Previously
on MoreLiver’s:
Wall Street used to bet on companies that build
things. Now it just bets on technologies that make faster and faster trades.
After Knight Capital's Failed Gambit, Algo
Trading Needs a Moat
– Advanced
Trading
Until we create a system that can view the
entire market with accurate data and powerful system checks, why not confine
all algorithmic trading to one session? Call it The Algo Hour.
How the Buy Side Can Protect Against Rogue
Algos, Broker Error
– Advanced
Trading
In the aftermath of the fallout stemming from
Knight Capital Group's disastrous trading error, Tabb Group's Miranda Mizen
breaks down steps the asset management community can take to protect themselves
from market mayhem.
(audio
25min) In the Balance: The risk of
robo-trading – BBC
(mp3)
US trading company Knight Capital has been rescued, after being brought to
the edge of bankruptcy by a computer glitch. The errors may be small in
themselves, but the repercussions of automated trading may be enormous. Are we
going to move into a world where, loosely, robots are in control of our stockmarkets?
And the benefits, or otherwise, of corporate entertaining.
Automated trading: The Lazarus of Wall Street – The Economist
After an almost-fatal shock, Knight Capital
returns to life
High-frequency trading: Wait a second – The Economist
The latest cock-up on Wall Street shows that
more safeguards are needed
History of Algorithmic Trading Shows Promise
and Perils – View
/ BB
We may never return to primary reliance on fundamental
analysis and computer-aided trading. Chartists and algorithmic traders now rule
the day, and computers now do battle against one another’s algos. If the
history of such technology tells us anything, it’s that we can expect more
meltdowns.
In $440 Million Trading Error, Upside of Wall
St. Failures – DealBook
/ NYT
it may be that new rules are needed in light of
Knight, but it should also be recognized that we can’t just regulate failure
away without eliminating risk, too. And we can’t have a financial system
without both.
Knight, Knight, Automated Trading Dreams – The
Psy-Fi Blog
Firstly, the rise of machine driven trading is
exposing markets to risks that aren’t manageable. Secondly, the people regulating the markets
don't understand, or don't want to acknowledge, what those risks actually are. Behind
this lies a fundamental issue: you can regulate to punish people
retrospectively for their failures or you can limit innovation to reduce the
probability of the issues happening in the first place. It’s time to focus on the latter rather than
the former because, if "this could happen to anyone" it could happen
to you.
The Knightmare Explained – Nanex
The following theory fits all available facts.
We believe Knight accidentally released the test software they used to verify
that their new market making software functioned properly, into NYSE's live
system.
Chart of the day, HFT edition – Felix
Salmon / Reuters
This astonishing GIF comes from Nanex, and
shows the amount of high-frequency trading in the stock market from January
2007 to January 2012. (Which means that the Knightmare craziness of last week
is not included.)
The Dread of the Unknown – DealBook
/ NYT
The hope is that the Knight debacle was a freak
accident. But in today’s market, how could we ever know?
Debate
Why Are Investors Fleeing Equities? Hint: It’s
Not the Computers – DealBook
/ NYT
NYT's Sorkin Gets it Wrong – Better Markets
Small
investors vs high-speed traders – Felix
Salmon / Reuters
Dennis
Kelleher, Libor, and high-frequency trading – Felix
Salmon / Reuters