posted
Our "favorite" market maker just took one in the lower gut, and may not recover.
(Reuters) - The software glitch that cost Knight Capital Group $440 million in just 45 minutes reveals the deep fault lines in stock markets that are increasingly dominated by sophisticated high-speed trading systems. But Wall Street firms and regulators have few easy solutions for such problems.
Automated trading can handle massive volumes of transactions in milliseconds, something human traders could never do. But the benefits come at a cost: stock markets have become a jumble of exchanges, market makers, high-frequency traders, and investors using different systems that can interact in unexpected ways.
Knight Capital, which makes most of its money by executing trades for other brokerage firms, said that a new trading system it installed sent a flood of bogus trades to the market. The loss means that the firm is now fighting for its survival. "Coding problems happen, but it's not an industry issue," said Matt Andresen, founder of proprietary quantitative trading firm Headlands Technology and a former trading head at a Knight competitor. "I don't know what happened at Knight, but they had a self-inflicted problem that only hurt them. That's the way the market is supposed to work."
now, i am trying to keep an open mind here. after buying shares from Knight for years that were openly listed on their SEC filings as "delivered, but not yet purchased" and then, in at least once case that i can prove, never ever receiving them i am prone to some giddiness. Not because they lost their proverbail ass in this but because i specualte that soeone left the company knowing some way to exploit their system and took advantagg of it. remeber that every trade has a "winner" and "loser" it looks like Darkness and gloom have descended upon a deserving knight to me. I may take this under consideration as to whether i get back into individual stcoks again.Indexes have been OK for me for a long time primarily cuz there is less ability to manipulte them (not none by any means). I have to point out that this not really something to celebrate, it could be that a new player with a better system (bigger shark) is now in the pool and things are worse.
i watched "bogus trades" go thru for years and could never say for sure that they originated at nite, but it always looked an awful lot like nite was the one handling htose trades to me... so the pigeons have come home to roost as far as i am concerned.
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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posted
By Andrew Tangel and Jim Puzzanghera, Los Angeles Times
August 3, 2012, 5:00 a.m.
NEW YORK — The high-speed trading arms race being waged on Wall Street has finally claimed its first major casualty.
Knight Capital Group, a brokerage that handles nearly 11% of all stock trading in U.S. companies, is in danger of collapsing after a software glitch triggered millions of unintended orders. The New Jersey firm lost $440 million in less than an hour — nearly four times the company's profit last year.
The blunder, which Knight's chief executive said on television was "a bug, a large bug" in its computer systems, caused Wall Street to shudder. Major clients including Vanguard Group, E-Trade and TD Ameritrade, which rely on Knight to fill orders for retail investors, pulled their business on fears that the damage isn't over. Leaders of the embattled brokerage scrambled Thursday to find rescue funding or even a buyer.
But, more broadly, the debacle highlights concerns on Wall Street and in Washington about structural flaws in the U.S. financial system. Observers are worried that the reliance on computer-driven trading, where stocks are bought and sold in the blink of an eye, could lead to a major equities meltdown.
"The ghosts in the machine have gotten out of control," said Larry Tabb, chief executive of Tabb Group, a financial research and advisory firm. "There are increasingly more problems and we haven't been able to get this right."
Knight's software executed in a matter of minutes a series of trades that were designed to be done over a period of days. This glitch is just one of a series that have plagued Wall Street in recent years.
In May, the Nasdaq Stock Market botchedFacebook Inc.'s initial public offering. The latest glitch is also an echo of the 2010 "flash crash" that terrified investors after high-speed trading went haywire and $1 trillion vanished from the stock market.
posted
the key statemn here IMO is this, take careful note:
Knight's software executed in a matter of minutes a series of trades that were designed to be done over a period of days.
that sounds like attempted market manipulation to me, but the timing was off. i'm not a legal analyst of how trading is supposed to work, but programmed trading like that should not be going on form an ethical standpoint. these guys seem to be admitting in this statemtn to attempted market maniupaltion instead of market making...
somebody somewhere or maybe a few somebdies exploited this opportunity and must be throwing one heckofaparty now...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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Indeed, investors have stuck mostly to the sidelines after suffering crippling stock losses during the financial crisis. Many people have steered clear of sinking money into stocks, worried that big institutional investors and their high-speed tools can manipulate the market.
i know i couldn't win when the MM's had unlimited supplies of stock at whatever price they chose
hey dude your ass is showing. pull up your pants...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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posted
There are also numerous "dark pools" where hedge funds and other large investors trade out of public view — what Kaufman likened to the Wild West.
i think that the wild west is a good analogy i beleive that 's been mentioned here on more than a few occasions the dark pools are where the phantom shares come from..
"This is like a volcano that keeps sending out signals," said Kaufman, a Democrat from Delaware who is now teaching at Duke University's law school. Wall Street keeps sending out warnings like Knight's loss, he said, "and we're not doing anything about it."
this volcano has been spewing chunks for years..
Although the trading did not cause widespread turmoil in the financial system, it has threatened Knight Capital's very existence. Its stock has plummeted. On Thursday, Knight shares fell $4.36, or 63%, to $2.58. They dropped 13% more in after-hours trading.
i can't find the bodily fluids i need to shed a tear...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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quote:Originally posted by glassman: looks like knight had cut back on how much instruments sold, not yet purchased, they were carrying, since the last time i checked...
LIABILITIES & EQUITY
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities March 31,2012 $1,461,481 December 31,2011 $1,369,750
OMG, i forgot about the zeros, those figures are (in thousands) they did NOT cut back at all, they tripled since i last check about three years ago. they used to carry "only" about 4-500 million, now its over a billion$.4
no wonder they are looking for bailout
this may have deeper implications in the market than i thought at first glance. if nite cannot make delivery on a billion and a half dollars of stock sold, not yet purchased, we could still see some of the dominoes tipping for a long time to come....
DOOM and gloom.....
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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posted
this is exactly WHY market makers should not be allowed to trade against their own customers...
if somebody put a margin call against 440 million doallars, theoretcially, the margin call could be as high as 44 billion$ and as low as 4.4 billion. of course they won't put amrgin call on nite like they do on us wee folk...
technically leagl, but not ethical....
i wonder if Bloomberg was in on breaking nite, he seems to have been on the right side of the trades in '09-08.
computerised trading is not the real problem here, stcok identification is the problem. stop allowing them to sell shares that do not EXIST, and htis would never happen.. even in computer program becuase the trades would not be done if they had to secure the actual shares to sell...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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Wong says Knight may be in good shape if it’s able to secure financing equal to roughly the amount of its trading loss.
And if it can’t secure financing? KBW analyst Niamh Alexander says the Board needs to sell the firm now if that’s the case. “I believe there are buyers for the company and this is really its best alternative right now else it might have to take a capital injection at a significant discount from a non public investor,” she writes in a note today.
KBW estimates Knight’s tangible book value after the loss to be closer to $800 million from $1.06 billion at the end of the quarter. “We’d estimate that if KCG can get a few buyers interested and quickly then it could sell for up to 50% of that tangible book value or around $4. Net cash is probably negative now. http://www.forbes.com/sites/halahtouryalai/2012/08/02/can-knight-capital-be-save d/
nite just lost half their book and peopl don't think this is a major market wide crisis? coverup.
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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nite just lost half their book and peopl don't think this is a major market wide crisis? coverup.
It was allover the news yesterday. But I don't think it has made it to wikipedia yet though!
-------------------- It is impossible to make anything foolproof because fools are so ingenious. Posts: 3311 | From: St. Louis | Registered: Feb 2005
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posted
Knight got what it deserves. They are always getting in trouble for something, a little slap on the wrist and they keep on raking in the money with their electronic platform.
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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quote:Originally posted by CashCowMoo: Knight got what it deserves. They are always getting in trouble for something, a little slap on the wrist and they keep on raking in the money with their electronic platform.
yes, but remember there may be bigger sharks in the tank now, and i am not convinced this was not soemthing to shake the bigger market yet. they are teh biggest MM. and this si the kind of thing that could lead to a real failure of trades for along time to come. These superfast programs obviously do not identify sahres to borrow. I've always gone on the assumption that those of us having a margin account allows them to access all the shares in all our accounts to borrow without having to leave a promise note or paying a fee. If nite is only reporting half the story (a common occurance) then there maybe significant fails to deliver for along time to come....
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