A bizarre thing happened earlier this month. The New York Stock Exchange
launched a new electronic trading platform.
A company called Knight Capital had created a new computer program to
link up with the new platform in order to trade shares on it. The stock market
opened, and Knight Capital prepared to launch its new software.
"There was some problem with the program," says Felix Salmon,
finance blogger for Reuters in New York.
"We don't know exactly what. They switched it on and immediately
they started losing literally $10 million [£6.4m] a minute. It looks like they
were buying high and selling low many, many times per second, and losing 10 or
15 dollars each time. And this went on for 45 minutes. At the end of it all
they wound up having lost $440 million [£281m]."
Humans still watch the systems, but the computers move far too quickly
for us to react to everything they do - and at Knight Capital, the computer
glitch meant the company was making trades it didn't intend to make. That's how
to lose almost half a billion dollars in a little over half an hour.
To illustrate how fast high-frequency trading can be, in the time it
takes Usain Bolt to react to the starting pistol, a high-frequency trading
platform could complete about 165,000 separate trades.
Imagine the feelings of the technician responsible for that trading
programme called in front of the Board to explain what went wrong.
For most people monitoring their company’s activities the consequence of
a bad decision or badly executed plan rarely produces such catastrophic losses.
However, when looking at the latest list of receivables/delinquent
debtors there are usually some causes of concern.
When you experience that “sinking feeling” in the pit of your stomach
then it’s time to make that all important call – “show me the money”
No comments:
Post a Comment