This is incorrect. Are you thinking about currency markets?
There were murders a week ago in Colorado. What problems did those create for you or me?
Oh, wait a minute. When you wrote “me or you” you really meant “any innocent victim.” How about, just for starters, those who bought at 29% above the opening (only 30%-higher trades were unwound). Or those who made a clever buy decision but got it unwound because it was off by 30%. Or, if the damage were a bit bigger, the creditors and customers of Knight Capital.
In a recent thread I read that Bill Gates, with his $69 billion, contributed exactly $69 billion of value to the World, no more no less. I tried to refute this via reductio ad absurdem but was accused of ignorance because I made it too absurd. :smack:
Someone won the $450 million Knight lost. Did they contribute exactly $450 million of value to the world?
Also in the news: other people earned $440 million in 45 minutes due to computerized trading.
Yes, in this instance, Knight Capital.
If I’m speculating, hoping to make a quick buck on the wave of an unexplained spike in the course of an hour, I shouldn’t bitch when the results don’t go the way I’d hoped. Anyone who lost in the first hour of the market, based on Knight’s action, was not a long-term investor. It was a speculator who rolled the dice and lost.
This was not some firm gaming the system. It was a firm who had crappy controls who paid the price for it. Such is the market, which punishes bad decisions and systems of trading. I still don’t see something that needs fixing here. Knight is paying for its poor processes, as it should.
I thought for sure this was going to be about when Bane raided Wall Street in the latest Batman movie.
I don’t think of stock speculators as “innocent victims”. YMMV.
The counter-parties to Knight’s trades were, in some cases, ordinary retail investors. There are tags one can put on an order (Fill or Kill, All or None, etc.) but Trade Only With Fellow Speculator isn’t one of them.
Retail investors wouldn’t have overpaid by 29% if they used limit orders, but a previous thread covered reasons not to limit; and there are others.
Here is a story about it from the Register written by someone with a clue - except he got bid and ask reversed.
This was supposed to be a test - but somehow it went live.
Now, I don’t expect a CEO to understand anything about software, but if your company lives and dies on computerized training I do expect him to tell the people who do to enforce some quality and internal testing requirements.
In the Times today I read that there was a new capability or type of trading launched, and Knights wanted to be first, ahead of more cautious competitors. If that is correct, and they were shooting for a deadline, then I wouldn’t be surprised if they skimped on internal testing to meet it. The problem described in the Register should have been easily caught, but testing takes time and a good test environment costs money.
CEOs get a fortune because they are supposed to be so much better than lackeys like us. But when they screw up they get another fortune. Ancient kings and emperors who took the throne got the palace and the gold and the serving wenches - but when they screwed up their heads went on a pike. When they lost the big battle they didn’t get to depart with half the gold. If we stuck the heads of failing CEOs on a financial pike maybe they’d try a little harder.
I’m glad the SEC made the right move for once and didn’t cancel most of Knight’s trades. That would have damaged the integrity of the equity market more than Knight’s Algo Gone Wild.
I agree. This is why they make errors and omissions insurance. Let them handle their own problems. If anything, they should get a fine for turning an untested application loose on the market and causing “false” market activity.
It will be interesting to see who claims harm once the list of the traded stocks are released. This was basically an automated reverse pump and dump. There has to be some third parties who were adversely affected.
The funniest part is that somewhere, there is a programmer going “Oh, crap!” and it’s probably among the top 100 programmer 'Oh Craps!" out there.
Just curious, if the settings had been switched and they ended up making $440M in 45 minutes would they have had to return profits from prices that were more than 30% outside the normal trading range for the stocks?
If the settings had been switched they wouldn’t have made anything, because nobody would have sold at the price they were bidding for and no one would have bought at the price they asking for. But because their ask price was below their bid price, they bought from everyone and sold to everyone and lost money on each transaction.
Sure, I get that, but that wasn’t what I asked.
They screwed up and lost several hundred tons of money and, while not getting everything back, are getting a fairly large re-do. I’m asking if the screwup had reversed (which wouldn’t have happened because no one else could have screwed up) would they be getting the same re-do?
Bolding mine.
Probably because someone was making $440 million.
It seems interesting that these losses, in the space of minutes, were a significant fraction of the Baring’s Bank losses 17 years ago, yet attracted much less attention. And there are doubtless many big financial rolls-of-the-dice that pass unnoticed.
I do hope I won’t be accused of Soviet-style central planning, or coddling the ignorant by forcing them to wear seatbelts, when I point out that a very tiny transaction tax would curb some of the excesses on Wall Street (as well as raising enough revenue to lower somewhat the tax hike on Job Creators that the hateful crypto-Kentans are proposing). (I mention a 0.05% tax twice before, and each time someone responds with a link showing poor results from a 0.5% tax. Can we get one of our math experts to comment on the relative sizes of 0.05% and 0.5% ?)
It would be fun to construct such a hypothetical and expose a “double standard” but I don’t know how you can. Accidents are bad – it’s almost like a law of thermodynamics. In the event, normal traders were happy to take easy profits. In your hypothetical, they’d have to be happy to take easy losses.
There is one way that might happen: If the other computer algorithms had an hitherto-undiscovered flaw that caused them to happily lose in some scenario and Knight’s new algorithm, accidentally or not, exploited that.
How would a tax prevent software problems?
Did someone claim it would?
I interpreted you bringing it up as it being a possible solution to the issue at Knight. If not, then nevermind.
I told Knight Capital to not invest so heavily in orange juice futures.
Well, I guess it’s true what they say - to err is human, but you need a computer to really cock things up.