Beta
×

Welcome to the Slashdot Beta site -- learn more here. Use the link in the footer or click here to return to the Classic version of Slashdot.

Thank you!

Before you choose to head back to the Classic look of the site, we'd appreciate it if you share your thoughts on the Beta; your feedback is what drives our ongoing development.

Beta is different and we value you taking the time to try it out. Please take a look at the changes we've made in Beta and  learn more about it. Thanks for reading, and for making the site better!

Knight Trading Losses Attributed To Old, Dormant Software

Soulskill posted about 2 years ago | from the they-set-themselves-up-the-bomb dept.

Software 223

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."

cancel ×

223 comments

Sorry! There are no comments related to the filter you selected.

Correction (0)

Anonymous Coward | about 2 years ago | (#40991357)

Not so dormant software!

$480m oops . . .

The NYSE shouldn't reverse trades. (5, Interesting)

Thantik (1207112) | about 2 years ago | (#40991361)

They really need to stop giving these high frequency traders these parachutes. You screw up your algo, its your own damn fault. Lost your butt on the market - oh well.

Re:The NYSE shouldn't reverse trades. (4, Insightful)

MrEricSir (398214) | about 2 years ago | (#40991425)

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.

Re:The NYSE shouldn't reverse trades. (1)

cpu6502 (1960974) | about 2 years ago | (#40991481)

Revoke corporate licenses and no company will ever grow to Be too big to fail.

Re:The NYSE shouldn't reverse trades. (2, Insightful)

Anonymous Coward | about 2 years ago | (#40991831)

Behead corporate executives for gross negligence, massive fraud, theft... Things regular people do and it gets them put in jail for half their life...

And every company (that continues to exist) WILL NOT do these things.

Make someone responsible if they want these massive paychecks.

Right now nobody is responsible for anything.
Theres always an excuse.
It's always someone elses fault.
Or the blame is spread so thin to so many there's nothing left to find.

Re:The NYSE shouldn't reverse trades. (3, Interesting)

trout007 (975317) | about 2 years ago | (#40991545)

You really don't know what you are talking about. Sure the market can get volitile but most companies in the S&P 500 actually do have value. If you don't panic and cash out during the crash you will be fine. All of the financials in the S&P 500 are about 15%.

If you are investing long term and are diversified these panics are a good time to buy.

Re:The NYSE shouldn't reverse trades. (1)

MrEricSir (398214) | about 2 years ago | (#40991631)

None of that helps when you're 70 years old and need to cash out to retire. Not everyone is young and looking for long-term investments.

Re:The NYSE shouldn't reverse trades. (5, Insightful)

NatasRevol (731260) | about 2 years ago | (#40991669)

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.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40991693)

Indeed. As a point of reference, I am 70 years old. I've been 70 for about 50 years or so. Because I was born a 70 year old man, I took great care to keep my investments short.

Re:The NYSE shouldn't reverse trades. (2)

Compaqt (1758360) | about 2 years ago | (#40992045)

Well, if you're 70, you didn't just start investing at 69 and a half, right?

If you're 70, you probably didn't start when you got your first job (25). But you should have started at 35.

Failing that, you should have started at 40 when you first got the notion that you might not live forever, and your body first started showing signs of aging.

You probably would have 66 times your money.

Re:The NYSE shouldn't reverse trades. (1)

BradleyUffner (103496) | about 2 years ago | (#40991709)

None of that helps when you're 70 years old and need to cash out to retire. Not everyone is young and looking for long-term investments.

You should have such risky investments if you are in that situation. The stock market isn't the place to go for short-term, no-risk investment.

Re:The NYSE shouldn't reverse trades. (1)

BradleyUffner (103496) | about 2 years ago | (#40991725)

*shouldn't

Re:The NYSE shouldn't reverse trades. (1)

asn (4418) | about 2 years ago | (#40991797)

Where do you suggest one goes for short-term, no-risk investments? I want to go to there.

Re:The NYSE shouldn't reverse trades. (5, Interesting)

Chris Mattern (191822) | about 2 years ago | (#40991921)

Where do you suggest one goes for short-term, no-risk investments? I want to go to there.

Money-market funds. They invest in short-term Treasuries and top-rated debt. They try to be diversified, so even an unlikely nasty surprise won't nick you much. You won't get much of a return, but your money will be most likely safe (there's no absolute guarantees anywhere, but if the money market funds go south, there's not likely to be any safe place elsewhere). With current low interest rates, you'll probably make a return of less than 1%, though.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40992969)

Nope nope nope.

The ONLY safe thing are treasury bills. You won't make much, but you CAN'T lose money. It doesn't pay out much, but then again your investment is truly safe.

Anything else, absolutely anything at all, runs the risk of loss.

Re:The NYSE shouldn't reverse trades. (1)

Anonymous Coward | about 2 years ago | (#40993191)

Nope - T-Bills no longer have a AAA rating, so they are actually considered less safe than some other options.

Re:The NYSE shouldn't reverse trades. (5, Informative)

trout007 (975317) | about 2 years ago | (#40992033)

I use a method by the late great Harry Browne he called failsafe investing.

Here is the summary. Divide your investment into quarters.
25% S&P 500 stocks
25% 30 year Treasury Bonds
25% 100% Treasury Money Market (If you can find one. They pretty much all went under after they put FDIC on money markets)
25% Gold Bullion Coins

As you save add your funds to the Cash (Money Market) portion.
Every once in a while check the balances. If any gets above 35% or below 15% of your total portfolio re-balance it to 25%.

The beauty of it is that when anything bad happens it is usually people running from one of these to another. This allows you to automatically buy low and sell high.

I've averaged about 12% per year for the last 10 years. You don't get as good of a return long term as the S&P 500 but it's also less scary.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40993255)

I've averaged about 12% per year for the last 10 years.

Unless you got lucky with day trading, most of that 12% you claim was due to your gold investment. And there's just not that much gold in the world. So, unless the world economy gets much much worse in the next decade, that gold performance just isn't is going to hold up (i.e. you made your money off a one-time gold bubble).

Re:The NYSE shouldn't reverse trades. (1)

nedlohs (1335013) | about 2 years ago | (#40992639)

If you are 70 and going to need to cash out you wouldn't be in the stock market - unless you are an idiot of course, in which case there are plenty of other ways you'll lose your money anyway so there's no need to try and stop that vector.

Re:The NYSE shouldn't reverse trades. (1)

aaarrrgggh (9205) | about 2 years ago | (#40993103)

Having some money in stocks at age 70 is ok iff you have enough cash to survive 3-5 years without touching the stocks. Which reinforces GP's point that it is a good buying opportunity... Even if you are 70.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40993139)

Avoiding selling during short term dips is one of the reasons that financial planners recommend adjusting your asset allocation toward less volatile markets as you approach/enter retirement - no money you expect to need in the next few years should be in the stock market.

Re:The NYSE shouldn't reverse trades. (2)

Prof.Phreak (584152) | about 2 years ago | (#40992717)

What folks don't usually realize is that most stocks already have about 20 years worth of growth and prosperity priced into them. With GDP not expected to make great strides, it will be a miracle if anyone will be able to extract more than 2% real return out of their broad index funds. Similarly, no sane small-shop or pizzeria owner would be satisfied with 2-8% return... the folks selling hot dogs on the street get a higher return on their money... and yet the biggest and most profitable corporations are so overpriced that even when they make a killing (e.g. hershey corp had 63% return on equity last year, which is very typical of them), the investors get crap compared to their purchase price.

Re:The NYSE shouldn't reverse trades. (2, Interesting)

Anonymous Coward | about 2 years ago | (#40991609)

Free-market capitalism itself needs some serious revision. Not the fundamentals of it (which are sound, as far as they go) but the pervasive dogmatic faith that markets can optimise *everything* and that money accurately captures "value" at all times, for all things. This is just one exaggerated example that highlights how absurd this dogma is. Neoclassical economics has overstepped its mark by a huge margin, to the point were the economic mainstream is desperate to continue pretending the hard science of economics (maths laced with a tremendous number of assumptions) supersedes all the soft social sciences, and is actually the final word on sociopolitical arrangements and indeed human well-being.

Re:The NYSE shouldn't reverse trades. (3, Insightful)

TFAFalcon (1839122) | about 2 years ago | (#40991729)

For everyone that looses money, some one else would gain it. If enough pension funds go bankrupt, then perhaps people will stop gambling with their money.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40992555)

>>For everyone that looses money, some one else would gain it
>>For everyone that looses money
>>looses money

Re:The NYSE shouldn't reverse trades. (5, Insightful)

Anonymous Coward | about 2 years ago | (#40992635)

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?

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40991891)

Yeah, that's the problem. We did allow them to get everywhere, and now our fate is on the hands of other people. People that want nothing but money. People that don't care for our well being. At some point our current situation will become completely untenable.

If we continue to let our financial institutions have their way there will be another crash. It is inevitable.

Maybe we'll bail them out again. Maybe we won't be able to. What I don't see is how to gracefully undo this mess. Enough of congress has been bought. Big money controls enough public opinion with propaganda labeled as news. Even if we wanted to, I don't think we'd be able to put back in laws that could control wall street.

At some point, we're going to have to let it all fall apart. Complete meltdown. Everyone loses their savings. Everyone loses their retirement. Debt will become irreverent because the currency it's held in will be worthless. The life blood of capitalism will run dry. Martial law will be instated.

Our only hope is when this nightmare occurs, when our constitutional republic goes in to failure mode, that whoever is in charge has the courage and the whit to royally bitchslap everyone back in line. Without the force of mass media pundits and corrupt congress perhaps /someone/ could administer a decades-coming beating to those in the financial industry. Yeah, it will be nasty and unconstitutional.. But it will beat the other option, which is anarchy and mob justice. We don't need a repeat of the french revolution.

Re:The NYSE shouldn't reverse trades. (1)

PostPhil (739179) | about 2 years ago | (#40993141)

Yes, it's true that if a "too big to fail" company fails, bad things happen and people get mad. But let's look at it another way. In a market driven economy, the economy is strong when the market is strong. The market is driven by the consumer being able to choose the supplier of products and services. So, if the consumer is mad because of a poor performing company, the consumer can choose to leave and support a better, stronger company.

If a market driven economy no longer forces companies to live with the consequences of their decisions, opting to bail them out so no one gets mad, then their is no incentive for any company to be a good company because it isn't required stay in business. The actual good companies then see that their extra effort is a waste of time, an in order to compete, they also must become a company with similarly bad products and services.

Saving "too big to fail" companies only keeps people from being mad for the short term. But once the entire market is in trouble, they'll still lose and will be even madder later. There's a moral to the story for our society that goes beyond the stock market: FOCUSING WORRIES ON FAILURE IS A SELF-FULFILLING PROPHECY. DO INSTEAD WHAT YOU KNOW IS THE RIGHT THING TO DO.

Re:The NYSE shouldn't reverse trades. (4, Informative)

ThatsMyNick (2004126) | about 2 years ago | (#40991465)

This is not high frequency trading. Google it to learn what it is.

Re:The NYSE shouldn't reverse trades. (1)

skaffen42 (579313) | about 2 years ago | (#40992105)

Wish I had mod points, but instead I'll just add a comment to agree with you.

This whole thing has nothing to do with HFT, except that a bunch of uninformed idiots who have no idea what they are talking about have decided to spout off about HFT. Because it sounds exciting, not because it had anything to do with what happened.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40993261)

Yes, I am totally sure that a program with trading volumes that high had absolutely nothing to do with a high frequency trading system. Those were really low frequency trades. We've always been at war with Eurasia.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40991523)

These companies that is connected to the trading network should have liability insurance that pay for these type of losses. They cannot be allow to wipe off the transaction as if nothing had happened.

Once the insurance companies are involved, may be there would be some regular audits as part of the policy.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40991555)

Their trades were not reversed. Knight suffered the full extent of their errors.

Re:The NYSE shouldn't reverse trades. (2)

ceoyoyo (59147) | about 2 years ago | (#40992999)

No, some trades were reversed. They suffered, but not the full extent.

Re:The NYSE shouldn't reverse trades. (5, Insightful)

rritterson (588983) | about 2 years ago | (#40991627)

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.

Re:The NYSE shouldn't reverse trades. (1)

TFAFalcon (1839122) | about 2 years ago | (#40991803)

But why save the companies whose programs were triggered or humans who panicked? They made their choices hoping to get rich, and they lost. Sure they were operation on faulty data (one companies BIG error), but at least 50% of the 'investors' (those that lose money on a trade) do, so why make these cases something special?

Re:The NYSE shouldn't reverse trades. (1)

Anonymous Coward | about 2 years ago | (#40991955)

Because everybody, especially your average slashdotter, was clamoring for the exact same circuit-breaker policy that was invoked here.

Re:The NYSE shouldn't reverse trades. (2)

whoever57 (658626) | about 2 years ago | (#40993361)

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.

Only partially true, or perhaps, partially false. Some of Knight's trades were reversed -- I think trades where the price was 30% off the normal range. So Knight did get a parachute, just a small one.

Re:The NYSE shouldn't reverse trades. (2, Insightful)

Compaqt (1758360) | about 2 years ago | (#40991999)

Wait, the NYSE was thinking of reversing trades? Which article was that in?

Not only that, but by definition, if they reverse $400 mil of trades, they have to get that money from somebody else. It's not "the market" they'd be getting it back from, but specific investors and shareholders who sold their securities.

Can they even do that? Force people to give money back?

Or is it like Paypal where they're linked in to your bank account and can take money whenever they want?

Re:The NYSE shouldn't reverse trades. (2)

dave562 (969951) | about 2 years ago | (#40992031)

Where did you read that the trades were reversed? Everything that I've seen says that Knight had to eat all of the bad trades. They ended up unwinding their trades to Goldman Sachs, presumably because GS can hold onto them long enough to wait for enough of them to turn positive at some point in the future.

Re:The NYSE shouldn't reverse trades. (1)

skaffen42 (579313) | about 2 years ago | (#40992147)

They actually did reverse trades in something like 6 of the 146 affected symbols. These were stocks that were clearly trading completely out of their realistic ranges, so a small portion of trades were reversed. Though I'm sure Knight was begging them to reverse all the trades...

Re:The NYSE shouldn't reverse trades. (1)

GlobalEcho (26240) | about 2 years ago | (#40993045)

It is also not clear any of the reversals went in Knight's favor. I'm sure many or perhaps even most of those reversed trades were between third parties.

Re:The NYSE shouldn't reverse trades. (2)

dreamchaser (49529) | about 2 years ago | (#40992043)

They need to go one step further and just ban automated trading altogether. People make trades. Machines make transactions. As long as they call it 'trading' then it should be a human doing to button pushing.

Re:The NYSE shouldn't reverse trades. (0)

Anonymous Coward | about 2 years ago | (#40992057)

Who said these guys have parachutes?

I have never heard of a trader having a parachute, in fact it can be quite hard to explain to your new employed why you won't bankrupt them like you did your previous employer.

NYSE has not reversed any of the trades as far as I'm aware, and normally exchanges do not undo transactions, algo mistake or not the transaction is cleared. Exchanges I use specifically require an algorithm to have an operator 24/7 and they have to be rotated out after some amount of hours. This is meant to keep algorithms from going out of control and to always have a human ready to stop the system. If you're system is so complex (or poorly managed) that the operator can't tell he's losing hundreds of thousands or millions of dollars, well, that's just poor management of risk.

As far as I'm aware Knight capital is going under and their developers are being viewed with skepticism, but I'm sure someone will hire them, someone in the market is willing to believe these guys won't make this mistake a second time or that they themselves know how to mitigate such mistakes.

Re:The NYSE shouldn't reverse trades. (1)

Anonymous Coward | about 2 years ago | (#40992217)

They didn't reverse the trades. The Knight CEO said so much:

http://www.cnbc.com/id/48443318/CNBC_TRANSCRIPT

Knight took it on the chin like a man. Unlike the Nasdaq on the Facebook fiasco. And, unlike the "flash crash" 2 springs ago. In fact, listening to the Knight CEO, I actually had more confidence in the company after his stance. He petitioned the SEC to reverse the trades. They declined. Then, he worked all weekend to preserve his client money, his employees jobs', and his company. The last person in line for "perseverance" is stock holders of Knight Capital, as it should be.

Chris

Re:The NYSE shouldn't reverse trades. (1)

theskipper (461997) | about 2 years ago | (#40992435)

Knight is a market maker. The software was simply buying at the ask and selling at the bid hundreds of times per second, nothing more (a bug that is the polar opposite of how a market maker provides liquidity). How is that in any way related to HFT?

And what parachute? GS bought the accumulated position at a discount in return for cash to keep NITE afloat.

Not sure what's going on with the +5 interesting, can someone clue me in?

Re:The NYSE shouldn't reverse trades. (4, Interesting)

ortholattice (175065) | about 2 years ago | (#40992505)

No kidding. Although it wasn't reversed in Knight's case, there have been many flash crashes that have been reversed, making it so that profit is almost guaranteed for HF traders: good bets go through and bad bets get reversed.

I was personally affected a couple of years ago. I had an outstanding bid (limit order) on a stock at what I thought the stock was worth, although significantly lower than the going price, so I could pick it up in case there was a temporary drop due to negative news or whatever. The "whatever" happened; my open order got filled by HF traders due to a flash crash they caused in that stock. I got a call from my broker later in the day to tell me the SEC reversed the trades during that flash crash, including mine. So a few thousand dollars that by all rights should have been mine went back to the HF traders.

The little guy can't win.

Re:The NYSE shouldn't reverse trades. (1)

GlobalEcho (26240) | about 2 years ago | (#40993037)

my open order got filled by HF traders due to a flash crash they caused in that stock.

Whether your broker told you that or not, I guarantee nobody has any idea whether it was HF traders or a trend-following human on the other side of that trade. That's kind of a main point of the exchange -- anonymous trading.

This is not to take away from the fact that your trade got reversed, which definitely does suck.

Mod parent down... (2)

tomhath (637240) | about 2 years ago | (#40992671)

Knight lost the money, there was no parachute.

Re:Mod parent down... (4, Informative)

rgbrenner (317308) | about 2 years ago | (#40992975)

Knight lost the money, there was no parachute.

You're right.. but how about some details?

http://www.businessweek.com/news/2012-08-09/knight-says-it-may-face-more-burdensome-costs-from-trade-error [businessweek.com]

Knight was saved from collapse on Aug. 6, when it received a $400 million cash infusion through the sale of convertible securities to a consortium of investors.

Getco LLC, Blackstone Group LP, brokerages Stifel Nicolaus & Co. and TD Ameritrade Holding Corp., as well as Stephens Inc. and Jefferies Group Inc. invested in the rescue funding for knight, according to the Jersey City, New Jersey-based company. The investment will give the firms a 73 percent stake in Knight once the shares are converted into common stock.

So there you go... they were forced to give away control of their company to a number of outside investors.

I keep laughing at my friends... (3, Insightful)

rsilvergun (571051) | about 2 years ago | (#40991379)

that say this stuff spells the end to high freq trading. The trouble is HFT is less about investment and more about skimming off the top. HFT Traders take a percentage of a company w/o ever actually owning it. The increase in liquidity is so small that legitimate investors don't even notice it (who cares if my stock sells in .1 milliseconds vs 5 minutes if it was an investment). No real money was lost for the HFT'ers because they were never actually creating anything productive in the first place. They'll recover from this and continue to be yet another bloated tick on the face of capitalism.

Re:I keep laughing at my friends... (0)

Anonymous Coward | about 2 years ago | (#40991477)

When the market starts tanking, the liquidity will dry up within .1 milliseconds.

Re:I keep laughing at my friends... (4, Informative)

jpmorgan (517966) | about 2 years ago | (#40992641)

Liquidity isn't about time, it's about spread. Stock markets are double-auction systems, where you are free to bid and offer at any price you want. Trades only occur when someone offers a stock for less than someone else's bid price. The stock has a 'price,' and to buy stock you have to bid a little higher, and to sell you have to bid a little lower. The difference between the bid and offer price is the spread, and the spread represents an inherent transaction cost to most investors.

Now liquidity is just how easy it is to convert your stock into cash. There is always some liquidity, as long as you're willing to accept a bad deal. You offer to sell your stock cheaply enough, or buy high enough, and somebody will buy or sell. Of course, on blue chip stocks, the spread has always been pretty small, so it has never cost a lot to trade in those stocks. But in medium-cap and small-cap stocks, where HFTs have had the biggest impact, they've reduced spreads enormously.

Twenty years ago before the rise of HFT traders, you might had paid a market maker $0.50 / stock on the spread for a trade in a medium-cap stock. If you want to rebalance your investment portfolio annually, those kinds of transaction costs could wipe out your gains. It effectively priced individual investors out of the market, and if you wanted to save money you were forced into the hands of large institutional investors, who will happily charge you a 2% management fee for the pleasure of handling your money.

Today we take it for granted that most stocks have very small spreads, and you can make regular trades without seeing all your gains lost to transaction costs. HFTs have put the Serious Men in Suits market makers out of business, and have pushed the cost of trading down to the point where the individual can manage their own savings, without having to fork over most of their profit to other Serious Men in Suits.

So yeah, you may not like high frequency traders, but they're better than the old-boy networks of "specialists" and stockjobbers that they replaced.

Re:I keep laughing at my friends... (0)

Anonymous Coward | about 2 years ago | (#40992897)

HFTs have had the biggest impact, they've reduced spreads enormously. Twenty years ago before the rise of HFT traders, you might had paid a market maker $0.50 / stock

You don't think the efficiency in computers and trading has reduced the spread? You think HFT did that? Sorry, I don't think we should be thanking high frequency traders. I don't agree with your argument.

Re:I keep laughing at my friends... (0)

Anonymous Coward | about 2 years ago | (#40992953)

Efficiency has increased the speed, certainly, but HFT has reduced the spread.

Re:I keep laughing at my friends... (5, Interesting)

ceoyoyo (59147) | about 2 years ago | (#40993055)

Twenty years ago it was also much harder to match up buyers and sellers, and actual trades took a lot longer. It's hard to say how much of the decrease in spread is due to high frequency traders and how much is due to improved technology providing a more efficient, easier to access market.

Not that there seems to be anything particularly bad about encouraging people to buy long term investments.

Re:I keep laughing at my friends... (1)

khallow (566160) | about 2 years ago | (#40992943)

HFT Traders take a percentage of a company w/o ever actually owning it.

Doesn't work that way. You don't magically own a portion of a company just because you trade in milliseconds instead of minutes. It's amazing the claims that are made about HFT.

Re:I keep laughing at my friends... (1)

rsilvergun (571051) | about 2 years ago | (#40993225)

I was talking at the conceptual level of the stock market, e.g. when regular people are sold on the idea of allowing it to exist. The stock market is good because you can own a piece of a company even if you're a middle class wage slave, so we are told. HFT though aren't interested in owning, they're interested in making money on the process of buying and selling. They're middle men. Middle men can be OK if they're provide a service. That's why stock brokers exists. HFT don't provide a service (otherwise they'd just be stock brokers). They're leaches. Parasites really. In a just society we'd treat them as such, but these days the Parasite's bigger than the host it feeds off of.

What is this concept you call "C++"? (1)

Anonymous Coward | about 2 years ago | (#40991391)

Tell us, oh Bloomberg, some more about this "code in the programming language known as C++ and for a Linux operating system" of which you speak. Perhaps you can explain it to us using words in the language known as English recorded under a human visual-input system known as text.

Dead Code (4, Interesting)

sconeu (64226) | about 2 years ago | (#40991403)

This is why mission critical systems should have a "No Dead Code" requirement.

Re:Dead Code (1)

Compaqt (1758360) | about 2 years ago | (#40992137)

By Dead Code, you mean code that never (so far) executes?

That would also mean you'd never have any contingency code for "rocket has failed to propel" or other "shouldn't happen, but still" type situations.

Re:Dead Code (1)

sconeu (64226) | about 2 years ago | (#40992281)

No, code that has no possible path to get to it.

Re:Dead Code (0)

Anonymous Coward | about 2 years ago | (#40992735)

Clearly there *was* a path to get to the code in question.

Re:Dead Code (2)

Compaqt (1758360) | about 2 years ago | (#40992835)

OK, but what could that have to do with the Knight situation?

If there's no possible path (as opposed to an unlikely path), it'll never be executed, and hence it could not be responsible for the $440 mil loss, or the Toyota "brake failures" or whatever.

As a Conservative (4, Interesting)

Kr1ll1n (579971) | about 2 years ago | (#40991405)

I always found the stock market to be totally anti-capitalist. It definitely undermines a merit-based system, to say the least.

Re:As a Conservative (1)

Anonymous Coward | about 2 years ago | (#40991497)

Questioning the sacred money makers and their value to society? You're no conservative, you're a communist, probably a Muslim and likely a Kenyan anti-colonial.

Re:As a Conservative (3, Insightful)

TapeCutter (624760) | about 2 years ago | (#40991569)

Since when was capitalisim a "merit based system"?

Re:As a Conservative (1)

Nrrqshrr (1879148) | about 2 years ago | (#40991621)

Stop being a filthy commi. Money gives you merits, duh.

Re:As a Conservative (1)

Compaqt (1758360) | about 2 years ago | (#40992101)

What he's likely saying is that, ideally, capital flows to those companies and endeavors "needing it" most, usually viewed in valuation, usually meaning paying customers want that companies products built and they are willing to buy.

Speaking of which, did you have an alternative?

Allocation of capital by central committee? That would be a totally "merit based system", right?

Re:As a Conservative (1)

ceoyoyo (59147) | about 2 years ago | (#40993071)

"capital flows to those companies and endeavors 'needing it' most"

From each according to his ability, to each according to his need... no, wait, that's not right.

Capitalism is essentially a "wisdom of the crowd" approach to allocating resources. It seems to work pretty well, when properly regulated, but it definitely doesn't pay any attention to abstract concepts like "merit." Contrary to what the OP said, the stock market is the epitome of capitalism - a place where individuals with capital can allocate it however they see fit.

Re:As a Conservative (0)

Anonymous Coward | about 2 years ago | (#40991629)

I always found the stock market to be totally anti-capitalist

You have no fucking clue what the word "capitalist" actually means, do you?

Capitalism is, by definition, the privatized ownership of the means of production. A stock market is, by definition, the means to allocate that ownership.
What are you going to do for an encore? Claim that the Torah is anti-Semitic?

Re:As a Conservative (0)

Anonymous Coward | about 2 years ago | (#40991997)

The Torah does have a lot of Jews killed in it.

Re:As a Conservative (1)

OldTOP (1118645) | about 2 years ago | (#40992657)

A bit simple minded.
Capitalism is a system with several distinct components. Investment is a process whereby wealth is accumulated and used to develop mines, factories and the like which in turn create more wealth. Finance is the operation of banks and other institutions to move money from place to place. Markets are places, real or virtual, where goods are traded or exchanged for money. Markets, mines, factories and banks all existed long before Adam Smith developed his theories about them.
Over the last couple of centuries we have (at least in theory) had a system called Free Market Capitalism. A market system may be considered free when it is not unduly controlled by governments or monopolies. We have also been rather keen on Free Enterprise, which means mines, factories and so on are privately owned and operated in a manner reasonably free of government interference. We do, however expect a system of laws governing contracts to enforce repayment of loans and delivery of goods that have been sold. There may even be laws holding mine and factory owners liable when they kill or poison their workers, although there are certainly those who regard this as undesirable interference.
Too Big to Fail generally means we're in a situation where owners no longer suffer the consequences of failure as they are assumed to do in Free Market Capitalism. We the people didn't get a voice in how they were run, but we're supposed to bail them out.
The stock market is the interface between Finance and Investment. It is indeed part of the capitalist system as we know it. If you buy shares in a limited liability company, you're putting your money at risk, hoping the operations of the company will be profitable. However, if you're just looking for a quick return in the short term, you probably don't care if the company is successful in the long term. You may pressure the directors to go for short-term profits to drive the share price up so you can sell your shares at a profit, leaving someone else holding shares that will lose their value when the short-sighted decisions lead to problems.
The stock market is not necessarily good for the long term health of the economy.
If companies are owned by people who have their own money invested, they will probably be managed for a balance of short and long term returns. If companies are run by managers who are trying to attract the interest of day-traders, then main street may very well suffer.
Capitalism requires companies to be able to raise money through investment in shares, but there's no guarantee that stock markets will operate in a way that leads to a healthy capitalist economy.

Re:As a Conservative (4, Insightful)

the eric conspiracy (20178) | about 2 years ago | (#40992005)

Yeah, with capitalism the birth lottery is often more important than merit.

Re:As a Conservative (1)

jpmorgan (517966) | about 2 years ago | (#40992655)

How's that? Knight screwed up badly, and the mistake has cost them $400 million dollars. Sounds pretty merit-based to me.

Re:As a Conservative (2)

tomhath (637240) | about 2 years ago | (#40992729)

How is the stock market not merit based? Good companies succeed and are good investments for their owners.

Re:As a Conservative (1)

anon208 (2410460) | about 2 years ago | (#40992951)

The stock market put the CAPITAL in CAPITALism or so I always thought. Its why the markets were able to expand in the first place when the dutch started created the first kind of markets in the 1400s in Europe. I may be wrong, but thats what I thought I learned from classes in college a very long time ago. In fact the stock market is like an offshoot of the idea of banking and currency creation from even further back in history. The idea was, if I remember correctly, that that not everybody was using their money at the same time so why not put that money together and do something with it that was bigger than any one investor could do. Then when someone needed their money as long as not everyone came at once the money they put away could be given to the person who was withdrawing. I could be wrong here.

Hear that sound? (0)

Anonymous Coward | about 2 years ago | (#40991411)

It's the sound of the world's smallest violin playing.

Should know better. (3, Funny)

Sponge Bath (413667) | about 2 years ago | (#40991417)

Did nobody think to sound the alarm when the consoles started displaying... *BRAINZZZZ...* ?
They probably sent IT techs into the server room one at a time.

Reducing the risk of rogue algorithms? (1)

dgharmon (2564621) | about 2 years ago | (#40991509)

"Knight Capital Group Inc. (KCG)'s $440 million trading loss stemmed from old computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter"

"Once triggered on Aug. 1, the dormant system started multiplying stock trades by one thousand"

"High-speed programs that funnel orders to markets need software engineers who can write code in the programming language known as C++ and for a Linux operating system, he said in a phone interview"

"accidental trades"? (1)

fustakrakich (1673220) | about 2 years ago | (#40991543)

Yep, that's my story, and I'm stickin' to it.

Stock trading robots are destroying the markets (4, Informative)

hsmith (818216) | about 2 years ago | (#40991583)

The Fool has a great article on this. You simply can't compete.

http://www.fool.com/investing/general/2012/08/10/the-terrifying-graphic-that-shows-stock-trading-r.aspx [fool.com]

...the GIF charts the rise of HFT trading volumes across all U.S. stock exchanges between 2007 and 2012. The initial murmur, the brewing storm, the final detonation: Not just unsettling, it's terrifying. ... we don't know is [sic] what the long term consequences are of all this hyper-volume as depicted by the Nanex GIF and the kind of systemic risks created from the market's ongoing evolution from human traders to rapidfire AI. Sometimes things go wrong, a software glitch, an algorithm gone rogue and the music stops, like last week when Knight Capital (NYSE: KCG ) lost $10 million a minute when it's [sic] trading platform went haywire...

Re:Stock trading robots are destroying the markets (2, Informative)

jpmorgan (517966) | about 2 years ago | (#40992709)

That is the most out-of-context thing I've ever seen on slashdot. You took the quote that the article was disagreeing with, and presented it as the article's thesis instead. For the curious, here's the final paragraph of the article linked:

Whether increased participation from HFTs is a good or bad thing is up for debate, as is whether steps need to be taken to limit the activity of HFTs. And that's a debate that needs to happen, but it needs to happen based on solid facts and a good understanding of what's really going on.

This particular graphic, however, was assigned meaning that was never actually there. To me, this suggests a high level of fear (whether warranted or not) of HFTs, a lack of understanding of what HFTs are doing, journalistic laziness, or, probably, a bit of all three.

Re:Stock trading robots are destroying the markets (2)

nedlohs (1335013) | about 2 years ago | (#40992789)

You should try citing articles that agree with your point rather than ones that pick your claim to pieces.

the people? (0)

Anonymous Coward | about 2 years ago | (#40991839)

wtf are these people?

When prod-1 != prod (4, Insightful)

michaelmalak (91262) | about 2 years ago | (#40991865)

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.)

Re:When prod-1 != prod (1)

Anonymous Coward | about 2 years ago | (#40992945)

Creating complete 100% identical environments for dev/qa/prod in trading order management systems is pretty much impossible given the fact that a lot of applications and processes depend on real time, 3rd party (the market, trading parties, exchanges, etc) events and conditions. Most of the time you're stuck with trying to enumerate and replicate these conditions that trigger key events prior to releasing into production.

Heard It Was A Testing System (0)

Anonymous Coward | about 2 years ago | (#40991875)

At least we know their test system works. As software engineers, we should have high praise for Knight. Which other companies do you know have so much faith in their test systems that they successfully deploy them for real world operations?

Largest... (0)

Anonymous Coward | about 2 years ago | (#40992011)

...load of bullcrap. The trades should stand. There was no antiquated software; it's a hoax.

"override" is what should never be allowed to happen.

HFT no worse than LFT (low frequency trading) (1)

bpeikes (596073) | about 2 years ago | (#40992063)

Everyone whines about HFT, but don't realize that it actually does add liquidity. It also means that the people trading do take their risks, and have to pay for them. It's a fair trade. LFT (Low Frequency Trading), is not necessarily any better. The AMEX used to have "specialists" that were on the floor who were supposed to make sure that the trading happened smoothly, what actually happened was that the "specialists" were basically given the right to "skim" off the top, just like HFT traders do. Before everything was electronic, orders would hit the exchange and the specialists had a chunk of time to decide on what they wanted to do. In that time, they would see what was going on in the market, and make sure they could do both sides of the trade and make the bid ask spread. The difference between then and now is that then they had special privileges that no one else had.

Then there's the fact that the stock exchanges in the US almost stopped in the 70's because they were too slow. No one could keep up with the paperwork. That's when the DTC was created http://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation [wikipedia.org] . If you think trading was more scrupulous then than it is now, you are out of your mind.

Frankly, if you don't like the stock market, don't put money into it. I personally find it hard to put money into a company I really know nothing about. If you do enter the market, via a broker or your 401k, then you should be happy it's as efficient as it is. It costs fractions of a penny for each share as a transaction cost. Compare that to your house, which probably ran 3-6% for just the brokers fee, then lawyers, then all the other closing costs. You could do a similar transaction of hundreds of thousands of dollars of stock on the stock market for next to nothing and if you put in a limit order, you won't lose anything to the HFT traders.

Re:HFT no worse than LFT (low frequency trading) (0)

Anonymous Coward | about 2 years ago | (#40992451)

I agree with you, but to be fair, HFTers do have special privileges. The exchanges love to charge them tons of money for low latency feeds and colocation etc. It's not like any regular Joe could just hook up his PC and do the same thing they do.

Re:HFT no worse than LFT (low frequency trading) (1)

Anonymous Coward | about 2 years ago | (#40992503)

clearly you have no clue about HFT. HFT is skimming. The firms don't care about the rating of the company, just the margin between buy and sell. Their sole purpose is to skim off millions of trades. It's not an issue of trades being scrupulous. HFT happens largely on exchanges the general public doesn't have access to. It's only accessible to institutional firms. Just because people have been doing this same kind of stuff for decades, it doesn't make it good. It was bad back then and is bad now. The difference though, back then the impact was more localized. Now that the exchange is global, the impact is global. You're an idiot for thinking it's the same. That like saying a robber that knocks off a gas station is the same as bank stealing billions.

HFT adds liquidity? (1)

dgharmon (2564621) | about 2 years ago | (#40992509)

"Everyone whines about HFT, but don't realize that it actually does add liquidity"

HFT adds nothing, all these trades do is take from the muppets (clueless investors) and give to the huge financial houses. The muppets [nytimes.com] add wealth by going into perpetual debt in order to buy luxury goods on the high street. The money for which is 'loaned' by the self same financial houses. You're only worth as much debt as you can incur over your lifetime. Yes - they're is a metric for that too.

Re:HFT adds liquidity? (1)

anon208 (2410460) | about 2 years ago | (#40992961)

I think liquidity leads to instability as well.

Re:HFT adds liquidity? (0)

Anonymous Coward | about 2 years ago | (#40993433)

Liquidity is the opposite of instability. Liquidity means you can make a trade without moving the price significantly.

And great man once said... (2)

smprather (941570) | about 2 years ago | (#40992375)

You're fired!

Normal Accident (0)

Anonymous Coward | about 2 years ago | (#40992763)

"normal accident", is an "unanticipated interaction of multiple failures" in a complex system. This complexity can either be technological or organizational, and often is both A normal accident can be very easy to see in hindsight, but very difficult to see in foresight. Ahead of time, there are simply too many possible action pathways to seriously consider all of them.

[1] http://en.wikipedia.org/wiki/System_accident [wikipedia.org]
[2] Normal Accidents: Living with High-Risk Technologies, ISBN 0-691-00412-9,

sic semper (0)

Anonymous Coward | about 2 years ago | (#40992799)

sic semper high-volume, algorithmic traders

Translation: Thus always to high-volume, algorithmic traders

In other words, they got what they deserved. I hope everyone who plays these games will loose their shirts due to their own errors.

jigsaw puzzle machine (0)

Anonymous Coward | about 2 years ago | (#40993111)

We manufacture and export jigsaw puzzle machine,puzzle dies,scrapbooking dies,cutting dies and steel rule dies.
Load More Comments
Slashdot Login

Need an Account?

Forgot your password?

Submission Text Formatting Tips

We support a small subset of HTML, namely these tags:

  • b
  • i
  • p
  • br
  • a
  • ol
  • ul
  • li
  • dl
  • dt
  • dd
  • em
  • strong
  • tt
  • blockquote
  • div
  • quote
  • ecode

"ecode" can be used for code snippets, for example:

<ecode>    while(1) { do_something(); } </ecode>