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Strange article. Lots of text but missing the main thing I was looking for. What kind "erroneus trades"? where did the money go? If you buy stock at the market you did not intend to buy, why not just sell them the next day?
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And the nanex guess at why it happened: http://www.nanex.net/aqck2/3525.html
"We think the two periods of time when there was a sudden drop in trading (9:48 and 9:52) are when they restarted the system. Once it came back, the Tester, being part of the package, fired up too and proceeded to continue ..." Ouch!
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Unlike high-frequency trading, aviation is highly regulated. In the United States the FAA specifies pretty detailed development standards for avionics software (e.g., DO-178B: http://en.wikipedia.org/wiki/DO-178B ). We're unlikely to see similarly strict requirements for financial software anytime soon.
Having talked with people who write life-critical code, the regulation isn't really what makes it safe. Safety comes from good engineering. The regulation just makes it much harder to bring an unsafe product to market, and makes it clearer who to blame when people die.
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"We think the two periods of time when there was a sudden drop in trading (9:48 and 9:52) are when they restarted the system. Once it came back, the Tester, being part of the package, fired up too and proceeded to continue ..." Ouch!
I love dumb coders!
Earlier quoted context omitted.
And the nanex guess at why it happened: http://www.nanex.net/aqck2/3525.html
"We think the two periods of time when there was a sudden drop in trading (9:48 and 9:52) are when they restarted the system. Once it came back, the Tester, being part of the package, fired up too and proceeded to continue ..." Ouch!
But creating a bug that loses your company half a billion dollars in thirty minutes and bankrupts them, must be stomach-churning.
'Prediction is difficult, especially with regard to the future'. It looks like they were using some new algorithm, which should have made them a lot of money, had the market gone up after their massive purchases. In that case, they would have pocketed fat bonuses and would not be on the news. However, it has not happened, so the crying and the search for a scapegoat is on. It sounds like the case of the banking busin…
Huh? Knight Capital lost a bunch of money, and will likely go bankrupt. Essentially, Knight's software bug transferred a bunch of money from Knight to everyone else. This poses minimal systematic risk to anyone else, and they will almost certainly get no bailout. The markets have already recovered. The S&P was down a little bit on thurs and recovered by friday. Knight is down 60%. http://www.google.com/finance?q=INDE…
'Prediction is difficult, especially with regard to the future'. It looks like they were using some new algorithm, which should have made them a lot of money, had the market gone up after their massive purchases. In that case, they would have pocketed fat bonuses and would not be on the news. However, it has not happened, so the crying and the search for a scapegoat is on. It sounds like the case of the banking busin…
Of course, buying high and selling low is always the 'reason' for making a loss. In this case, I think the program caught itself out by manipulating the market, which it perhaps naively assumed to be non-manipulable. In other words, it was creating so much volume that, when buying (or selling), it made the market go up (or down). It was then reading the price as going up (or down) and jumping on its own bandwagon. Th…
"Wilson!!! Get back in there and SELLLLLLLL"
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I'd love to know what qualifies you to throw a word like incompetence around here. My best guess is the reason it took 45 minutes to shut it off was due to a judgement call: burn through free cash, or take out all their customers too. Bear in mind some of the largest retail brokerages in the world hang off Knight. Their primary functions are acting as an order destination and a market-maker, for efficiency's sake an…
I could buy that they competently made the best of a bad situation. But I have a hard time believing that getting into the situation was the result of perfect competence. My time writing trading software was never on the automated end of things, so I'm only modestly qualified to comment. But if I were doing the post-mortem on this one, the first thing I'd look for is middle management time pressure forcing a large re…
Why is that relevant?
> It's hard to imagine the upside that would have justified that kind of risk.
Actually, it's easy to imagine such an upside. Consider 800x the lifetime median income of a US worker.
Solyndra lost far more of the US taxpayer's money. Are you really suggesting that Solyndra shouldn't have been considered because the amount of money was too large?
How about CA's high speed rail project? Are you really saying that it's a bad idea just because of the amount of money involved?
I'm not claiming that Solyndra or high-speed rail are good investments, I'm just them to demonstrate that the $500M at risk isn't a show stopper. You must consider the return.
There are lots of bets that are that large or larger. For example, every time a company sells for >$400M ....