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Knight CEO Comments On Algo Failure Which Has Cost Him 70% Of His Market Cap In One Day
Here are the choice highlights from the interview with Knight CEO Tom Joyce, who is
inexplicably on Bloomberg TV without any clear point, purpose or spin,
and nothing to tell anyone and restore confidence.
- TECHNOLOGY BREAKS. WHAT HAPPENS NEXT IS HOW YOU ESCALATE IT. WE'RE PROUD OF THE FACT THAT WE ESCALATED TO IT DIRECTLY TO OUR CLIENTS AND GOT THEM OUT OF HARM'S WAY. THERE ARE TWO THINGS WE TAKE GREAT PRIDE IN WHICH IS OUR CLIENTS' FOCUS AND OUR CULTURE WHICH IS INVOLVED WITH COMPLIANCE. WE HAVE A CULTURE OF COMPLIANCE AND CLIENT FOCUS AND WE ASSERTED BOTH OF THOSE THINGS YESTERDAY.
- IF YOU GET INVOLVED IN THE DAY TO TAKE MINUTIA, THIS WILL GIVE YOU A HEADACHE OCCASIONALLY
- IT DOES AFFECT THOSE WHO MIGHT LOOK TO BUY KNIGHT CAPITAL STOCK. WOULD YOU BE INTERESTED IN BUYING SHARES OF A COMPANY THAT WITHIN -- WITHIN A DAY OR TWO COULD GET WIPED OUT?
- OF COURSE NOT, THIS IS AN ANOMALY. YOU CANNOT KEEP PEOPLE FROM DOING STUPID THINGS WHETHER IT IS WRITING IN PERFECT CODA BUYING THE WRONG SOFTWARE AT THE WRONG TIME. THAT IS WHAT HAPPENS WHEN YOU HAVE A CULTURE OF RISK.
- YOU STAY AWAY FROM THE DAY- TO-DAY MINUTIA AND LOOK FOR THE LONG TERM, AS AN EQUITY INVESTOR, IT WILL WORK OUT.
- WE'RE OPEN FOR BUSINESS. WE GOT RID OF THE BAD TRADES AND FREE UP A LOT OF CAPITAL. WE HAVE EXCESS CAPITAL RIGHT NOW.
- JOYCE SAYS 'WE ARE OPEN FOR BUSINES,' 'WE'RE REASONABLY BUSY'
And the kicker:
- WE NEED TO DO A BETTER JOB ON OUR TESTING ENVIRONMENT.
Translation: we are shopping ourselves right now and unless someone pick us up by end of trading when the margin calls come in, tomorrow's open may be a little problematic. Of course, JPM will mysteriously step up in the last minute and provide a DIP-like loan in the process onboarding all the "segregated" accounts.
- KNIGHT BONDS FALL 13.125 CENTS TO 70 CENTS ON DOLLAR
Quite soon we may find out what it means to trade in a market which has just lost one of its key market makers, responsible for up to 15% of overall liquidity.
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REvenge is a dish best served cold NITE.
That's it, I fucking quit this market, I'm out!
Casino NYSE... eTITANIC In Waiting ???
How Long before This Split-Nanosecond-Algo iPOD eTRADING collapses Whats Left of the Markets ?
"WE'RE PROUD OF THE FACT THAT WE ESCALATED TO IT DIRECTLY TO OUR CLIENTS..."
Joycean slip? What does that even fucking mean??
Will "Re-Joycing" come along to replace "Corzined" on ZH?
Gotta love that "CULTURE OF RISK."....motherfuckers...
Everything he said was garbage....it's just words that mean nothing.
Selling KCG 2.5 puts expire in 2 weeks with 350% vol free $
wow, are they brass and the size of grapefruits? That's some stones you got there pardner...
CEO Knight will still be good to collect his payout & bonus, right?
On the CEO comp...I HOPE not, AND we desperately need a regulatory CHANGE on HFT policy.
Good NITE, Irene !
The next fiscal year-end Knight Board meeting......................
"So it's near unanimous. The Board hereby approves Tom's full bonus for 2012. Frank?"
"Let the record show I withheld consent because of 70% market loss due to incompetence."
"Everyone else disagrees with you, Frank. Tom did an outstanding job. It could've been 90%."
"Point well taken."
Hal meet Joshua!
Awesome way to work in War Games :)
Knight Capital recently purchased the futures accounts from Penson International, after Penson Clearing joined forces with Peak6 to create Apex Clearing. Penson, an 11 cent stock lol, is now a subsidiary of Apex.
But here's where it gets interesting. Penson's clearing of futures accounts covers well over 10 online brokers.
Now that Knight Capital is the clearing agent for these futures accounts, what happens to all of the futures accounts for these 10+ online brokerages, including popular ones such as ToS...
If Knight goes bankrupt, after their recent debocle with the FB IPO bungling and countless lawsuits aimed at them, including a 350 million dollar one by UBS, and now the 400+ million losses from yesterday, does rehypothecation play a role?
What happens to these futures accounts? will they be rehypo'd to JM Morgan?
What will happen to the futures market if a forced liquidation occurs?
It will go up?
Yes, the balloon has definitely gone up. These financial markets will continue to be a slow motion train wreck, until it's not and goes virtually all at once.
so this is what a black swan looks like ... hmmm .. I had something entirely different pictured ....
I'm seriously really fuckin scared right now. I'm short the Big Dow with practically everything XD
Betting the house's chips to get more of the house's chips? What will you do when the house goes bust?
Silver For The People
http://www.brotherjohnf.com/
http://www.brotherjohnf.com/forum/
http://www.youtube.com/user/BrotherJohnF
I hope it wasn't like a Fuxtnet virus.
Is this a black swan? I mean, really, after the 2010 Flash Crash, wasn't this more like an inevitability than an unexpected or improbable event?
More like a dragon.
A wise mind once said "never assume malice where incompetence will suffice" ... however, I think the malice angle could have a lot of merit in this case.
Were they hacked and someone got ahold of their code, tweaked it, and blew them up? Maybe. Was it on purpose, to scuttle the ship so to speak? Maybe. Was it genuninely a mistake, made it past all the gate keepers, testers, and overseers IN THEIR PRODUCTION ENVIRONMENT when EVERY TRADER OUT THERE watching these symbols saw this freak out go minute after minute and did nothing because they didn't know? Mabye.
Seriously?
How a firm could lose 70% of its market cap (this isn't the total volume of trades, just the losses) NOT NOTICE this volume of activity!?!? So, that means, any of their traders, at any time, could have just bought the whole fucking Dow and went to lunch while their orders filled? Serously?
There is a lot more to this story, as we will find out in the coming months...
Regards,
Cooter
I just can't add anything morea accurate at the time.
Maybe a resumé? CRIMESCENE.
You can count on it.
IIRC Apex also picked up that dogshit racetrack bond and it's losses in that deal. So add another what, $30 mil? Just to set the stage.
Edit: All it took to send PNSN to purgatory was that $30mil and a few other losses elsewhere.
holy shit, are you sure they didn't have any other major losses? For instance maybe bad debt after 2008 crash?
PNSN didn't have much exposure to CDOs and the rest of that, instead they failed in risk management as well as general management/board stupidity. Bog standard stuff really. What really got them was the losses in Canada on some other shady deal I can't remember and then finally the Racetrack bond. It was tiny compared to their "funding", which of course included client money, but that doesn't matter.
At this point in the game if you are stupid enough to still be trading and you see shit like this? GTFO and perform the only true segregation of your funds from the companies in question. CASH OUT & Bank of Sealy.
Did you just buy a new mattress? There was an unmarked white van in front of your house removing the old one.
They have been using those customer accounts. Do any of you remember them talking about that it's not illegal for the funds to use segregated accounts, just unethical. As I said before why would Knight by Penson for 5 million? It wanted and/or needed the 411 million in segregated accounts it had. We are in a slow trainwreck.
It's just a flesh wound
Couldn't have happen to a much better deserving bunch of thieves. With audited statements from the accounting firm of Dewey, Screwem & Howe.
Ships break, icebergs happen. We're taking on water but we haven't sunk yet and the band is playing. We just need to test our hulls better in the future.
And re-arrange the deck chairs!
Sir, would you like to say anything to the hundreds of people jumping overboard into the icy water?
Pull the fat lady off of the flotsam. 2 skinny people can be saved instead. ;-)
This would be a brilliant attempt at taking the company private. But I think that is giving them too much credit...
Nothing has happened here that a good number of puts and releasing the flash-crash algos won't take care of.
We've managed to reduce headcount in IT, which should give us an end-of-quarter boost.
As I said.
Deploy the Squid, prepare the Morgue.
Same platform apparently...so certainly they could do it. "Motive, means and opportunity" problem again.
Translation: They haven't a clue where the bug originated or the triggering factors.
Winner, winner, chicken dinner!
Captain Benny, you are the contest winner!
("Tell me what I won, Johnny...Well we have a beautiful package of NITE call options for you with a strike at $12.50/share. Fun at parties.")
They know what happened, but the fucking MBA CEO wouldn't be the one talking about it.
They probably already know everything. It's been 24 hours, they know everything. What nobody can explain is why the broken trades went out for 30 minutes. It would take less than 30 seconds to gracefully shutdown a bad market making engine, assuming one did not simply pull the network cables off the front.
Nobody was at the wheel, is why it went on. I wonder if their entire IT team is outsourced.
Even if it was outsourced, it doesn't explain why there wasn't anybody or any TRIGGER (see the programming definition) to shut down the beast. Instead, me thinks, many, many triggers must have been disabled for this to happen. Take all the tapes as EVIDENCE and compare the database STORED PROCEDURES and TRIGGERS for your CONCLUSIONS.
That was a free IT advice.
Headline reading algos are taking over the market again after this headline:
IMF says Fed should consider further securities purchases, especially MBS
Glitchez, bitchez.
i can provide a help with more testing ( over 15 yeas expirience ) with their clients money.
Someone should tell the idiot that real code is tested into existence. Only a certified fool would write code without first writing the tests. THIS is how errors are prevented.
I write code for a living. I've written some really complicated things but probably nothing close to what these guys are running. I don't think you can actually test code this complex. And since that is the case, they should not have access to anyone's money, and should have no Federal backups or bailouts.
Hopefully the people who wrote it did not also do the testing. Also, is it possible that someone was watching how this code performed? Perhaps someone noted a pattern and took advantage of it....
..duplicate... Should have had someone else test and click save...
The milk is sour, but that's okay 'cause the fridge is still running.
We acknowledge that our bondholders have become very sick from eating our meat, and for that we are sorry. However, we view our meat as a long-term investment, and our 10-year view of our meat freshness remains bullish.
I think they are still LONG wizzard software (WZE).
"GOT THEM (Clients) OUT OF HARM'S WAY"
That's a fact. right?
JOYCE SAYS 'WE ARE OPEN FOR BUSINES,' 'WE'RE REASONABLY BUSY'
Yup. Trying to talk clients out of closing their accounts.
While everyone on the floor is busy posting to LNKD profiles "looking for challenges".
challenges...AWAIT.
Horrific PR advice.
If Knight hasn't "sold" itself by the close tomorrow, it will be forced to declare bankruptcy by Monday.
Btw, this is what a "culture of risk" is supossed to produce:consequences. Winners & Losers NOT bailouts.
That is almost puzzling, isn't it? Consequence for failure. Hmmm....(I did say almost. Man I have been around here a long time).
Grats on your third year!
Danka!
And yet Seeking Alpha commetarians told the only author allowed to write on this MEGA story that "he was full of shit for talking bankruptcy"...JUST YESTERDAY. Silly me for ripping into those phucking idiots. YESTERDAY AS WELL.
People who do not understand technology should refrain from using it, especially when large amounts of money are at stake.
Then again, if it's other peoples money, sure, why not?
Looking at the video of that software in action, set up properly, might make a super market manipulator. Shouldn't the SEC examine that?
zzzzzzzzzzzzzzzzzzzz
If the software was called "Tranny Midget Porn" the SEC would be all over it.
Hey at least it wasn't 90% market cap..right...bullsih
Live by the sword, die by the sword, you commie ass licking, stawk price manipulating bitch ass smegma eating bastard vermin douchetards.
You did the smegma thing yesterday. Kinda cheesy.
One person on ZH likes smegma.
This makes me giddy like a schoolgirl. I love it when the manipulators get fucked.
Don't mean to be a wet blanket, but don't bank on it.
I know. A guy can dream though.
Knight: "I haven't been fucked like that since grade school!"
We haven't figured out who torpedoed us or why but we plugged the hole, are listing slightly but come aboard!
I had an order chewed this morning and I am told that Knight is one of the three possible offenders.
This is good news all around. One, the system did work. A private company made private trades and took private losses. The customers were not affected at all, and enormous arbitrage opportunities were created for the rest of the market.
Overall, working as intended. I think Knight will recover.
Insane. Or being sarcastic.
Hey we lost 440 million yesterday alone but hey everything is cool. We'll get some chump to fund us so we can do this again. Maybe he should ask Obama how he's re-funding MF Global customers.
"WE'RE PROUD OF THE FACT THAT WE ESCALATED TO IT DIRECTLY TO OUR CLIENTS AND GOT THEM OUT OF HARM'S WAY."
If their technology can do that by accident, imagine what it can do to them on purpose...like completely fleecing the sweet fuck out of them. Any one trading stocks has whats comming to them; no sympathy, you all DESERVE it.
Funniest thin I've heard all year. And trust me "Goldman is escalating" as I write!
day to day minutia? no he didn't say that. no. he. didn't.
The way these CEOs claim ignorance, you would think it is all minutia to them...
Rule #1, Don't sweat the little shit.
Rule #2, It's all little shit.
The guy is an MBA. An idiot in wing-tips. Probably couldn't tell you what a market making algo is or what it does if his life depended on it.
The team that writes his software probably works out of Hungary. The team that manages the network is in India. Nobody knows who's on first base, ever. It's a 24x7 circus.
Technology run amok. Now ... burn fuckers.
Yep, coming from a Market Maker, Liquidity Providing Algo shop, day to day looks nothing like minutia.
Or maybe he meant day to day militia.
the first US manufactured stupid Black Swan?
i found it extremely hard to believe that they don't have any real-time trading balance tracking, and no global system shut-down triggered by losses bigger than a set threshold level
it's called a stop-loss, the oldest tool in the book, they don't have it!?
how big are the odds, this is a HFT company?
this smells fishy
Yes they do have a stop loss trigger, it just has mysteriously been commented out in the code.
maybe the stop-loss was disabled when the screensaver got activated
Guys. Stop loss? Are you kidding me? That's what reversing a trade is about.
They go nuts ... and then if it works out take any winnings, otherwise they get the exchange to reverse any losses.
19DROP TRIGGER <trigger_name>;
20I test software for a living. I can tell you that incidents of this type are essentially unpreventable and will continue to happen. What you have is an entire ecology of thousands of different software trading programs, each interacting with each other. Emergent properties and behaviors can't be prevented in any meaningful sense in a system that complex. The very best you can do is to turn off trading when trades go beyond certain parameters.
Yes, human (software engineering) errors will continue to happen, including being blindsided by unexpected behaviors. However, this incident was immanently preventable and easily mitigated. Epic fail trifecta for their IT professionals, operations oversight, and risk control.
http://www.nanex.net/aqck2/3522/20120801.eEXC.09.46.19.180_1ms.0.gif
REALLY? ....sounds risky. What'd ya say we have a beer after "they blow up the world"!
I can't believe that Knight didn't have any kind of capital controls in place. If I was running an automatic algorithm of any kind, not only would I make sure that my inputs were what I expected, with measures to prevent any kind of out-of-bounds behavior to be mitigated (exchange feed passes me a value I wasn't expecting/can't operate on) I'd make sure the MONEY I was using was in an account that was firewalled from everything else.
Even if these guys didn't have something like:
function capitalCheck(){ // Updates every 'n' interval
if(workingCapital < lowerLimit)
{
Debug.Log("**** WARNING - BELOW CAPITAL LIMIT, TERMINATING ****");
activeTrades("flat"); // Bail out of initiated trades
terminateAlgo(true); // Kill trade initiating algo
}
}
They should've had something looking at their drawdown/burnrate/whatever... It's just unexcusable they didn't have a clue, and even if they DID, that they took so goddamned long to stop it.
drop function capitalCheck; /*and that's where things get interesting*/
commit;
Knight's fortune cookie: "Man who eats many prunes get good run for money."
man who fart in church sit in pew
A fart is nothing more than anal software !
That wasn't chicken.
Vaporware.
A fart is nothing more than anal software!
Vaporware.
Edit: I replied to Monedas and my comment was placed here. Strange.
Actually I think Joyce did the right thing. Get out in front of it, admit itr was technology fuck up, and tell the market that we are open for buisness.
What else are you going to do...? Besides raise a little extra capital to replac that 440 MM that flew out the window yesterday.
See, the way I see it is that you wait until you get that "deer in the headlights" look off of your face before you "get out infront of it" on live TV ... just sayin ...
It is unfortunate that some Clowns on Acid don't understand the difference between technology and man-made algos. But then, he is hoping that the majority of his audience - that is IDIOTS still in these corrupt markets - will believe his BULLSHIT!
Whatever happened to just jumping out the window? Sheesh!
But the media...in order to...and then...because... :0!
http://www.traddr.com/forum/topics/windsor-brokers-short-term-technical-analysis-for-majors-09-00-1
Monedas walks away from a promising Badminton career .... in solidarity with Knight CEO Tom Joyce ! MonedaS 1929 Comedy Jihad Oh The Humanity Moment
"YOU STAY AWAY FROM THE DAY- TO-DAY MINUTIA AND LOOK FOR THE LONG TERM, AS AN EQUITY INVESTOR, IT WILL WORK OUT."
I can't believe he uttered the "long term equity investor" line.
Really Tom? Is that why the S&P is where it was in 1999!?!
Long term investor?!?! When the only market left is HFT churn and burn?!?!
Good God Almighty!
Sharks are running out of fish and are eating smaller sharks.
Best comment in this thread!
Regards,
Cooter
ZH article after article provides weekly, if not daily, evidence that the machine/system has become too complex for those that maintain it to control it any longer. Everything from the whale in london, to natwest upgrades that didn't work, to the utter nonsense going on in the EU, US and China is more than sufficient for me to conclude that they have lost control of the machine. I'm into gold and silver physical essentially because they are not represented (to me at least) as electronic bytes. I've posted for months that simple sql update statements can make these money bytes vanish - either all at once or little by little. And when it does, good luck proving your case when you have next to no evidence that the money bytes existed in the first place. The best arguement against this seems to be 'yeah, but everyone else relies on money bytes too so if they vanish we're all screwed'.
Bemoaning overcomplexity and then chastising simple SQL statements? That's a good one!
Do you seriously think his point was about SQL statements? Or was his point about how simple can screw up complex?
Thanks Richard. Indeed I was trying to make the point that some systems/machines can get to point of complexity where they can no longer be controlled or predicted, even by their masters, designers and experts. I think there is abundant evidence to conclude that our global financial systems are in such a state now and that neither tinkering or over-hauling can fix them. I think they will collapse and self destruct under their own weight and complexity. I have moved my assets to physical gold, silver and land because I think they have a slightly better chance of not going missing in the middle of the night than electronic representations of money. I may lose 20% but I doubt I'll lose 100%.
I totally agree, but on your view what constitutes overcomplexity and what is needed complexity you should reconsider me thinks. You know, throwing out baby with bathwater danger.
RichardP, that is news??
If one wants to reduce overcomplexity, he should come up with valid examples of where to cut and which needs to remain. SQL is the perfect example of KISS, and that's IMHO the main reason it is still in use decades later. For screw-ups you have backups.
Our money is mostly digital credit and they are real as long as credibility is there. If credibility is lost on a large enough scale they are fictious. If you don´t own tangible wealth like gold, silver, land etc you might wake up one day and realise it was all a mirage.
All they got to do is reverse the "buy" and "sell" in one line of code and they are Goldman, no?
pods
Massive Bank run on Futures trading accounts anyone! Your Money is safe with us.. really it is.
Developing World English: Your money are safe with us !
Maybe Tom Joyce is simply auditioning for work? CEO available, will work for $$millions, plus expenses, Benz, and house in the Hamptons.
after a brief morning spike, KCG now looks ready to go completely off the rails. Touched a new low moments ago (excluding pre market prices).
Mbbe it'll take some of the sell pressure off of FaceBerg.
not likely. I'm waiting for FB to hit my buy price...$1. that's when I'll spring for 500 shares.
Are you fucking kidding me? The board should fire the guy tonight.
Next time light yourself on fire.
Economics degree from Harvard College 1977. Head global trading at ML from dec 2001 to may 2002.
Good thing this was a "machine" problem and not a "human" problem or somebody's bonus might have been in BIG trouble ...
What happens when there is only one trader left in the market?
It would be the FED and they'd own everything -- that's the goal.
Jim Cramer just said, "Most of America has contempt for Wall Street and he shares that contempt." Hey Jim, you are included in that group. Jim Cramer is the biggest hypocrite on the boob tube.
Go out and buy the ugliest dog you can find. Take it home and then complain about how ugly it is.
TeeVee watchers make no sense.
If Cramer ever had twins he'd name them Pump and Dump.
One blackjack table closed. Plenty more ready for you! Place your bets!
They had a problem with the hidden cameras... all fixed now.
I guess the best he can do to try and stabilize their stock price, is simply show everyone that he hasn't commit suicide, yet.
Piers Morgan propaganda technique alert: He asks the snarkiest liberal questions as set ups for black athletes to wax magnanimous ! Monedas 1929 Comedy Jihad Alert Level High
The algos are still at it. EXPD flash crashed this morning. Went from around $35 down to $31.72 and back up again in minutes.
Yep, once you cut through the glaringly obvious BS, this is just another event in a greater process of Wall Street imploding on itself.
and how much of that 15% consists of flinging the same lot of 100 shares thousands of times back and forth between two virtual trading programmes that are operating on a single source machine
And a win for the Bulgarian Media as well. "of course the market is off because of the ECB! KNIGHT TRADING HAS NOTHING TO DO WITH IT!"
risk has two components, probability and consequence. separately, didn't they announce not too long ago they went self-clearing?
Bear sighting.. Is it a grizzly?
Fuck these plantywaist code writing technoiogy exploiters. May they all be hoist on their own petards.
They are not traders, they are thieves and the exchanges let them go on thieving because they are the only customers.
some of the human market makers who quit complained that the only time an order filled was if they made a mistake. how fitting that knight should fall by the same sword.
It's not testing, itsd stupidity. Nasdaq tested for a month only to discover fatal mistake after online. Knight was a lot better, it discovered that testing is needed after losing $400 million(They pride themselves for that).
The computer age has brought with it a new paradigm: A company can introduce a product that is defective, completely non-functional and even deadly. But if they can blame it on software it is likely there will be no repercussions. That and if someone developes a smiley face that you click on to open your email then they (apple) wants to patent it.
In some industries that are woefully backward (honest and responsible) they would have back-up systems watching the primary. But this is more a pull the trigger and see where it lands kind of thing like the military - will likely only kill a couple dozen heathens.
There's no money in "honest" work. I would think they would be developing algos to fuck with other algos and suck them dry - that would be cool.
WE NEED TO DO A BETTER JOB ON OUR TESTING ENVIRONMENT Yeah just about 400 million dollars worth better.