By now you have read all over the internet that the company jumped out there the day the NYSE joined the dark pool action and in the flurry to make more money first and get ahead of the game, look what we got? Debugging is not easy today but the time has to come for sales and marketing to stop pushing the developers to meet deadlines. Put the new algorithms out once they have been debugged, compiled and adequately tested. Any who writes software of any type knows this song. Sure there are delays sometimes whether it’s getting a new operating system out or just perhaps a new software program.
Think back a little bit and do you remember software
releases being delayed somewhere along the line? Of course you do as it makes the news that the next operating system or what ever it is will be extended for a couple weeks, and why? Roll no code before it’s time as we want it to work and with today’s complexities it’s hard. Why do you think there are “beta” programs? It’s so you can have some real life testing done with actual users before the full effects of the software goes into place. Still there are bugs but not as many as there would be without a beta program for sure.
WIRED Magazine put out one of the absolute best articles that is not only informative on the markets, but they also dig into the mentality of the quants and what world they live and it’s not the same as ours. Read it.
Wall Street used to bet on companies that build things. Now it just bets on technologies that make faster and faster trades
I used to write software and it was easier than what it is now, but still debugging and compiling were part of the process and I still never caught everything even though many hours and nights were spent looking, running automated processes to catch any code that may or did have issues. Greed and money is interrupting this process on Wall Street and the process now due to complexities is also more complex. The Battle of the Quants…a conference on how they entertain themselves with talking about “code that makes money”….There’s a ton of physicists that work on Wall Street along with mathematicians, engineers to design systems “that make money”. Sometimes this is a gradual process so you may not even be aware of what is working behind the scenes.
“But perhaps not even Einstein fully appreciated the degree to which electromagnetic waves bend in the presence of money. High-frequency traders are a subset of quants, investors who make money the newfangled way: a fraction of a cent at a time, multiplied by hundreds of shares, tens of thousands of times a day. These traders occupy an anomalous position on Wall Street, carrying themselves with a distinctive mixture of diffidence and arrogance that sets them apart from the pure, unmixed arrogance of investment bankers.”
Back in August of 2009 when the Madoff case was wide open, I made this post and perhaps I was ahead of my time…but who would staff a Department of Algorithms today? We don’t have a Congress that is smart enough to even understand the markets technology so they can’t even make laws and that stifles law enforcement as well as securities compliance.
“Department of Algorithms – Do We Need One of These to Regulate Upcoming Laws?
I read where the SEC made a statement that Knight will 
get some help with their suffering with losing over $400 million, shows how far behind the times they are, let them cook and choke and take responsibility for their “code” actions. They did it and other firms took a wait and see option to further work on their code before entering the NYSE dark pools. The problem with this though is that they have consumer/investors money involved and there lies the criminality of what they are doing…all technologically created greed. You can read more at the link below on complexities and how the rip works.
Complexities in Data Systems Growing Beyond Control –“Algo Duping” Society Combined With A World of Rogue Algorithms & Flawed Data Continues In Markets As Seen With Knight Capital This Week-Attack of the Killer Algorithms Chapter 36
Those with the code rule the world and I have been saying this for at least a couple years and when code goes bad others finally get wind and can see it. In hardware we have things happening that don’t happen in other places like over clocking processors, which of course nulls any warranties on them, but you see things now out there with consultants that will “certify” over clocked processors to run at speeds beyond the manufacturer’s standards. On a small scale I used to do some training for Intel and I can’t tell you how many melted chips I used to hear about or see with kids that over clocked their processors with gaming, so multiply this out over a huge farm of server processors…perhaps not a very good thing indeed as when the melt down occurs, everything stops working.
Gamers Are Not the Only Ones to Over Clock Processors-Turns Out It’s Done on Wall Street To Run Those Algorithms at Rocket Speed
Of course I had to inform the gamers that there was no warranty on their chips and they were SOL for running above and
beyond the processor standards, but on Wall Street they do what they want and run hardware at speeds beyond and one day some will melt too. I can’t help but think that some of this is part of the hardware maintenance with chip melt downs and replacements as an on going process as well. Sure there are several in a server farm so one melt down at a time would not have a significant effect, but what about the day you have massive hit with a large number melting down at once if the cooling gasses that keep the processors cool malfunctions and the processors simultaneously fry?
“That plays out in the very hardware of finance. The data center of NYSE Euronext, the international conglomerate that includes the New York Stock Exchange, is in a building in suburban Mahwah, New Jersey, 27 miles from Wall Street. Besides “matching engine” computers that process trades on the exchange, it also houses high-frequency trading servers, which receive data and spit out orders according to programs—algorithms. Traders pay to put their servers in the same building, and to make things fair, engineers scrupulously add extra lengths of cable to equalize the runs among all the servers. Yes, we are talking about a few feet plus or minus. At nearly the speed of light.”
Further on here the article talks about the New York and London connections for faster speeds and transaction and the conversation quoted with the Quants speculating on how to increase this even goes so far as use solar powered drones carrying micro wave relay stations to hover in the Atlantic..yup you read this correctly so read the entire article.
“Some algorithms are “market makers” in a stock—they attempt to buy at a low bid price and quickly sell at a slightly higher asking price, pocketing the difference, or spread. The people who did this used to be called specialists, and it was a nice living when spreads were an eighth of a dollar. Since the New York Stock Exchange instituted “decimalization” in 2001, spreads have gone down to a penny or two, meaning you have to trade a lot more stock, a lot faster, to make the same amount of money. It’s no place for a human being.”
Again Wired did a very good job with the article here and they go on to explain to where a retail investor looks at a stock price on Yahoo..is that what you get..not really, it’s an algo making the post. The brokerage fills the order at the prevailing price or it may be handed off to a entity who buys and sells in “dark pools” and there’s no quotes there to be seen. Here’s where the algorithms go to work.
Other great kudos too in this article is the comparison of “quote stuffing” to denial of service attacks and I never thought about it that way 
but that is exactly what is going on. Denial of service attacks of course are illegal and you have probably heard about the hacking group Anonymous exerting some of these with their break ins; however the same process is legal on Wall Street? An algorithm is creating all of this once again with the parameters is is programmed to do and submit quotes when the formula parameters are me. Everywhere else in technology companies spend a lot of money to stop the vulnerability but it’s perfectly ok on Wall Street to jam the circuits because the machines are busy making money with algorithms that support the process.
“No sane human trader would spend their time haggling over a ten-thousandth of a cent, but computers don’t get bored.”
Further on here Nanex is mentioned with their investigation into the BATS IPO and offers their views of the algorithms that ran that day and of course BATS did the right thing with pulling the switch immediately but ponders the question of some other algorithms in action at the same time that were designed to eliminate BATS transactions to keep the competition out so again we have some real potential algorithm war fare here and would the code quants do this, of course if they could write code that hides and never be held accountable. Of course that takes a lot of time and study to create such modules but there’s a lot of folks out there who write code that would be paid a lot of money to do this. This the mission below on how they think.
“There is so much money to be made that any expenditure on research and infrastructure to shave those microseconds is worth it.”
Others argue the point that it could not be done..hmmm.
.only a developer and quant may have that answer as things are evolving to multi levels of code interactions. When there’s millions at stake to be made ask yourself, do you think there’s the potential for some “dirty”code to be working out there? I think we know the answer to that question but finding it and proving that fact is the issue. Interesting quote below in the fact that why some like to live below the radar and this is not only true in financials, other industries too, like health insurance companies who are publicly traded like to keep the attention away from their “algorithms for profit” as well with nobody digging very deep.
“One of the rules of analytics, disconcertingly enough, is that other things being equal, companies that don’t get written about in the media tend to outperform those that are widely covered.”
The first fall out here of course comes from mistrust with investors and when that occurs the domino effect will roll over to companies questioning what is happening with their stock. Bring in the analysts who are the guidance folks and what in the world will they tell you? Most of them do financial analytics, not code and where does this put them in the game with keeping up? Of course when they are not on target everyone asks “how did you miss”…well if they don’t know code and how it’s playing out today, how can they stay on top?
This is what has been built today with 
code running, moving money and nobody held accountable so what seems like a good move right now, could be disaster in as little a few seconds away. Perhaps it could be time for exchanges and insurance companies to go back to what they were, non profits as this circle unless someone makes some life impacting decision won’t stop and the insanity will continue to grow. This not only happens in the markets but machines making life impacting decisions goes on every day with other businesses and runs behind the scenes. In an effort demonstrating this for such occurrences I made a collection of posts which I call “The Attack of the Killer Algorithms” and you can read through and see how all of this plays out, even beyond the markets.
Attack of the Killer Algorithms–Digest & Links for 35 Chapters–on How Math and Crafty Formulas Today Running on Servers 24/7 Make Life Impacting Decisions About You–Updated 6-24-2012
You can give this some thought as you see hospitals and doctors struggling to stay in business while in the meantime the quants are looking at drones over the Atlantic to take a few milliseconds off financial transactions…pretty crappy if you ask me and a society way out of balance with the haves and have nots…and in this case I’m talking code as those who have the code rule the world. In summary, no pity here for Knight Capital as they showed no responsibility and put all at risk with running code before it’s time without thoroughly testing…with so much money at risk today, you can’t do this any longer. Data collecting and selling too among High Frequency Traders and other financial institutions is even growing at a pace faster than Facebook and this practice of “data for nothing and profits for free” continues to feed the growing problem of “inequality” in the US and the world for that matter.
Start Licensing and Taxing the Data Sellers of the Internet Making Billions of Profit Dollars Mining “Free Taxpayer Data”–Attack of the Killer Algorithms Chapter 17 - “Occupy Algorithms”– Help Stop Inequality in the US
The financial crimes of the past that still continue to make the news like Keating, Milken, etc. are can’t even hold water to what is happening today out there and the mechanics and science of all of this is way beyond the comprehension levels of regulators and law makers and that is the scary reality we have today. Where’s the Proofiness? BD
“Proofiness–The Dark Side of Mathematical Deception”–Created by Those Algorithms
http://www.wired.com/business/2012/08/ff_wallstreet_trading/all/
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