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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

#61

Post by feiofh398r39rty »

thedufer wrote: post #43
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…

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.

And the rules defining what is 'clearly erroneous' and what is not is intentionally made vague because arbitrage of this clause makes the exchanges money.

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

#62

Post by [deleted] »

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.

[deleted]

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

#63

Post by api »

ransom1538 wrote: post #13
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-...

The fact that this is even a thing is the problem. Is this industry creating anything of actual value or is this just a giant MMORPG where the object is to grind long enough to get a house in the Hamptons?

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

#64

Post by traek »

feiofh398r39rty wrote: post #60
aje403 wrote: post #35

Earlier quoted context omitted.

....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".

Every exchange that I’m aware of has a rule allowing them to roll back clearly erroneous transactions. “Clearly erroneous” isn’t always clearly defined, but it would obviously apply in the GS case (huge volume executed at $1).

Nothing about this is fraud.

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

#65

Post by traek »

feiofh398r39rty wrote: post #61
thedufer wrote: post #43

Earlier quoted context omitted.

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.

And the rules defining what is 'clearly erroneous' and what is not is intentionally made vague because arbitrage of this clause makes the exchanges money.

In what sense is this “arbitrage”?

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

#66

Post by bartart »

_ptgt wrote: post #49
dnomad wrote: post #14

Earlier quoted context omitted.

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...

At least the chairman is on trial. Not that the trial would be fair or is for the right reasons.

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

#67

Post by feiofh398r39rty »

traek wrote: post #65
feiofh398r39rty wrote: post #61

Earlier quoted context omitted.

And the rules defining what is 'clearly erroneous' and what is not is intentionally made vague because arbitrage of this clause makes the exchanges money.

In what sense is this “arbitrage”?

They stand as the arbiter of who will gain money and who will lose. There basically is a series of cases 'erroring parties vs Goldman' and 'erroring Goldman vs other parties' and whether Goldman will lose money is decided by an Exchange (hint: they rule in Goldman favor every time, making an analogy with forced arbitration even more proper)

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

#68

Post by taneq »

lagadu wrote: post #44
alecco wrote: post #21

Earlier quoted context omitted.

> 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.

Exactly. You don't just do code reviews and run tests to catch bugs. You also do code reviews and run tests so that, when something does slip through, it's no one person's fault.

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

#69

Post by EGreg »

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.

The way to win every bet is to be too big to fail.

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

#70

Post by dx034 »

feiofh398r39rty wrote: post #58
dnomad wrote: post #14

Earlier quoted context omitted.

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?

No but if GS asks a counterparty (with whom they have billions in other contracts) to cancel contracts as a result of a system error, the counterparty will probably agree (if they don't lose as a result) knowing that GS will next time do the same. With a small party, this could just be an attempt to undo a bad deal.

I think what the poster meant is that deals are just contracts and can be amended if both parties agree. For large banks with longstanding relationships, that is naturally much easier than for a trader that no one knows.

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