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The CHF de-peg wasn't really technology risk. Brokers lost money because they undervalued CHF/EUR risk, undervalued liquidity risk (stop orders were executing
by ycombobreaker 3y ago
The CHF de-peg wasn't really technology risk. Brokers lost money because they undervalued CHF/EUR risk, undervalued liquidity risk (stop orders were executing FAR worse than expected, or simply failing to execute at all), and didn't pay attention to the legal protections afforded to their customers (customer balances went negative but there was no way to recover that money from the customers). These brokers would have had the same problems even if using pen & paper, they failed to plan (or alternatively, made a conscious bet and lost).
- throwaway2037 3y agoI think it is worth saying that no one saw that de-peg coming. Absolutely no one. Sure there are some crazies who saw it coming, but that same camp is still taking for the HKD-USD de-peg. It was a shock to everyone on Wall Street. I am a bit surprised that the Swiss National Bank didn't tip off their own banks before doing it. Both UBS and Credit Suisse were seriously caught off guard when it happened.
- deleted 3y ago[deleted]
- ycombobreaker 3y agoThat's fair. I wasn't close enough to see how "surprising" it was. The point stands that it looks nothing like HFT active trading risk. Knight Capital created such amazing training material for the industry. What went wrong with their software, how many decisions or practices could have prevented or narrowed the risk. What went wrong at trade time, how they had a clear window to pull the plug but died due to indecision and inaction.