Knight Market-Making Unit Says It Had ‘Technical Issue’
By Whitney Kisling, Joshua Fineman and Lu Wang – Aug 1, 2012 5:39 PM ET
Computers sent more than 100 stocks into trading spasms just after U.S. markets opened, whipsawing investors and pushing shares of Knight Capital Group Inc. (KCG) down by the most ever on speculation it was to blame
Knight, which helped execute almost $20 billion of equity transactions a day in June, plunged more than 30 percent in record volume. The errors were caused by a malfunction in a so- called trading algorithm, according to a person at the company who asked to remain anonymous. The New York Stock Exchange said that after reviewing 140 securities, it would cancel transactions in six that occurred during the height of the volatility starting at 9:30 a.m. in New York.
The disruptions, occurring after three Dow Jones Industrial Average stocks fluctuated in regular hourly patterns for a full trading day on July 19, emboldened critics of American market structure who say the computers that dominate trading have become too complex to control. Special curbs adopted after the May 2010 equity crash helped calm today’s fluctuations.
Welcome to algo trading. Next time put some checks in your systems or at least send out a pre-open email to your heads of Trading and Technology confirming the queued volume pending the bell.
Fire your head of risk management and hire me. This has nothing to do with market savvy and everything to do with common fucking sense.
algo + high frequency trading + lack of software testing = stupid
simple solution: transaction tax
i hate taxes, but the markets are not fair to actual investors in companies because of HFT
Algo and HFT activity is out of control. This is not a bulge bracket player. If there is a case for a transaction tax this is it. What happens when a GS or MS has a hiccup? Rob, send your CV to these maniacs. You’re absolutely right. When you cut thru the quant crap, common sense is getting back to basics and the best solution to crap like this.
Mr Smith, I’m not sure there will be an autonomous Knight Trading by this time next week, so where should I send my CV?
I disagree with a transactions tax. That’s just more money the government can spend on nonsense. I do think that a limit on cancel / replace orders on any given security is warrented. Some of the Asian markets do this: 500 a day or something like that. A black box could max that out before 9:33 AM. Such a limit would force algos to abandon the shotgun approach, and refine their strategies towards precise exploitation of transient innefficiencies (in their defense, a lot of quants do this already). It’s the reckless ones from whom the market needs to be protected, especially if they’re operating at market makers like Knight, ITG, etc etc.
Sorry, just meant to say your radical idea about “common sense” is dead on. I meant the tax going to regulatory monitors. The fact that the regulators need to focus more on principles based regs as opposed to prescriptive is another story. Keep on pluggin’ along as common sense will come back in vogue.