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Wall Street’s Big Banks Are Waging a Technological Arms Race

bloomberg.com

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Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#11

Post by jfoutz »

matte_black wrote: post #9
nostromo wrote: post #8

> By the time the trades were blocked for the last time, less than an hour after they began, Goldman Sachs executed orders to sell more than 1.5 million options contracts for $1. The cause? A coder had mistakenly programmed a router to send placeholder bids as live orders. If not for the good graces of the options exchanges, the bank would have lost $500 million, according to the U.S. Securities and Exchange Commissi…

Sorry, but rules need to scale. What is acceptable for a small trader can not always be acceptable for a massive Corp.

Yes, and that's a good scaling rule. the person with $50 dollars is likely clueless and stumbling around trying to figure out what the rules are. The person with $50 billion can do serious damage when they screw up.

The rules in place are exactly backwards. the $50 dollar team is held to a high standard, with no affordances. the $50 billion dollar team is part of the club, so enforcers look the other way when they screw up.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#12

Post by buschkowitz »

fokov wrote: post #7
PerryCox wrote: post #4

Earlier quoted context omitted.

Yeah I really don't understand why Goldman should get a pass like this. They fucked up, they should lose money. Or better yet, errors like this should be reversed or safeguarded against better.

Honestly, this stuff just shows us how rigged the system is. This isn't the first time it has happened. Flash crashes caused by bad algorithms lost a bunch of money that was reversed as well. IMO, it is horrible to reverse this. They took the risk and got to keep the reward, but as soon as they fail, they get bailed out every single time.

If I were an exchange and would earn tons of cash from Goldman on trading commissions, I would bail them out too, I guess.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#13

Post by ransom1538 »

chollida1 wrote: post #3

> Bam. Bam. Bam. Dummy trade signals that were supposed to stay within the company’s electronic systems broke loose and slammed into computers at the New York Stock Exchange’s options markets. So many orders crashed through that by 8:44 a.m., safeguards within Goldman Sachs sprang into action, severing the connection between the company and the exchanges. Anyone whose built a trading system lives with this type of fe…

Imagine coming back from lunch, you start to unwrap your sandwich at your desk. Then, your boss walks by and throws your sandwich across the room and explains while you were out your bug caused 440 million dollars of erroneous trades - and the company now no longer exists.

https://dealbook.nytimes.com/2012/08/02/knight-capital-says-...

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#14

Post by dnomad »

nostromo wrote: post #8

> By the time the trades were blocked for the last time, less than an hour after they began, Goldman Sachs executed orders to sell more than 1.5 million options contracts for $1. The cause? A coder had mistakenly programmed a router to send placeholder bids as live orders. If not for the good graces of the options exchanges, the bank would have lost $500 million, according to the U.S. Securities and Exchange Commissi…

There are N^2 sets of rules. At the end of the day you have two counterparties engaged in voluntary exchange. Everything is negotiable, anything is possible -- you just have to ask or pay. What people don't seem to grasp about modern finance is how mind boggingly complex and dynamic it really is. The idea that a tier one investment bank and a small trader should be held to the same "rules" is so wondrously silly... it's hard to describe but there ought to be a word for it.

The only thing really annoying here is that all this wackiness is backstopped by the Federal government. Nobody has any doubt that at the end of the day they will step in to save GS if everything really goes sideways. And that's probably a good thing. But it's very strange that the big banks, which are essentially quasi-state actors at this point, get to keep so much of their profits when the public is bearing so much of the risk.

This is the real difference between China and America: in China the government does everything in its power to make sure its state-owned enterprises succeed and then it takes its pound of flesh. In America the government does everything in its power to make sure its state-owned enterprises succeed and then it gives them a huge tax cut to make the shareholders that much richer. It's a bold move, let's see how it plays out.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#15

Post by enervate »

jfoutz wrote: post #11
matte_black wrote: post #9

Earlier quoted context omitted.

Sorry, but rules need to scale. What is acceptable for a small trader can not always be acceptable for a massive Corp.

Yes, and that's a good scaling rule. the person with $50 dollars is likely clueless and stumbling around trying to figure out what the rules are. The person with $50 billion can do serious damage when they screw up. The rules in place are exactly backwards. the $50 dollar team is held to a high standard, with no affordances. the $50 billion dollar team is part of the club, so enforcers look the other way when they sc…

but a $50 trade has a much smaller effect on everyone than a $50 billion trade

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#16

Post by TheAlchemist »

enervate wrote: post #15
jfoutz wrote: post #11

Earlier quoted context omitted.

Yes, and that's a good scaling rule. the person with $50 dollars is likely clueless and stumbling around trying to figure out what the rules are. The person with $50 billion can do serious damage when they screw up. The rules in place are exactly backwards. the $50 dollar team is held to a high standard, with no affordances. the $50 billion dollar team is part of the club, so enforcers look the other way when they sc…

but a $50 trade has a much smaller effect on everyone than a $50 billion trade

For instance, the effect was that Goldman lost money, while some other guys made money - what's the harm here ?

Moreover, the trade being busted, the guy that initially made the money, probably found himself in a very uncomfortable position, since chances are he already covered his risk and hedged the lucky trades. So overall, he lost money just because Goldman was able to force the rules in their favor.

Unfortunately, markets are rigged, just as most things -> the bigger you are, the more influence on the rules and how they are applied you have.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#17

Post by digi_owl »

buschkowitz wrote: post #12
fokov wrote: post #7

Earlier quoted context omitted.

Honestly, this stuff just shows us how rigged the system is. This isn't the first time it has happened. Flash crashes caused by bad algorithms lost a bunch of money that was reversed as well. IMO, it is horrible to reverse this. They took the risk and got to keep the reward, but as soon as they fail, they get bailed out every single time.

If I were an exchange and would earn tons of cash from Goldman on trading commissions, I would bail them out too, I guess.

Why do this bring to mind how casinos treat big name gamblers...

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#18

Post by matte_black »

jfoutz wrote: post #11
matte_black wrote: post #9

Earlier quoted context omitted.

Sorry, but rules need to scale. What is acceptable for a small trader can not always be acceptable for a massive Corp.

Yes, and that's a good scaling rule. the person with $50 dollars is likely clueless and stumbling around trying to figure out what the rules are. The person with $50 billion can do serious damage when they screw up. The rules in place are exactly backwards. the $50 dollar team is held to a high standard, with no affordances. the $50 billion dollar team is part of the club, so enforcers look the other way when they sc…

It is not backwards at all. Corporations are made up of a ton of people, there's no one person you can lay blame on. Some guy fucks up and costs a firm half a bil with a computer error, that's not something you want to just allow to happen.

A dude losing $50? Give me a break, his risk is his own. Consider his $50 a small price to pay for learning how things work. And let me remind you, it is a very small price.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#19

Post by matte_black »

dnomad wrote: post #14
nostromo wrote: post #8

> By the time the trades were blocked for the last time, less than an hour after they began, Goldman Sachs executed orders to sell more than 1.5 million options contracts for $1. The cause? A coder had mistakenly programmed a router to send placeholder bids as live orders. If not for the good graces of the options exchanges, the bank would have lost $500 million, according to the U.S. Securities and Exchange Commissi…

There are N^2 sets of rules. At the end of the day you have two counterparties engaged in voluntary exchange. Everything is negotiable, anything is possible -- you just have to ask or pay. What people don't seem to grasp about modern finance is how mind boggingly complex and dynamic it really is. The idea that a tier one investment bank and a small trader should be held to the same "rules" is so wondrously silly... i…

> it's hard to describe but there ought to be a word for it.

The word is naive.

Re: Wall Street’s Big Banks Are Waging a Technological Arms Race

#20

Post by osrec »

I personally feel we need to change the way exchanges operate. Too much emphasis exists on speed of execution. We must consider alternative auction formats where speed of execution is not the only criteria for matching an order, as it gives rise to masses of spam generated by a thundering herd of traders as they all try and fulfill the same opportunity.
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