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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

#41

Post by jfoutz »

aje403 wrote: post #35
jfoutz wrote: post #32

Earlier quoted context omitted.

I love this. This is the ultimate wisdom of crowds hack. Have a thousand people throw in a thousand bucks, each one selects an option play to purchase. Randomly select the purchase. If the play is profitable, keep the money. if it's a loss get the trade reverted because 'a lot of people were involved in the process.' I can make the process as convoluted an necessary to meet your 'no one person you can lay blame on' r…

....what? Your logic is truly frightening. Are you saying this is a regularly occurring event and that they deliberately did this? Do you have any idea of the scale and complexity and risk of the code they have deployed? This shit understandably happens. There is no "more people means mistakes don't happen" in any organization on the planet. There is no "whether or not who should morally be able to roll back a trade"…

> Are you saying this is a regularly occurring event and that they deliberately did this?

Nah.

> Do you have any idea of the scale and complexity and risk of the code they have deployed?

No. But apparently neither do they.

> ... I make you a lot of money. ...

With basically every other risky thing people and corporations encounter, the response is "go buy insurance". Usually they're told that by finance guys.

But hey, good for them.

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

#42

Post by osrec »

kasey_junk wrote: post #37
dsacco wrote: post #22

Earlier quoted context omitted.

What do you suggest? What features would you use to give priority to a trade?

The standard response here is Budish’s auction system: https://bfi.uchicago.edu/research/working-paper/high-frequen... Personally I think it glosses over lots of the reality of the markets but I’m ready for country to try it to see.

What do you feel it glosses over?

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

#43

Post by thedufer »

jfoutz wrote: post #32
matte_black wrote: post #18

Earlier quoted context omitted.

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.

I love this. This is the ultimate wisdom of crowds hack. Have a thousand people throw in a thousand bucks, each one selects an option play to purchase. Randomly select the purchase. If the play is profitable, keep the money. if it's a loss get the trade reverted because 'a lot of people were involved in the process.' I can make the process as convoluted an necessary to meet your 'no one person you can lay blame on' r…

That pretty clearly wouldn't work. A necessary (but not sufficient) condition for breaking a trade typically involves language like "clearly erroneous". Selling an option that is trading in the $100s for $1 (the case here) is probably in this class; trading at the market and then having it move against you is completely different.

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

#44

Post by lagadu »

alecco wrote: post #21
ransom1538 wrote: post #13

Earlier quoted context omitted.

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-...

> your bug Knight had a terrible software delivery process and a lot of deadline-oriented pressure on techies.

After it passes review and all stages of testing it's everyone's bug.

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

#45

Post by kasey_junk »

osrec wrote: post #42
kasey_junk wrote: post #37

Earlier quoted context omitted.

The standard response here is Budish’s auction system: https://bfi.uchicago.edu/research/working-paper/high-frequen... Personally I think it glosses over lots of the reality of the markets but I’m ready for country to try it to see.

What do you feel it glosses over?

In no particular order, their solution doesn't seem to deal with:

- It doesn't account for the arbitrage types that seem to bother people the most: cross-exchange arb, locality arb, regnms arb or payment for order flow.

- If the discrete time chunks are very short, it doesn't seem to solve latency arb much.

- If the discrete time chunks are very long, it defaults to pro-rata matching. We have pro-rata products already, they are not kind to the little guy.

- Most of the really weird edge cases in exchanges happen due to so called 'exotic' order types, which are really just ways to get the exchange to atomically do something for you. In the discrete auction world I'd imagine you'd have more need for complex instructions not less.

Finally, I think that the problem they are attempting to solve is fairly low priority to solve. We are operating in the lowest cost trading environment of all time. It could hardly be more fair when it comes to order execution. To throw all that out seems dumb, when there are much bigger fish to fry (such as our government bailing out one set of traders but not others).

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

#46

Post by _9vpl »

osrec wrote: post #20

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.

This may be dated info, but IEX (exchange) purposely ran longer than necessary fiber to slow down the speed of automated trading.

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

#47

Post by maxxxxx »

matte_black wrote: post #18
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…

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.

"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."

That's exactly how the big corporations hold the whole country hostage. When they do things well they get to keep all the profits and distribute them but when things go bad it's suddenly nobody's fault and the rules have to be changed. Since 2008 I am of the strong opinion that if someone in a corporation makes a big mistake we should let them go under without hesitation. Otherwise they can always blackmail us into being bailed out or working under a different set of rules if they make a mistake.

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

#48

Post by maxxxxx »

TheAlchemist wrote: post #16
enervate wrote: post #15

Earlier quoted context omitted.

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. Unfortunatel…

If the little guy makes a mistake Goldman will happily take the money. If they make a mistake the rules need to be changed. This simply is not right.

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

#49

Post by _ptgt »

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…

The Chinese government bailed out Anbang literally two days ago.

https://www.ft.com/content/c5bca040-37c6-11e8-8b98-2f31af407...

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

#50

Post by dsacco »

_9vpl wrote: post #46
osrec wrote: post #20

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.

This may be dated info, but IEX (exchange) purposely ran longer than necessary fiber to slow down the speed of automated trading.

Did they really? It's incredible how wasteful some organizations can be in pursuit of a misguided sense of "fairness."
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