Skynet will take over the NYSE first

From this morning’s New York Times:

The trading firm Knight Capital recently rushed to develop a computer program so it could take advantage of a new Wall Street venue for trading stocks.

But the firm ran up against its deadline and failed to fully work out the kinks in its system, according to people briefed on the matter. In its debut Wednesday, the software went awry, swamping the stock market with errant trades and putting Knight’s future in jeopardy.

The fiasco, the third stock trading debacle in the last five months, revived calls for bolder changes to a computer-driven market that has been hobbled by its own complexity and speed. Among the proposals that gained momentum were stringent testing of computer trading programs and a transaction tax that could reduce trading.

In the industry, there was a widespread recognition that the markets had become more dangerous than even specialists realized.“What is starting to become clear is that the costs in terms of these random shocks to the system are occurring in ways that people never anticipated,” said Henry Hu, a former official at the Securities and Exchange Commission and a professor at the University of Texas in Austin.

Knight, founded in 1995, is a leading matchmaker for buyers and sellers of stocks, handling 11 percent of all trading in the first half of this year, according to the data firm Tabb Group. Knight lost three-quarters of its market value in the last two days, in addition to losing $440 million from the errant trades, and was scrambling to find financing or a new owner.

Something nice in that last bit, that the market took care of a certain amount of punishment and retribution…

This is all about The Length of Fiberoptic Cable vs. My Mom’s Apple Stock. It all made me think of algorithms hunting other algorithms which are then programmed with evasive and obfuscation techniques to avoid being identified; you can’t know what happens in the Dark Pool (or what might be growing there); and of course, Qui’s vision for the New Security in episode 5 of the Workers’ line.

____________________________________

Popper, Nathaniel & Peter Eavis, “Errant Trades Reveal a Risk Few Expected“. The New York Times, 3 August 2012.

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