3 ms·
A lot of stocks have minute bar of wide range prices in the first few minutes of continuous trading. This seems like the incident in what caused Knight Capital
by WiSaGaN 4y ago
A lot of stocks have minute bar of wide range prices in the first few minutes of continuous trading. This seems like the incident in what caused Knight Capital fiasco, in which the system repeatedly buy on the ask and sell on the bid very fast, thus pushing the high price high and low price low. In the opening usually the market maker will be more weary of the risk they cannot hedge directly and thus will be less willing to take on positions, leading to wild swings.
Still this report (and the previous statement) does not give enough detail on why a backup system misoperation resulted this. Also, critical large systems like exchange rarely have a single point failure. Usually there will be a sequence of issues along the event chains leading to this. Thus one "failed to properly shutdown" caused all this is a bit incredible. We will need more explanation.
- itronitron 4y agoDoesn't each trade require both a buyer and a seller, who buy and sell at an agreed on price? Presumably both parties would be satisfied with the trade so it isn't clear to me what all the fuss is about.
- pcl 4y agoMarket price trades are executed at whatever the current price is. Presumably it’s those trades that caused havoc.
- gpderetta 4y agoI haven't really researched anything, but both parties thought they were bid/offering into an auction with time to cancel or amend their orders.
- WiSaGaN 4y agoI don't know what happened in current case. In the Knight Capital case, KC clearly didn't intend to send those erroneous orders. And if those trades were not annuled, KC would not be able to settle those, since the trade loss were larger than the collateral KC put up.
- evanpw 4y agoThe trades were not annulled, because NYSE ruled them not "clearly erroneous". Which is why it is was an existential mistake, not just an embarrassing one.
- toast0 4y agoIf I had put in a market buy/sell on open order, I'm accepting the market price, but expecting the market price to be set by an opening auction. I don't know if a market on open order would have been cancelled or just executed shortly after the bell; you could argue for both treatments and it usually doesn't come up, so it might not be mentioned in retail brokerage documentation. Personally, I always do limit orders, but I would consider market on open/close as reasonable options. But I don't think this is typical, a lot of orders are market orders against whatever limit order is at the top of the book. Normally, that's ok, but it gets weird when things get weird, as seen here.
- anonu 4y agoKnight capital issue was a test flag in the code that caused orders to multiply. From what I'm reading, this NYSE error seems a bit more complex where the presence of a backup system confused the current market state to skip the open auction.