Why aren’t these firms insuring against this risk? Seems like any other risk that can be managed - pay premiums and so that a third party would fund any erroneous losses.
That insurance is provided by their alumni in government positions.
Wall Street’s Big Banks Are Waging a Technological Arms Race
51–60 of 98 posts
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#52Earlier 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?
For one thing, it claims to eliminate the speed arms race by setting a sufficiently long gap between auctions, but depends on a bizarre assumption that there are 2 speeds at which information can get to the market, each at a particular cost. I suspect this would be better modeled as continuous, which would imply that tuning the auction gap merely moves the clearing price for additional information speed.
It also doesn't cover the fact that it changes common exchange revenue streams; the necessary replacements would surely affect the market. Similarly, a lot of the more complex order types would no longer make sense, which would again have market effects.
A lot of this stuff is hard to figure out, though, and trying it in the real world isn't be an obviously bad idea.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#53Earlier 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.
Then they should not let that person do live trades.
He wasn’t live trading, he was a programmer, like any other dude here in HN, and he wrote something incorrectly. A bad trade went through. Is he to blame? Who knows, no one else caught his mistake and maybe he actually coded what he thought was asked for, or someone told him something wrong.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#54Earlier quoted context omitted.
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."
They did it for marketing not fairness. It added 350 mikes and some of their orders bypassed it.
Having a ‘speedbump’ was the trendy thing a bit ago in exchanges with several different ones opening with several different versions.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#55Earlier quoted context omitted.
Did they really? It's incredible how wasteful some organizations can be in pursuit of a misguided sense of "fairness."
They did it for marketing not fairness. It added 350 mikes and some of their orders bypassed it. Having a ‘speedbump’ was the trendy thing a bit ago in exchanges with several different ones opening with several different versions.
Still a thing, that and the tick size.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#56One upside is such environments help nurture future technologies as they will happily pay millions for something just a bit faster than what they already have and more so before others have it. Hence it is avenues of business like this that have help feed certain industries over the years, from networking to FPGA's. Another avenue of financing technology which we all know is the military.
As for the whole stock market being driven faster and faster in precision from seconds to nanoseconds and picoseconds, I've always questioned the need to drive towards a faster processing and if the stock market only updated once every minute, it would sure help in curtailing many ineeded aspects that are creeping into stock trading.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#57Earlier quoted context omitted.
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 alread…
Just wanted to say, I really like the design of your blog and your writing style. Also, there is a minor typo in the last paragraph of the IOC/DI article.
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#58> 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 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.
Just like the idea that the aristocracy should be accountable to the same laws as commoners, right?
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#59Earlier 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.
well if you let them fuck up they would learn how to scale their processes real fast but then we start taking about too big to fail
Re: Wall Street’s Big Banks Are Waging a Technological Arms Race
#60Earlier 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"…
>we do a lot of business together and I make you a lot of money
>Other banks are watching and there are plenty of other exchanges to do business with
And the answer to that should be "sorry, if we will roll back your trade, SEC will put us out of business on the fraud charges".