Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

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> Bam. Bam. Bam. Dummy trade signals that were supposed to stay within the company’s electronic systems broke loose and slammed into computers at the New York Stock Exchange’s options markets. So many orders crashed through that by 8:44 a.m., safeguards within Goldman Sachs sprang into action, severing the connection between the company and the exchanges.

Anyone whose built a trading system lives with this type of fear on a daily basis.

Write your risk system first and your algo second.

> The cause? A coder had mistakenly programmed a router to send placeholder bids as live orders. If not for the good graces of the options exchanges, the bank would have lost $500 million, according to the U.S. Securities and Exchange Commission. Cancellations and price adjustments reduced that to $38 million

And this is at the top of my things that are unfair in the markets. Knight Capital wasn't bailed out by the exchanges for the same thing and it bankrupted them. Goldman with its alumni every where.... was.

Imagine coming back from lunch, you start to unwrap your sandwich at your desk. Then, your boss walks by and throws your sandwich across the room and explains while you were out your bug caused 440 million dollars of erroneous trades - and the company now no longer exists.

https://dealbook.nytimes.com/2012/08/02/knight-capital-says-...

> your bug

Knight had a terrible software delivery process and a lot of deadline-oriented pressure on techies.

After it passes review and all stages of testing it's everyone's bug.

Exactly. You don't just do code reviews and run tests to catch bugs. You also do code reviews and run tests so that, when something does slip through, it's no one person's fault.

... and this everyone's responsibility.

Makes total sense. It's almost as if everyone at a company should be on the same team :)

It's not nice to see a company get wrecked but sounds like they were asking for it

Strongly concur

The fact that this is even a thing is the problem. Is this industry creating anything of actual value or is this just a giant MMORPG where the object is to grind long enough to get a house in the Hamptons?

Define value.

Should capital markets work? Should people be allowed to dynamically allocate capital to the most attractive companies?

The argument tends to be that making a decision about buying and selling in microseconds is not providing value, but generally everyone agrees that it should be possible at some level (by minute? by hour? by day?). There are a bunch of arguments here but broadly speaking I don't see how they change the underlying game. Make good decisions on where to allocate capital, make money as the market price caches up with your prediction.

Yes. HFT in particular creates liquidity for other trades in the market.

I'd accept that answer if you added, "AND is just a giant MMORPG where the object is to grind long enough to get a house in the Hamptons". Both can be true. I think the original poster's criticism is valid.

In particular, since one of the objects is to grind long enough that the rules of the game don't apply to you, see 'Goldman Sachs', I think the original poster's criticism is valid.

There is no referee. The only goal is to give game winners more money, and if they screw up, give them their money back and then give them more money. It justifies things like investments in index funds (or identifying those who are already competing outside the rules and rewarding them by investing more money in them since they cannot fail), but it's gone well beyond the rational functioning of a system, much less a self-regulating system with useful purposes.

It's Calvinball. Go ahead and enjoy it, but it's not right.

The way your comment is written, I thought someone literally had their sandwich angrily thrown across the room when Knight collapsed.

I was also under that impression until I came across your comment. I guess everyone got his lunch that day.

I still undersatnd it that way, what else?

It might not be a coincidence that it's common in financial firms to have lunch brought to your desk.

This is why I would never work on this type of software! I just don't have the nerve.

One of the scariest moments for me was when I wrote a poker playing bot back in ~2005 and placed most of my months salary in its trading account before switching it on. Even though I knew I had written money management routines, tested them, and the program did sensible funds allocation and risk-of-ruin calculations, it was still nerve wracking to think that an unnoticed coding error could have wiped out my earnings entirely. (Spoiler - it didn't, fortunately!)

did it make money?

how did it interface to the poker-playing site? was there an api, or were you masquerading as the client?

That's a bit of a mischaracterization I think. Exchanges have well-defined rules for clearly erroneous executions, and these are not the same in the equities (Knight) and options (Goldman) markets. If anyone else had made the options trades that Goldman did that day, their trades would have been busted as well.

> Exchanges have well-defined rules for clearly erroneous executions,

I'd disagree with this statement.

it's true that each exchange does have its own rules and that they do set some guidelines but as far as I know they all have rule that state that they carry final veto power over what trade do and don't get broken.

For instance from Nasdaq

> Nasdaq is providing general guidance on when transactions may be deemed erroneous under Rule 11890. This guidance is not a mandate of the rule but is information on how Nasdaq generally applies the terms of the rule (at Nasdaq2019s discretion) to determine whether an execution is clearly erroneous.

Yeah I really don't understand why Goldman should get a pass like this. They fucked up, they should lose money. Or better yet, errors like this should be reversed or safeguarded against better.

Honestly, this stuff just shows us how rigged the system is. This isn't the first time it has happened. Flash crashes caused by bad algorithms lost a bunch of money that was reversed as well. IMO, it is horrible to reverse this. They took the risk and got to keep the reward, but as soon as they fail, they get bailed out every single time.

If I were an exchange and would earn tons of cash from Goldman on trading commissions, I would bail them out too, I guess.

Why do this bring to mind how casinos treat big name gamblers...

> I really don't understand why Goldman should get a pass like this.

They didn't. They cancelled a lot of the trades before they were hit and a whole bunch were filtered out at the exchange end because they were way off market. They lost $38mm from what wasn't caught by either.

In other words, they fucked up and lost money. And it's generally agreed that safeguards needed to be better. That was a big part of Mifid II.

Different situations so I doubt it has anything to do with GS nepotism.

Knight couldn’t cancel their bad trades because most weren’t clearly erroneous, based on exchange rules. If the market was bid 20.01 offered at 20.02, Knight’s test program was buying 20.02 and selling 20.01 over and over. Those prices weren’t far from the prevailing market, they just executed stupidly and very quickly.

Goldman was selling $10 options for $0.01, so they met the exchange rules for breaking erroneous trades since they were so far from fair value.

If I were an evil Machiavellian exchange, I’d much rather stick Goldman with a nasty error than Knight. At the end of the day, exchanges need transaction volume to make a profit. Goldman is an 800lb Gorilla with huge capital reserves and diverse business lines, so they’d still come back to trade after licking their wounds. Knight almost went bankrupt.

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