets executed? Chances are, nothing. All those buyers on the other side already knew that 72$ is a terrible buy and would have all pulled prices. You now have 0 liquidity.

Re:Defend flash trading? (1)

Nicolai Haehnle (609575) | about a year and a half ago | (#40858627)

That's an interesting line of thought, though I would ask just how many cycles you would need to find the right price. The market may see some over- and undershoots in the valuation, but it seems like no more than a handful cycles would be needed. Then each cycle might require several "ticks" to work its way. In any case, even if the length of a tick were a minute, it should take much less than a day for the price to settle.

Re:Defend flash trading? (4, Informative)

jgtg32a (1173373) | about a year and a half ago | (#40857947)

IIRC it also provides price stabilization as well. Companies don't dump huge amounts of stock all at once they trickle it out little by little as it sells. Apparently that's also part of the reason for that flash crash a few years back. They just dumped all the stock on the market and the algorithms all freaked out.

The above is all hearsay, my brother is into that stuff and this is what I remember of what I was told.

Re:Defend flash trading? (1)

ThatsMyNick (2004126) | about a year and a half ago | (#40858141)

My only question is why set it to 1 second intervals, and not say 1 hour or day or month intervals. What difference does it make?
 
My understanding is that it takes time to arrive at price discovery. If you prolong-ate the time interval, it takes more to arrive at the actual price the forces determine.
 
Besides I dont think 1 second intervals will stop these algorithms. It will only give the algorithms more time to reverse engineer trades and intentions, and build strategies.

Re:Defend flash trading? (1)

cp5i6 (544080) | about a year and a half ago | (#40858393)

These are actually dark pools and nothing at all related to how you and me trade.

These are transactions that go between market makers. Big boys on the street.

You create an external market place by allowing the free flow of securities behind the scenes. You don't actually have the ability to see what's going on in the background. What it insures is that when the retail market looks at it, they can be sure that they are transacting on the "real" price as determined by the market.

So to your interval question, it's about the price.
If you transact only once a month, surely the price has moved somewhere in between. You buy apple at 600 at the beginning of the month and you want to sell it now, what price do you get quoted? The 600 that was still there a month ago, or do you wait till the end of the month and see where it lands.

Re:Defend flash trading? (1)

NatasRevol (731260) | about a year and a half ago | (#40858509)

If you prolong-ate the time interval, it takes more to arrive at the actual price the forces determine.

Why? It actually gives you more time to consider what a fair price is.

It's the total time required to come to a fair price that's the same. Not the number of time intervals.

Re:Defend flash trading? (2)

xs650 (741277) | about a year and a half ago | (#40858369)

A common defense of flash-trading is that it provides market liquidity in that it provides counterparties to the desired transactions of the rest of the market.

If fleas could talk they would tell us how they benefit dogs.

But I've yet to see someone discuss how the added-value of millisecond liquidity is substantially superior to having exchanges post transactions in 1-sec. intervals to discourage millisecond arbitrage during which no new events have occured and no new market analysis has taken place, only speculation and playing the system against proper investors? Can someone illuminate me on this point?

I would go for a longer period that 1 second, although 1 second would be an improvement.

Re:Defend flash trading? (0)

Anonymous Coward | about a year and a half ago | (#40858395)

It probably does. Without the ability to attempt to game the system like this, none of these trades would ever be made, which would overall reduce liquidity (which obviously would also reduce the money the exchange gets to make, which is why the exchanges are never going to change it unless forced to). Whether the reduced liquidity would be significant in any meaningful sense is probably hard to quantify - but I doubt it.

In my opinion, introducing a random (and it would have to be truly random, like based on isotope decay or something, or these guys would figure out how to predict the random numbers and profit off that) delay on any given trade of between 30-60 seconds would be a good start.

Trust but verify everything... (0)

Anonymous Coward | about a year and a half ago | (#40857717)

It's always a loss, never a gain.
I worked at one of the fine SXs - this happened to cover something up.

CAPTCHA = dodged

Too bad (4, Interesting)

sanosuke001 (640243) | about a year and a half ago | (#40857727)

I'd tell the firm "too bad". It shouldn't be up to the NYSE to make sure companies don't do something stupid. Back in time a ways, when someone tried to game the system and then failed hard they would be ignored and forgotten. Now, with bailouts and do-overs and participation trophies, we ignore hard working americans who don't expect handouts and reward those who don't want to take responsibility for their actions.

Moral Hazard (4, Insightful)

wren337 (182018) | about a year and a half ago | (#40858127)

No way any of these trades should be unwound. You want to give an algorithm your wallet and let it make lightning trades on your behalf? Fine, but learn to live with the consequences.

Re:Too bad (1)

muon-catalyzed (2483394) | about a year and a half ago | (#40858185)

> NYSE to make sure companies don't do something stupid

NYSE casino crew are happy observers here, they profit from these fast trader pigs, they get fat fast, then slaughtered fast, making NYSE rich in the process.

Re:Too bad (5, Informative)

cp5i6 (544080) | about a year and a half ago | (#40858287)

I'd tell the firm "too bad". It shouldn't be up to the NYSE to make sure companies don't do something stupid. Back in time a ways, when someone tried to game the system and then failed hard they would be ignored and forgotten. Now, with bailouts and do-overs and participation trophies, we ignore hard working americans who don't expect handouts and reward those who don't want to take responsibility for their actions.

Actually, NYSE did tell them exactly that.

Knight is on the hook for the full 440mm USD loss. NYSE stuck them with every single trade that they transacted during the particular time span.

And before you spew the bailouts/ do-overs/hard working american rhetoric, let's actually review the facts related to the topic on hand.

-Knight is a market maker. Their sole purpose on NYSE to ensure liquidity and make money. They do it by actively stepping in to sell and buy particular securities. There is nothing there that "games" the system.
-They rolled out a new application mid week and apparently turned it on without fully testing it causing a huge spike in volume
-The algorithm, rather stupidly, bought high and sold low.
-NYSE actually called within 30 minutes Knight to inform them that they might be accidentally executing incorrectly
-Knight basically ignored the warning and let the algorithm run for a full hour.
-End of the day, Knight is on hook for the entire loss. Not because it was a "mistake" but because these are all legitimate trades with legitimate counterparties and didn't violate any rules.
-Nyse has stated that and has said there would be no further appeals allowed on the issue.

Why the double standard? (5, Insightful)

JDG1980 (2438906) | about a year and a half ago | (#40857729)

Yesterday an update to Knight Capital Group's algorithmic trading software caused massive volume buys and sells, resulting in large price swings on the New York Stock Exchange. As a result, the NYSE canceled some of the trades...

So if I were to write an auto-trading script using the eTrade API [etrade.com], and as a result of a bug it made bizarre trades and I lost a lot of money, would the NYSE agree to cancel those trades? Didn't think so. Why should the big boys get a second bite at the apple? If you write an algorithm to do trading, then from the POV of the stock markets, that algorithm is you. (Just like the way user permissions work in Unix/Windows.)

Allowing mulligans and do-overs when well-connected firms make mistakes is only going to reinforce the perception that Wall Street is a casino rigged in favor of the rich.

Re:Why the double standard? (3, Insightful)

Genda (560240) | about a year and a half ago | (#40857865)

Because they're the big boys. Trade billions and its presumed you should be taking everyone else's money, and if you fsck up somehow, they just say sorry and hand the money to you. Welcome to world where might is right.

Re:Why the double standard? (0)

Anonymous Coward | about a year and a half ago | (#40857873)

On the other hand, those accidental sells significantly affected the price of certain stocks. If you are an average investor holding onto one of those stocks, wouldn't you rather the trades were canceled so you didn't take a bath due to someone else's error?

Re:Why the double standard? (3, Interesting)

ranton (36917) | about a year and a half ago | (#40857977)

On the other hand, those accidental sells significantly affected the price of certain stocks. If you are an average investor holding onto one of those stocks, wouldn't you rather the trades were canceled so you didn't take a bath due to someone else's error?

If you just randomly bought a stock whose price went up over 30% in 45 minutes (the criteria they used to determine which trades to cancel), then it your own dumb fault that you lost money. Anyone who was holding onto these stocks were not greatly affected, because the prices already returned to normal after Knight Capital Group had to sell those inflated stocks back.

Re:Why the double standard? (2)

gl4ss (559668) | about a year and a half ago | (#40858389)

but if you sold when it had gone 30%, sold to kcg.

then you made a cool 30%. why shouldn't you get to keep the money? what possible rationale could you be offered for backsies? "hahaa just joking!"?

Re:Why the double standard? (1)

Karl Cocknozzle (514413) | about a year and a half ago | (#40857983)

On the other hand, those accidental sells significantly affected the price of certain stocks. If you are an average investor holding onto one of those stocks, wouldn't you rather the trades were canceled so you didn't take a bath due to someone else's error?

I think you might fundamentally not understand the value of stock shares. If the share were under-priced by a "mistake" trade the market would pretty quickly figure that out and value-seekers would flood into the issue and bring the price back to where it needs to be.

However, this is not an endorsement of high-speed trading via algorithm... That's just market-rigging with a fancy name. This is just a reminder that the "market" part of "stock market" still plays a role, even if GS et al are gaming the shit out of the system.

Re:Why the double standard? (0)

Anonymous Coward | about a year and a half ago | (#40858041)

If you were an average investor holding the stock and the price returned to normal levels (which it did), how would you take a bath?

Re:Why the double standard? (1)

gl4ss (559668) | about a year and a half ago | (#40858093)

On the other hand, those accidental sells significantly affected the price of certain stocks. If you are an average investor holding onto one of those stocks, wouldn't you rather the trades were canceled so you didn't take a bath due to someone else's error?

for every "bad trade" someone else made money by buying them when they were cheap.

what's fair? that the fuckers who get to place their machines at the exchange switches get both edge in latencies and a reverse button? I'd like to just ask "what the fuck?"

there should be a simple rule of no backsies. there's no backsies in quake - why would there be backsies in stock market? reversing all these trades would detoriate belief in stock market, it would be just underlining that it's just a system meant to funnel money to exchange runners best friends and not for trading and receiving money for investments.

Re:Why the double standard? (0)

Anonymous Coward | about a year and a half ago | (#40857879)

What's wrong with reinforcing the perception that Wall Street is a casino rigged in favor of the rich?

Re:Why the double standard? (1)

Anonymous Coward | about a year and a half ago | (#40857921)

NYSE cancelled trades in 6 names that were more than 30% off the opens (I think it was the opens). They had this issue in something like 140 names, so it's hardly like they said "whoops! do over!" They have lost a huge amount of money.

Re:Why the double standard? (1)

Anonymous Coward | about a year and a half ago | (#40857925)

NYSE canceled only some of the trades in 6 stocks out of millions of wrong trades in 150 stocks.

I am assuming that these trades should never have been done. ie, after a 10% up move a stock should have hit a circuit breaker, but did not do it for a while. So NYSE cancels these trades post fact. Similarly, exchanges have an obligation to route trades to other exchanges when a better bid or offer is available elsewhere. If NYSE made a trade at a price too high while a trade was available on Nasdaq, NYSE is in trouble. So they probably canceled those trades too.

Knights counterparty is likely to benefit in most of the canceled trades. Don't know who was trading against Knight, but if you consider Knight rich, then the market (NYSE) worked against them.

They're not do-overs (2, Informative)

Anonymous Coward | about a year and a half ago | (#40857981)

Yesterday an update to Knight Capital Group's algorithmic trading software caused massive volume buys and sells, resulting in large price swings on the New York Stock Exchange. As a result, the NYSE canceled some of the trades...

So if I were to write an auto-trading script using the eTrade API [etrade.com], and as a result of a bug it made bizarre trades and I lost a lot of money, would the NYSE agree to cancel those trades? Didn't think so. Why should the big boys get a second bite at the apple? If you write an algorithm to do trading, then from the POV of the stock markets, that algorithm is you. (Just like the way user permissions work in Unix/Windows.)

Allowing mulligans and do-overs when well-connected firms make mistakes is only going to reinforce the perception that Wall Street is a casino rigged in favor of the rich.

The reason they cancelled Knight's trades was not to save Knight from its incompetence; it was because those large, erratic transactions were radically altering the price of securities for everyone, including small traders. Those cancellations did not, necessarily, save Knight any money.

Your eTrade script could only influenece the market that if it was able to buy or sell huge volumes, which it probably can't since you probably don't have that much money in your eTrade account.

Re:Why the double standard? (2, Informative)

ranton (36917) | about a year and a half ago | (#40858105)

It looks like it is too soon to know exactly why some trades were cancelled. The official word from the NYSE is that companies whose stock rose over 30% today's start price had their trades cancelled. But the NYSE also launched their Retail Liquidity Program (RLP) today, so it may not just be a coincidence that this problem happened today.

Whether anyone likes it or not, the stock exchanges do take steps to help ensure that the markets function rationally. When things get out of whack, no matter who does it, they step in try and maintain some level of order. If you did something on your own that swung the markets by hundreds of millions of dollars, then they would step in to stop you too.

It isn't like the Knight Capital Group was given a get out of jail free card. They lost $440 million. They also lost over 50% of their worth in the stock market, for a loss of about $385 million.

Re:Why the double standard? (1)

GameboyRMH (1153867) | about a year and a half ago | (#40858255)

Allowing mulligans and do-overs when well-connected firms make mistakes is only going to reinforce the perception that Wall Street is a casino rigged in favor of the rich.

Good, I hope everybody finds out.

Re:Why the double standard? (1)

microbread (2651139) | about a year and a half ago | (#40858423)

Because when you start dealing in those sorts of volumes, you start affecting other things unintentionally. Lone maverick (amateur) traders, even with a few million in the bank don't have much effect on the markets by themselves. Note that over 140 stocks were fingered here, very very few individual traders (not funds) can do that sort of damage that quickly. If it's not checked, it can be devastating to businesses. If you suddenly snap up half a billion in GE stock, you'll turn heads. It doesn't sound like the NYSE agreed to cancel them, they simply decided to cancel them to prevent further damage being caused. Additionally they make a good point that there are plenty of normal people with stock linked savings accounts which could be affected. Naturally you sign up to some sort of risk and waive all damages, etc, but the damage should be limited to companies going bust, not some nutjob corp destroying the price through negligent programming. This isn't just Knight's money, it's *our* money as well.

Re:Why the double standard? (1)

istartedi (132515) | about a year and a half ago | (#40858487)

This is why I would never, Ever, EVER script a trade. Ever. Let me repeat that for those who might still be tempted to use those trading platform "features". NEVER DO IT.

It's bad enough that I might botch the script, but they might botch it too.

Also, there's a saying in Vegas: speed kills.

Why, praytell, would anybody want to accelerate their trading? It makes sense if you're a market maker who can reliably make money on spreads and volume; but that's not Joe Blow using eTrade API or any other such carrot that the big online brokers are dangling in front of geeks.

If anything I have actualy been working to *reduce* the number of times I trade. I definitely don't need technical risk added to market risk, 100X more times per day.

unfairness in the markets at it's best (0)

Anonymous Coward | about a year and a half ago | (#40857731)

If one of these bugs made hte company money, would there also be a retraction of the trades?

This is such horse snot. Why can't I as an investor be compensated for losses?

Algorithms versus humans (1)

dkleinsc (563838) | about a year and a half ago | (#40857739)

On the one hand, algorithmic trading can screw up royally and cost hundreds of millions in a matter of hours. On the other hand, human traders can screw up royally and cost billions over a few months.

I'm not sure which is worse. And of course in combination they can crash national economies.

Re:Algorithms versus humans (0)

Anonymous Coward | about a year and a half ago | (#40857877)

On the one hand, algorithmic trading can screw up royally and cost hundreds of millions in a matter of hours. On the other hand, human traders can screw up royally and cost billions over a few months.

I'm not sure which is worse. And of course in combination they can crash national economies.

The thing here is that while it cost the particular company hundreds of million someone else got those hundreds of millions.
When their scripts work as intended the siphons hundreds of millions from those who actually use the market for things that actually benefits the market.

Re:Algorithms versus humans (1)

only_human (761334) | about a year and a half ago | (#40857941)

On the one hand, algorithmic trading can screw up royally and cost hundreds of millions in a matter of hours. On the other hand, human traders can screw up royally and cost billions over a few months.

I'm not sure which is worse. And of course in combination they can crash national economies.

One difference is that a slow moving wreck caused by humans with human consequences is within our toolset of things that we can react to and in some cases mitigate or avoid. A wreck that destroys things when you blink is on the wrong timescale for prudent reactions.

Re:Algorithms versus humans (1)

GameboyRMH (1153867) | about a year and a half ago | (#40858277)

That's like saying you're not sure whether it's worse to lose control of a landspeed car at 600kph or a go-kart at 60kph. One allows time for humans to react.

At least the stock analysts are on the job (5, Funny)

cpm99352 (939350) | about a year and a half ago | (#40857769)

Today, after the stock dropped 50%, analysts are beginning to downgrade the stock from buy to hold. Excellent analysis there!!!

http://finance.yahoo.com/news/knight-capital-downgraded-hold-buy-155956204.html [yahoo.com]

Re:At least the stock analysts are on the job (1)

GameboyRMH (1153867) | about a year and a half ago | (#40858333)

That what they get paid the big bucks for. It takes an experienced business leader to make these decisions.

Boom (1)

SaroDarksbane (1784314) | about a year and a half ago | (#40857773)

Apparently, losing 70% of their market cap in one day and shopping themselves around frantically hoping to be "acquired" before they go bankrupt is just "day-to-day minutia" for their CEO.

Anti-Robotic Trading (1)

DaMattster (977781) | about a year and a half ago | (#40857777)

I am so against this robotic, automated, whatever-you-want-to-call-it trading that it serves Knight Capital Group right. I'm dancing a jig in the streets.

Why do we need uSec trading? (1)

RichMan (8097) | about a year and a half ago | (#40857787)

Why not just a single trade resolution per day ?

Currently it is a race to be fast and their are all sorts of manipulations about being fast and doing algorithmic trading.
Dropping back to a single trade resolution per day would make it so much cleaner. Or may as many as 4 just to keep the traders occupied.

Trades would be done with 2 parts. The trade info which would be encoded and a seprate unlock key. The trade and key are kept separate until resolution begins. That way trades can be logged, verified and locked yet unknown before the resolution point And fully published to all after the resolution.

Re:Why do we need uSec trading? (1)

PRMan (959735) | about a year and a half ago | (#40858657)

One per hour would allow for some strategy as the day commences, but not too much. 7-8 per day should be plenty.

High speed trading should be forbidden (1)

Anonymous Coward | about a year and a half ago | (#40857803)

Not only HST should be forbidden, but the whole day trading "buy now sell tomorrow" thing. I wonder how any government can think this kind of "trading" (more like gambling) does any good to the world. A very small tax would stop this insanity instantly.

Re:High speed trading should be forbidden (1)

0123456 (636235) | about a year and a half ago | (#40858551)

I wonder how any government can think this kind of "trading" (more like gambling) does any good to the world.

Because the banks donate large amounts to their election campaigns.

The issue ins't algorithmic trading... (0)

Anonymous Coward | about a year and a half ago | (#40857831)

The issue is canceling otherwise valid trades after the fact.

If you want to put computers in charge of your trading, then it's up to you to make sure that the programmers know what they're doing.

A $440M loss would make Knight Capital take a hard look at their trading platform. If they can't write decent computer programs, maybe they shouldn't put computer programs in charge of their trading.

But if Knight Capital gets a "do-over" because their programmers made mistakes, then Knight Capital has no incentive to improve.

Once again we get heads I win, tails you lose.

Knight really this screwed up... (5, Funny)

turkeyfeathers (843622) | about a year and a half ago | (#40857871)

Some programmer's going to lose their job over this error that resulted in a $440 million loss. If the programmer had done the job properly, Knight would have lost $1 billion and been eligible for a government bailout.

Re:Knight really this screwed up... (1)

akeeneye (1788292) | about a year and a half ago | (#40858225)

I was thinking that with the tight market for developers in NYC, rather than getting fired the devs might get fat bonuses for having limited the losses to "only" $440M. But your scenario makes a lot of sense too. With a bailout _everyone_ in the company could have gotten a bonus. So maybe they need higher quality shitty developers there -- experienced architects who can deliver not just fuck-ups, but fully-redundant clustered-fucks designed for scalable failure. If the money's good they'll have my CV by morning.

Simple solution (5, Insightful)

nedlohs (1335013) | about a year and a half ago | (#40857929)

Don't cancel the trades. If some idiotic "investment" firm lets a computer program spend hundreds of millions of dollars in seconds then good for them. They get to keep the profits and the losses.

If one of your human trader makes a typo or a computer program has a bug then bad luck, they should have had checks and limits to make sure it doesn't do too much damage to them.

The rest of us don't get do-overs.

Heck just last month I when trying to limp in $2 poker game I picked up two $100 chips and threw them forward by mistake - I didn't get do-over even though everyone at the table new I made a mistake, my $198 raise into a $5 pot plays.

I'm pretty sure if I accidentally typed 100 instead of 10 when making a trade on schwab.com I'm not getting a do-over if the trade completes.

Re:Simple solution (1)

gknoy (899301) | about a year and a half ago | (#40858253)

when trying to limp in $2 poker game I picked up two $100 chips and threw them forward by mistake - I didn't get do-over even though everyone at the table new I made a mistake, my $198 raise into a $5 pot plays.

Perhaps this is natural to poker culture, but to an outsider I can't help but think that your friends are jerks. :-) Perhaps you weren't playing with friends, which might make it more excusable, but it still seems unnecessarily harsh to say "no, those chips stay" when someone says, "ah, crap, I meant to throw in these instead." (Assuming you caught the mistake when you did it, that is.) Pretty much everyone I'd consider playing cards (or other games) with would notice the outlier and say something like, "Did you mean to bet $100 when the pot's at two dollars?", on the assumption that it was a fumble.

Re:Simple solution (0)

Anonymous Coward | about a year and a half ago | (#40858375)

But if someone was shorting the stock in knowledge of this event they could have made a load. So perhaps it is not a bug but a feature. The source is proprietary after all.

Re:Simple solution (0)

Anonymous Coward | about a year and a half ago | (#40858661)

If one of your human trader makes a typo or a computer program has a bug then bad luck, they should have had checks and limits to make sure it doesn't do too much damage to them.

The rest of us don't get do-overs.

Actually - thats not entirely true. I worked at a financial firm for a while (IT, not as a trader) and it seemed it wasn't too uncommon that 'obviously fat-fingered' orders got cancelled. Like if someone put in an order with an offer price of 100000 for a particular stock trading at 10 dollars. There are certain rules and regulations around it, I think, depending on the particular stock exchange. Also, in almost all cases, there are safeguards (the example I gave probably can't happen as the stock exchanges I was familiar with had safeguards to prevent you from putting in orders that deviate more than x from the current price - but it was just to explain my point).

I never could figure it all out either ... I no longer work in finance.

A single bug!? (1)

cptdondo (59460) | about a year and a half ago | (#40857955)

You gotta wonder about the stability of the whole banking/investment/trading when a single bug can jack a major exchange around....

Re:A single bug!? (1)

gl4ss (559668) | about a year and a half ago | (#40858331)

a single bug backed with a lot of cash.
that's kind of the limiting factor.

this wasn't just a single bug btw. unless the single bug was turning all safeties and stops off.

Too bad, so sad.. (3, Insightful)

n5vb (587569) | about a year and a half ago | (#40858001)

If they didn't sufficiently analyze the code they were going to turn loose in real time trading, and it did something they didn't expect it to do, then that's their screwup, and theirs alone, and they need to own it. Period.

I can see NYSE cancelling some trades because the volume of trading was getting people confused about what the pricing should be, but I can't see it as fair that they'd cancel trades as a favor to the company. If a day trader screws up and takes a bath on a stock due to poorly-thought-out trade orders, they don't get a do-over, those trades are placed and cleared and they're done, no going back. I don't see any reason wild program trades should be held to any lesser standard, and I see plenty of reasons why they shouldn't be. What the company needs to do is get some competent programmers in to code their algorithms properly, and get some competent analysts in to double check the coders' work and validate the algorithms, and be prepared to own their own s**t if the code does something like this. Sorry, no sympathy, these guys should d**n well know better.

Re:Too bad, so sad.. (1)

tekrat (242117) | about a year and a half ago | (#40858147)

But... but... you don't UNDERSTAND...
The CEO is part of the 1% and DEMANDS that his losses be subsidized by the "little people" -- I mean, how else is he going to buy that gold plated yacht he had his eyes on earlier this week?

You surely do not expect a 1%'er to actually own up to his own mistakes, and gosh, maybe have to sell his 7 Lamborghinis, his 10-acre Florida Estate, and maybe 3 or 4 of his New York condos to make up that loss? The horror!

He demands a bail out from the American taxpayer. How else can he continue to be a "job creator"?

Who cares? (0)

Anonymous Coward | about a year and a half ago | (#40858029)

Did this cause any of my limit orders to pay more than I wanted, or sell for less than I wanted?
No.

Did I lose any money?
No.

Did their poor strategy cost them a lot of money?
Yes, but it was completely preventable BY THEM.

I don't see why anyone should care.

Imagine what it must feel like to make such a bug (0)

Anonymous Coward | about a year and a half ago | (#40858043)

I wouldn't want to be the developer whose bug caused a loss this big.

Ultimate in computer espionage? (0)

Anonymous Coward | about a year and a half ago | (#40858051)

Wow, if you wanted to hand a juicy target to the Chinese or anyone else (Iran), here's a big fat target. Anyone know the the EFT systems are air gapped?

di34 (-1, Flamebait)

Anonymous Coward | about a year and a half ago | (#40858055)

Due to the troubles hobby. It was all rotting corpse This post up. of HIV and o1ther backwards. To the troubles of those Slashdot's here, please do

trading tax suggest (0)

m0s3m8n (1335861) | about a year and a half ago | (#40858071)

I am not a big tax guy, but someone (I don't remember the name) proposed a small tax on a per trade value basis. While this would increase my tax burden somewhat (I am of course an evil republican stock holder) it may also help reign in this high volume microsecond (nano) trading that these large firms use to basically game the system.

Re:trading tax suggest (0)

Anonymous Coward | about a year and a half ago | (#40858349)

Remember when the income tax was 7% [outsidethebeltway.com], and only on the highest incomes? What do you think would happen with this tax? How long until it starts creeping up, driving financial transactions offshore, where there is even more opportunity for shenanigans? This would be really bad for US capital markets. High frequency trading may create problems here and there, but nothing like the damage a transaction tax would cause.

Re:trading tax suggest (1)

0123456 (636235) | about a year and a half ago | (#40858585)

Don't worry, someone will be along in a second to tell you that the slippery slope is a logical fallacy, so that could never, ever happen.

Oops (0)

Anonymous Coward | about a year and a half ago | (#40858097)

Somehow, "Oops" doesn't quite cover it.

Why ignore inflation? (3, Informative)

hawguy (1600213) | about a year and a half ago | (#40858119)

Why make a comparison with an event 15 years ago and ignore the different in value of the dollar?

Intels FDIV bug costs of $475M in 1994 is equivalent to $735M in today's dollars [usinflatio...ulator.com]. I guess it's just not as impressive as saying "The cost of this glitch was a bit over half of the $475 million charge Intel took for the Pentium FDIV Bug."

If you want to make it sound more impressive, go back further in time "This loss was greater than the entire GDP [usgovernmentspending.com] of the united states in 1955 (ignoring adjustments for inflation)"

This is why... (1)

Dan East (318230) | about a year and a half ago | (#40858131)

This is exactly why I prefer writing games that sell for 99 cents on iTunes over writing either financial or healthcare (which I did for years) software. Much more fun, and more importantly, greatly reduced ramifications if something does go wrong.

we need to do some fixes in the NYSE (1)

RobertLTux (260313) | about a year and a half ago | (#40858143)

Okay if a stock moves over 15% within a couple minutes then that stock should be set to trade at 5 minute intervals for the next 4 hours (so you have to hold the stock for 3:59.00 minutes if you buy it when this trips). Any trading house attempting to trade outside Normal Limits gets put on a 1 hour delay (so they do a trade and it takes 1 hour to commit).

In short subsecond trading should not be able to cause wide swings in values (that multisecond trades can't also do)

But some anonymous soul.... (1)

gestalt_n_pepper (991155) | about a year and a half ago | (#40858243)

made a few million dollars in seconds and is very happy - assuming this isn't just some emergent behavior "bug."

Financial terrorism (0)

Anonymous Coward | about a year and a half ago | (#40858303)

If Iran was responsible it would have been nuked from orbit. Just more US double standards.

why not get rid of HFT? (1)

hawguy (1600213) | about a year and a half ago | (#40858337)

Why don't exchanges batch up all of the trades received in one second (or 5 or 10 or 60 second) intervals and execute them in random order?

There's no sane reason in a fair market why someone whose computers are located a few milliseconds (or nanoseconds) closer to the exchange should get his trades served before the guy who lives a bit farther away and is constrained by the speed of light.

Does HFT help the markets in any way?

Though I guess one benefit side effect of high frequency trading is that it'll help drive science since they'll be the first in line to pay for quantum entanglement enabled communication to get instantaneous data transfer.

Canceled trades (1)

Anonymous Coward | about a year and a half ago | (#40858511)

The NYT link for the claim that NYSE "canceled some of the trades" makes no mention of any cancellations. Sounds like these were matter-of-course cancellations [wsj.com] -- stocks whose prices swung more than 30% were subject to the canceled trades. Sadly, details about how the cancellations were done are not widely available in the press, so it is unclear whether these cancellations constitute corporate favoritism.

Teaches em Right (0)

Anonymous Coward | about a year and a half ago | (#40858577)

Us regular folk don't get to trade on the millisecond, hopefully Knight's loss helped balance that scale a little bit.

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