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Trading Program Ran Amok, With No ‘Off’ Switch

dealbook.nytimes.com

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Re: Trading Program Ran Amok, With No ‘Off’ Switch

#2

Post by nmcfarl »

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence.

At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#3

Post by jonhendry »

nmcfarl wrote: post #2

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

The server rooms might not be nearby. They might be located closer to the big exchanges' servers.

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#4

Post by slurgfest »

nmcfarl wrote: post #2

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

Agreed, the incompetence of pushing changes like that to production (with such high stakes) is pretty bad... but not even having a switch to flip?

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#5

Post by rorrr »

nmcfarl wrote: post #2

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

It happened very quickly, after years of operations.

Technically, it can take seconds to lose that much.

What they did wrong is do all their trading with the same algorithm. Way to put all eggs in one basket.

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#6

Post by patdennis »

rorrr wrote: post #5
nmcfarl wrote: post #2

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

It happened very quickly, after years of operations. Technically, it can take seconds to lose that much. What they did wrong is do all their trading with the same algorithm. Way to put all eggs in one basket.

According to the article, it took them a half hour to shut it down. That's more than a few seconds.

But as a torrent of faulty trades spewed Wednesday morning from a Knight Capital Group trading program, no one at the firm managed to stop it for more than a half-hour.

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#7

Post by forgotusername »

nmcfarl wrote: post #2

They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.

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 obvious conclusion would be that both functions are combined in the same software (in a market where microseconds matter). So given the choice of taking a cash hit (a potentially short term affair), or a reputation hit (a much longer term and most likely fatal affair), it's entirely possible Knight knowingly made the right decision.

It's worth note that the eventual deficit amounts to somewhere in the region of one year's net income, hardly insurmountable (and how many investment opportunities promise close to 100% return in a single year?).

Listening to the CEO on Bloomberg, it was clear that minimizing damage to customers was their primary goal (he made this point several times in the 5 minute interview), and that he appeared comfortable with the outcome.

Re: Trading Program Ran Amok, With No ‘Off’ Switch

#9

Post by jonah »

"Knight is also working with Goldman Sachs to help unwind the trades behind its extensive loss, according to people briefed on the matter.

"Goldman has agreed to buy, at a discount, the shares that the trading firm had accumulated. Such a move would help Knight by taking the portfolio off its hands and freeing up capital."

What does this mean? Why would GS do this? Why would Knight do this? Couldn't they just sell them on the open market at a better price instead?

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