Anyone from Knight willing to comment?
- Thread starter monstimal
- Start date
This is my guess on what happened, based on Nanex's report:
When you try to put an order in for a midpoint peg, for example, you have to send your buy order at the asking price and your sell order at the bid price. If your midpoint peg flags aren't "on", the order will actually cross the spread.
From what I can gather, they were trying to do their NYSE retail liquidity program which allowed for sub-penny pricing on the NYSE.
So my theory is that some order flag or some such wasn't set, and this caused them to buy at the ask and sell at the bid over and over, cycling through volume rapidly, because that program might have worked similarly to the way midpoint orders work. The program must not have realized they weren't being pegged and just went rapidly out of control across the board before they had some way of turning it off.
That's my guess anyway. I guess the real question is why they didn't turn it off as soon as they knew something was screwy. That's the big question.
When you try to put an order in for a midpoint peg, for example, you have to send your buy order at the asking price and your sell order at the bid price. If your midpoint peg flags aren't "on", the order will actually cross the spread.
From what I can gather, they were trying to do their NYSE retail liquidity program which allowed for sub-penny pricing on the NYSE.
So my theory is that some order flag or some such wasn't set, and this caused them to buy at the ask and sell at the bid over and over, cycling through volume rapidly, because that program might have worked similarly to the way midpoint orders work. The program must not have realized they weren't being pegged and just went rapidly out of control across the board before they had some way of turning it off.
That's my guess anyway. I guess the real question is why they didn't turn it off as soon as they knew something was screwy. That's the big question.
Yes, but that is a glitch in Knight's automated program not the exchange's program. They should'nt be busting up any trades. Knight is like a 2nd tier firm; its not one of those too big too fail firms like goldman. Oh, well, I guess sec protects its own local firms. Kind of suprising as the sec went after knight in the late '90's because their ceo ken pasternak was riging the market making of several stocks on the nasdaq that it was supposed to be provinding liquidity for but instead was profiting from it....
What is almost unthinkable is this thing was going haywire for over 30 min and NO ONE NOTICED OR DID ANYTHING.
At 440M loss, it had to be losing 10mil per minute or more.
No one noticed the p/l for 30 minutes?
Not 1 single trader on Knights desk noticed there might be a problem?
Not 1 single person was actually monitoring the algo, its fills and the net positions?
No one in the risk department/compliance noticed a massive loss building up?
I got a phone call from someone 10 min into it showing me all the odd action in dozens of symbols - it was obvious to outsiders, how could it not be obvious to KCG?
Further, why would you be so stupid not to have ANY fail-safe in an algo just in case it goes haywire, such as a max loss where it turns itself off, or noticing the fill rate per min is far too high and turning itself off . That is not rocket science there, its simple to measure.
At 440M loss, it had to be losing 10mil per minute or more.
No one noticed the p/l for 30 minutes?
Not 1 single trader on Knights desk noticed there might be a problem?
Not 1 single person was actually monitoring the algo, its fills and the net positions?
No one in the risk department/compliance noticed a massive loss building up?
I got a phone call from someone 10 min into it showing me all the odd action in dozens of symbols - it was obvious to outsiders, how could it not be obvious to KCG?
Further, why would you be so stupid not to have ANY fail-safe in an algo just in case it goes haywire, such as a max loss where it turns itself off, or noticing the fill rate per min is far too high and turning itself off . That is not rocket science there, its simple to measure.
Quote from j0b0123:
What is almost unthinkable is this thing was going haywire for over 30 min and NO ONE NOTICED OR DID ANYTHING.
At 440M loss, it had to be losing 10mil per minute or more.
No one noticed the p/l for 30 minutes?
Not 1 single trader on Knights desk noticed there might be a problem?
Not 1 single person was actually monitoring the algo, its fills and the net positions?
No one in the risk department/compliance noticed a massive loss building up?
I got a phone call from someone 10 min into it showing me all the odd action in dozens of symbols - it was obvious to outsiders, how could it not be obvious to KCG?
Further, why would you be so stupid not to have ANY fail-safe in an algo just in case it goes haywire, such as a max loss where it turns itself off, or noticing the fill rate per min is far too high and turning itself off . That is not rocket science there, its simple to measure.
This is the great mystery to me and the story I'm waiting for to leak out to the public. Someone's going to spill the beans.
There are all these comments on the net about how the programmer was a dope, but bugs like this happen ALL THE TIME, but they're stepped on quickly and crushed. Thirty minutes? There's something bizarre going on here.
It was apparent on the twitterverse right away knight was flash crashing along with a bunch of stocks.
@Badalgo, @nanexllc
Just as some traders get a deer in headlights look when they notice an error and see they are down really big, this could've happened to them as well once they noticed "the glitch"
Would there be a possibly of hackers deliberately doing something like this to a company , would that be possible?
I know they were getting mad over this new liquidity program and losing market share.
Also, a bunch of very fishy things going on with 10x volume in certain products yesterday. .
@Badalgo, @nanexllc
Just as some traders get a deer in headlights look when they notice an error and see they are down really big, this could've happened to them as well once they noticed "the glitch"
Would there be a possibly of hackers deliberately doing something like this to a company , would that be possible?
I know they were getting mad over this new liquidity program and losing market share.
Also, a bunch of very fishy things going on with 10x volume in certain products yesterday. .