Oil crash busted broker’s computers and inflicted big losses • Hacker News Board

Re: Oil crash busted broker’s computers and inflicted big losses

#171

Post by rajacombinator » Sat, May 09, 2020, 3:35 AM UTC

haltingproblem wrote: post #156

rajacombinator wrote: post #151

Earlier quoted context omitted.

You couldn’t sound more clueless here. A rare screwup by IB for sure but the only reason you’re hearing about it is because the CEO is a standup guy. (Very sharp one too.) Other brokers would no doubt sweep this under the rug and/or pursue their customers for the losses.

You sound like an employee ;) On a serious matter, doesn't Peterffy owns a huge chunk of IB and a brokerage is as riskless of a transaction business as you can get to in the financial industry as possible. IB's frontends used to lead the market and their pricing is decent too. Who else lost $100 million because they did not program futures and span margin properly?

Not an employee but a customer for about 16 years. Not sure their front end ever led the market and they’re far from flawless. But they’re one of a very small number of ethical outfits in a very scummy industry.

Re: Oil crash busted broker’s computers and inflicted big losses

#172

Post by TuringNYC » Sat, May 09, 2020, 6:44 AM UTC

mathgenius wrote: post #60

defen wrote: post #47

Earlier quoted context omitted.

WTI (West Texas Intermediate, the one that went negative) is already settled at a specific place: Cushing, Oklahoma. Unlike with Brent Crude you can't just drive a tanker up to Cushing Oklahoma. So if you buy a WTI contract you are promising to take delivery of 42,000 gallons of oil there...it's the nature of the contract that there's no way around this.

ICE offers an equivalent cash settled contract, that takes it's value from CME's closing prices. https://www.theice.com/products/213/WTI-Crude-Futures

Curious -- did they settle at a price where holders had to pay up on the below zero spot?

Re: Oil crash busted broker’s computers and inflicted big losses

#173

Post by TuringNYC » Sat, May 09, 2020, 6:46 AM UTC

AnimalMuppet wrote: post #80

centimeter wrote: post #75

Earlier quoted context omitted.

> If you get into the market for physically settled contracts with no intention of taking delivery, then you're almost certainly a speculator. Hard disagree. There are lots of reasons people with legitimate hedging concerns who don't intend to take physical delivery prefer the physical contract to a CSC (if it's even available).

Would you list some of those reasons, instead of just making the bare assertion?

These futures contracts are for delivery at a specific location. What if you just dont want a million barrels 2000 miles away? Cash settled seems a lot more flexible for lots of industrial use.

Re: Oil crash busted broker’s computers and inflicted big losses

#174

Post by CoolGuySteve » Sat, May 09, 2020, 7:23 AM UTC

Bluecobra wrote: post #125

haltingproblem wrote: post #84

“Five days, including the weekend, with the coronavirus going on and a complex system where we have to make many changes, was not a sufficient amount of time,” he said. “The idea we could have bugs is not, in my mind, a surprise.” He also acknowledged the error in the margin model Interactive Brokers used that day.....We have called the CFTC and complained bitterly,” Peterffy said. “It appears the exchanges are going…

Peterffy is talking out of his ass, they had more than 5 days. CME's current specifications for order entry/market data has been in place for years now. Whoever was writing their software on their backend failed to read the documentation. https://www.cmegroup.com/confluence/display/EPICSANDBOX/Posi...

CME requires certification before you can deploy a connector to them.

If they really cared or if this was as obvious as everyone here is claiming it is, negative price support would be part of their certification suite. It is not.

Re: Oil crash busted broker’s computers and inflicted big losses

#175

Post by huy-nguyen » Sat, May 09, 2020, 9:06 AM UTC

Another entry should be added to the “things programmers believe about commodity prices.”

Re: Oil crash busted broker’s computers and inflicted big losses

#176

Post by CrazyStat » Sat, May 09, 2020, 3:20 PM UTC

sokoloff wrote: post #167

CrazyStat wrote: post #150

Earlier quoted context omitted.

The broker calculated the margin requirements based on the assumption that the price could not go negative. So the investors thought they were risking $30 per contract when it was actually a couple orders of magnitude larger than that. Effectively the broker lied to them about how leveraged they were.

Anyone who thought they were risking a max of $30/contract has no absolutely no business trading futures. Most of them are 1000bbl contracts and the disclosure docs that you read before being granted trading enablement are crystal clear. The margin required to be posted is not the limit of what you can lose. (If it was, margin calls would be much less of a thing.)

The margin is a measure of how much you might reasonably expect to lose. IB was clearly miscalculating it.

Re: Oil crash busted broker’s computers and inflicted big losses

#177

Post by racecar789 » Sat, May 09, 2020, 6:23 PM UTC

rajacombinator wrote: post #171

haltingproblem wrote: post #156

Earlier quoted context omitted.

You sound like an employee ;) On a serious matter, doesn't Peterffy owns a huge chunk of IB and a brokerage is as riskless of a transaction business as you can get to in the financial industry as possible. IB's frontends used to lead the market and their pricing is decent too. Who else lost $100 million because they did not program futures and span margin properly?

Not an employee but a customer for about 16 years. Not sure their front end ever led the market and they’re far from flawless. But they’re one of a very small number of ethical outfits in a very scummy industry.

Same here, customer for 18yrs. In 2002, $1 trades with honest exchange routing was unheard of.

Re: Oil crash busted broker’s computers and inflicted big losses

#178

Post by pathseeker » Sat, May 09, 2020, 7:55 PM UTC

jldugger wrote: post #146

elliekelly wrote: post #56

Earlier quoted context omitted.

Interesting point. Have we commoditized and securitized the storage of commodities yet? Can someone purchase oil storage futures contracts to mitigate this risk?

Go betweens exist and on Planet Money one was interviewed: https://www.npr.org/2020/04/22/842095406/episode-993-negativ... Their website: https://www.thetanktiger.com > The objective of the Tank Tiger is to serve as a clearinghouse and a single point of contact for parties who desire terminal tank services or utilization of midstream assets and to bring them together with the companies who own these assets and seek f…

Yep, but it's worth pointing out that this firm just connects you up with people and you have to deal with individual storage owners to buy something. Very high friction to firing up your brokerage app and going long /CL.

Re: Oil crash busted broker’s computers and inflicted big losses

#179

Post by kragen » Sun, May 10, 2020, 1:01 AM UTC

I've written real-time trading systems trading on IB. Their client library is a real pile of shit, so it's not surprising to hear that their internal systems are too. Reassuring to hear that they're going to eat the US$100M loss themselves instead of letting their customers have it. (Not that they were going to get US$9M out of this Shah guy anyway.) They never did us any wrong when we were their customers.

Does this pose a risk of IB going insolvent? If they do, is there a risk of their customers being just another creditor of a bankrupt corporation, with respect to the stocks and futures that IB holds on behalf of those customers? Or are those instruments held in bailment, or actually by some other company, rather than as IB assets?

Re: Oil crash busted broker’s computers and inflicted big losses

#180

Post by EdwardDiego » Sun, May 10, 2020, 12:09 PM UTC

dmurray wrote: post #136

EdwardDiego wrote: post #133

Earlier quoted context omitted.

Makes me wonder about their testing - any decent tester is going to throw a negative number in as a matter of course. I have a gut feeling that this bug was flagged and closed as WONTDO because "that'll never happen"

Just as likely it was a feature. If you really think "that'll never happen", then the right thing to do is explicitly ignore negative prices or refuse to send orders at negative prices, and that's exactly the kind of failsafe I'd want to have in my trading software, since you can get spurious prices for all kinds of reasons. It turned out the assumption was wrong and yeah, you should remove the logic handling that on…

But the fact that they didn't display negative prices to customers indicates that they were explicitly ignoring them in a very very bad way. I'm suspecting an abs() function was involved.