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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 S

> 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.

PerryCox 9y ago
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.
- fokov 9y ago
  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.
  - buschkowitz 9y ago
    If I were an exchange and would earn tons of cash from Goldman on trading commissions, I would bail them out too, I guess.
    - digi_owl 9y ago
      Why do this bring to mind how casinos treat big name gamblers...
- lucozade 9y ago
  > 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.
zweiterlinde 9y ago
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.
- chollida1 9y ago
  > 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.
ransom1538 9y ago
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-trading-mishap-cost-it-440-million/ https://dealbook.nytimes.com/2012/08/02/knight-capital-says-...
- alecco 9y ago
  > your bug Knight had a terrible software delivery process and a lot of deadline-oriented pressure on techies.
  - drharby 9y ago
    Strongly concur
  - lagadu 9y ago
    After it passes review and all stages of testing it's everyone's bug.
    - taneq 9y ago
      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.
      - mooreds 9y ago
        ... and this everyone's responsibility. Makes total sense. It's almost as if everyone at a company should be on the same team :)
  - deleted 9y ago
    [deleted]
  - internetman55 9y ago
mrchicity 9y ago
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.

PerryCox 9y ago

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.

fokov 9y ago
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.
- buschkowitz 9y ago
  If I were an exchange and would earn tons of cash from Goldman on trading commissions, I would bail them out too, I guess.
  - digi_owl 9y ago
    Why do this bring to mind how casinos treat big name gamblers...
lucozade 9y ago
> 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.

zweiterlinde 9y ago

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.

chollida1 9y ago
> 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.

ransom1538 9y ago

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-trading-mishap-cost-it-440-million/ https://dealbook.nytimes.com/2012/08/02/knight-capital-says-...

alecco 9y ago
> your bug Knight had a terrible software delivery process and a lot of deadline-oriented pressure on techies.
- drharby 9y ago
  Strongly concur
- lagadu 9y ago
  After it passes review and all stages of testing it's everyone's bug.
  - taneq 9y ago
    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.
    - mooreds 9y ago
      ... and this everyone's responsibility. Makes total sense. It's almost as if everyone at a company should be on the same team :)
- deleted 9y ago
  [deleted]
- internetman55 9y ago

mrchicity 9y ago

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.