Algos Gone Wild! - Explaining Today's Rogue Trading
Video explains today's trading anomalies...
A rogue, program trading algorithm from Knight Trading wreaks havoc on stocks for a 30-minute period. Did the algo simply self-implode due to a coding error, or was NITE hacked by a pissed-off hedge fund tired of being raped for millions in execution pricing? Or could it have been Chinese hackers since we saw a huge price move in China Cord Blood which more than doubled before being halted, though in fairness mostly U.S. companies were impacted.
We will likely hear in the next few days that it was internal to Knight, without any nefarious undertones, (unless it was done by a disgruntled Knight employee looking for revenge), but the incident does at least show the potential for market havoc that could be caused by any number of foreign or domestic sources with relatively little effort. If one misfiring algorithm could do this much damage, what happens when a thousand hacked algos get together with the crazed emotions of live traders fueled by caffeine, adderall and panic.
Something to think about for anyone other than the SEC, who are busy, currently, conducting an internal study on whether Marissa Mayer is or is not just the cutest thing ever to hit Yahoo.
Aug 1, 2012 at 9:10 PM
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http://finance.townhall.com/columnists/jeffcarter/2012/08/02/markets_are_broken/page/full/