How To Lose $172,222 a Second For 45 Minutes 327
An anonymous reader writes "Investment firm Knight Capital made headlines in 2012 for losing over $400 million on the New York Stock Exchange because of problems with their algorithmic trading software. Now, the owner of a Python programming blog noticed the release of a detailed SEC report into exactly what went wrong (PDF). It shows how a botched update rollout combined with useless or nonexistent process guidelines cost the company over $172,000 a second for over 45 minutes. From the report: 'When Knight used the Power Peg code previously, as child orders were executed, a cumulative quantity function counted the number of shares of the parent order that had been executed. This feature instructed the code to stop routing child orders after the parent order had been filled completely. In 2003, Knight ceased using the Power Peg functionality. In 2005, Knight moved the tracking of cumulative shares function in the Power Peg code to an earlier point in the SMARS code sequence. Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called. ... During the deployment of the new code, however, one of Knight's technicians did not copy the new code to one of the eight SMARS computer servers. Knight did not have a second technician review this deployment and no one at Knight realized that the Power Peg code had not been removed from the eighth server, nor the new RLP code added. Knight had no written procedures that required such a review.'"
Re:There should be a mandatory one second delay. (Score:5, Interesting)
Personally, I believe if you're going to buy stock in a company then you should be required to hold said stock for at least 24 hours, if not much longer. the stock market was created to allow people to invest their money in a company, thus allow that company to use that money to grow which should result in a return (or loss). It was not designed for gambling, which is what it has become.
Re:There should be a mandatory one second delay. (Score:3, Interesting)
Just tax EVERY transaction. Done.
private dumb: $20K. Govt dumb: $400 billion (Score:5, Interesting)
Two things. First, the free market does things efficiently, including dumb things. Microsoft built the Surface efficiently - $390 per tablet. Government spent over $1,000 each buying them.
Secondly, there's dumb, and there's government dumb.
A dumb corporation requires three people to do a job that one person could do. A government gets the same job done by creating a new agency which contracts with three companies at $320 million each, requires that it be done in Pascal, and prohibits any testing until the project is "complete", at which time it's six years after tube event that the project was created to handle.
I just saw one of our most efficient government agencies, one that wins efficiency awards, spend over $19,000 on a project I could do in two days. Funny thing is, I WORK for that agency, so it would have cost them almost nothing to have me do it.
Re:The efficiency of capitalism (Score:4, Interesting)
As a society we don't need to care what happens to some random company.
If JP Morgan collapsed tonight, we (as a society) would certainly care about what happens.
Why? Because some "random companies" are so big that their troubles would shake the (inter)national economy.
This is a great strength of the private sector, and this property is what is referenced by the phrase "the market is self-regulating".
The market is not self regulating, unless it is self regulating towards oligopolies, oligopsonies, cartels, and general shittiness.
Greenspan Concedes Error on Regulation [nytimes.com]
October 23, 2008
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
"Those of us who have looked to the self-interest of lending institutions to protect shareholders equity, myself included, are in a state of shocked disbelief," he told the House Committee on Oversight and Government Reform.
On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.
I could quote the entire article, hell his entire testimony. [scribd.com]
There was no room in his ideology for private companies to intentionally abandon risk management and externalize the risk by selling it off.
So despite his attempts to mince words, the results of his Ayn Randian ideology ended up being exactly what one would historically expect from not having meaningful regulation.
Re:This is what I like best about /. (Score:5, Interesting)
The problem is starting a cooperative is about the same effort as starting a corporation, but the benefits to the founder are much lower. So more corporations are started than coops. Perhaps if someone can design an incentive scheme that can't be abused then more coops will be started and hopefully we'll have less ripping off going on.
Then again maybe coops are better behaved only because they self select for founders who are less greedy who then set a less greedy organization culture
Re: This is what I like best about /. (Score:5, Interesting)
You could argue that "the free market gave a dumb corporation a 400 million dollar bitch slap in less than a hour" is funny, but actually it,s insightful. It's the perfect example of how companies could and should be punished for doing stupid things.
And here's an even better example: the flash crash of three years ago. In a few minutes some algorithms went haywire and stock prices dropped dramatically, in some cases down to 1 cent. Clearly that was wrong. The free market fixed this issue in six minutes. That's pretty fast, if you ask me. The government is still, three years later, thinking about what to do about it. Really!?