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Will Penson Cash Vaporize Gentle Into That Good Knight?

Tyler Durden's picture





 

First MFG; then PFG; and next KCG? A little over two months ago Knight Capital, the well-respected brokerage house, purchased a 'floundering' futures brokerage - Penson Financial Services. The de minimus $5mm that Knight paid on May 31st for the firms meant (implicitly) that the $411mm of customer funds became 'useful'. With various firms pulling lines and the math underlying Egan-Jones downgrade, it is natural that an investor would be anxious to ensure that all their hard-earned deposited segregated accounts are, well, still segregated. Have no fear though, as Bloomberg reports, CME, which regulates Knight's futures business, is "monitoring the situation". An advocacy lawyer for MFG/PFG clients noted: "Those at Penson should be a little worried;" and so while KCG "actively pursues its strategic financing alternatives to strengthen its capital base" - read D.I.P. plans - one can't help but wonder whether all that shiny customer cashola is burning a hole in their capital-deficient pockets. It would seem at $2.27 per share, a few others are wondering that also.


P.S. While the rogue algo that took Knight down to Chinatown may have been switched off, it appears its ever-ready competitors forgot to turn theirs off - as NANEX provides (once again) clear evidence of the wondrous market-making/eating algos feasting on the carcas of freshly damaged capital to the tune of 1000s of trades per millisecond occurring...

 

 


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Thu, 08/02/2012 - 15:24 | Link to Comment bdc63
bdc63's picture

Knight Fever

Thu, 08/02/2012 - 15:28 | Link to Comment vmromk
vmromk's picture

I can't think of a COCKSUCKER more trustworthy to whom I would entrust my money than to the "Honorable" Jon Corzine.

Hey Jon, your orange jumpsuit and prison cell are all ready.

Thu, 08/02/2012 - 15:31 | Link to Comment malikai
malikai's picture

http://www.zerohedge.com/news/knight-ceo-comments-algo-failure-which-has...

LOL.

EDIT: Sorry Mr. Pendergraft. It's probably over now. Good Job!

Thu, 08/02/2012 - 15:35 | Link to Comment AldousHuxley
AldousHuxley's picture

Employees say

Senior developers, as they leave the firm, are replaced by very junior ones and as a result many systems are built by inexperienced people and are now a support nightmare.

Thu, 08/02/2012 - 15:38 | Link to Comment Pladizow
Pladizow's picture

"monitering the situation", aka Stealing!

Dont worry, your funds have been segregated - from you!

Thu, 08/02/2012 - 15:44 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

It will take, what, another day or two before we see if Knight is yet another pack of thieves like their brethren at MF Global and PFBest.  Does JPM have any of Knight's money, hmm...?

Thu, 08/02/2012 - 15:48 | Link to Comment RockyRacoon
RockyRacoon's picture

Hey!  I'm enjoying the blog posts.  You're doing a good job.

On this Knight thingy...  They'll never let it be known who the individual people are who are responsible.   Letting the public see the pimply-faced high school grads who are at the switch wouldn't instill much confidence in the markets.  And confidence is just about all the markets run on these days... and that's getting pretty thin.

Thu, 08/02/2012 - 15:57 | Link to Comment ZerOhead
ZerOhead's picture

That's confidence Rocky.

Not much of it at Knightmare Kapital Korp. these days...

Thu, 08/02/2012 - 16:07 | Link to Comment Buckaroo Banzai
Buckaroo Banzai's picture

Based on the old, "One time is random, two times is a coincidence, three times is a conspiracy" rule, does anybody else get the feeling that the Futures industry is being deliberately targeted for destruction?

That would be interesting given that the futures market is critically important to the operation of the agriculture industry.

And you know what Kissinger said about controlling the food supply...

Thu, 08/02/2012 - 17:12 | Link to Comment mt paul
mt paul's picture

when tomorrows 

are doubtful....

the futures markets

are irrelevent...

Thu, 08/02/2012 - 19:11 | Link to Comment Henry Hub
Henry Hub's picture

The software development of these trading platforms was probably outsourced to India long ago. You get what you pay for.

Thu, 08/02/2012 - 17:09 | Link to Comment Papasmurf
Papasmurf's picture

Does a black bear shit in the woods?

Thu, 08/02/2012 - 17:14 | Link to Comment mt paul
mt paul's picture

don't know about

my black bear breathern

but i poop

where ever i want ..

Thu, 08/02/2012 - 22:27 | Link to Comment Buck Johnson
Buck Johnson's picture

Your exactly right, they didn't go to "investigate" until today.  I think the money is gone, and here's why.  Ask yourself why would Knight buy a struggling brokerage that was on it's last leg for 5 million (pennies on the dollar)?  It wanted that 411 million in customer money in the segregated accounts.  I've always said that MF global wasn't the only one that was doing what it did and it turned out PF was one and it will turn out Knight is one also.  It doesn't make sense for that "program glitch" to have the company lose 70% or more of it's value in  less than 36 hours and continue to lose overnight.  It's bedcause people who know how the game is played on Wallstreet know that Knight had to have used that client money and with them having a new market cap of less than 200 million they can't get a loan to put the money back if they wanted too.

Remember why would Knight pay 5 million dollars for a struggling brokerage?

Thu, 08/02/2012 - 15:44 | Link to Comment NotApplicable
NotApplicable's picture

It seems that lately this song is stuck in my head more and more.

Uriah Heep - Stealin

http://www.youtube.com/watch?v=g3VCfCsX5Yo

Maybe we can turn it into Corzine's theme song?

Thu, 08/02/2012 - 17:58 | Link to Comment Arnold Ziffel
Arnold Ziffel's picture

<<"monitering the situation">>

 

paper shredding and erasing hard drives as fast as possible....

Thu, 08/02/2012 - 23:38 | Link to Comment FreedomGuy
FreedomGuy's picture

Corzine will be called in to monitor. Geithner will check their tax returns. Holder will decide if prosecution is needed.

No problems. We are all in good hands.

Thu, 08/02/2012 - 15:38 | Link to Comment malikai
malikai's picture

"Cost Savings by Rotation"

I saw so much of that. But they all do it. And they all fail, not always because of broken systems. Normally because it's the broken culture that causes the broken systems, and also, broken risk management, broken fiduciary duty, broken management, etc.

Thu, 08/02/2012 - 16:21 | Link to Comment lemonobrien
lemonobrien's picture

they replaced the americans with H1-Bs this is what you get.

Thu, 08/02/2012 - 15:31 | Link to Comment AldousHuxley
AldousHuxley's picture

Knight Rider

 

give money to KITT. the car has mobile high frequency trading module built in.

 

 

Thu, 08/02/2012 - 16:01 | Link to Comment AcidRastaHead
AcidRastaHead's picture

I'm afraid I can't do that Michael. 

Thu, 08/02/2012 - 15:41 | Link to Comment insanelysane
insanelysane's picture

Recycle the "things were really hectic around here during the last few days" excuse.

Thu, 08/02/2012 - 16:14 | Link to Comment dracos_ghost
dracos_ghost's picture

Black Knight instead of Black Swan.

Scadoosh.

Thu, 08/02/2012 - 16:30 | Link to Comment yrad
yrad's picture

Looks like they are going after any company that ends in "G"

OM"G"

Thu, 08/02/2012 - 15:25 | Link to Comment Neethgie
Neethgie's picture

Knight's last throw of the dice is furiously defending fb in the 19's

Thu, 08/02/2012 - 15:46 | Link to Comment bdc63
bdc63's picture

Ya think? ... I think they are selling their FB shares as fast as human-bot-ly possible

Thu, 08/02/2012 - 15:26 | Link to Comment Debtonation
Debtonation's picture

Sell at the market price

Thu, 08/02/2012 - 15:27 | Link to Comment Jlmadyson
Jlmadyson's picture

They ain't monitoring shit.

Vaporized!

Thu, 08/02/2012 - 16:01 | Link to Comment Gene Parmesan
Gene Parmesan's picture

If you can't hold it in your hand or stand in front of it and defend it you don't own it.

Thu, 08/02/2012 - 15:27 | Link to Comment pashley1411
pashley1411's picture

Haven't we learned that "segregated accounts" is, hmm, segregated until accounting moves the money elsewhere?

Thu, 08/02/2012 - 15:29 | Link to Comment Josh Randall
Josh Randall's picture

Jim Crow is dead - there ain't no segregation no more

Thu, 08/02/2012 - 16:08 | Link to Comment alien-IQ
alien-IQ's picture

well played. nice.

Thu, 08/02/2012 - 15:34 | Link to Comment Unprepared
Unprepared's picture

Accounting doesn't "move" anything. Just playing around with settlements that have no net accounting impact. See? All legit.

Thu, 08/02/2012 - 15:46 | Link to Comment alien-IQ
alien-IQ's picture

It's hard to segregate vapor...unless you have a vaporizer (which are fabulous by the way).

Thu, 08/02/2012 - 15:27 | Link to Comment PontifexMaximus
PontifexMaximus's picture

Who is in charge, Mary Schapiro or my Superfriend Gary Gensler?

Thu, 08/02/2012 - 15:27 | Link to Comment Vincent Vega
Vincent Vega's picture

would I yes to say yes.....

Fri, 08/03/2012 - 08:47 | Link to Comment StychoKiller
StychoKiller's picture

"Would I say no to yesterday, or yes to knowing at all?"

Thu, 08/02/2012 - 15:28 | Link to Comment slaughterer
slaughterer's picture

We bought 100,000 shares of KCG at $2.30.

Thu, 08/02/2012 - 15:32 | Link to Comment walküre
walküre's picture

are you holding after 10% + gains or selling?

Thu, 08/02/2012 - 15:35 | Link to Comment LoneStarHog
LoneStarHog's picture

Yeah! Sure you did...

Thu, 08/02/2012 - 15:38 | Link to Comment cifo
cifo's picture

Why?

Thu, 08/02/2012 - 15:44 | Link to Comment alien-IQ
alien-IQ's picture

You show us the trade ticket.

We won't call you a bullshitter.

Thu, 08/02/2012 - 16:02 | Link to Comment CvlDobd
CvlDobd's picture

@slaghterer. Didn't you say yesterday the loss on this was capped at $150 million? Forgive me if I confused you with some one else.

Thu, 08/02/2012 - 16:06 | Link to Comment alien-IQ
alien-IQ's picture

It's now at $1.85 on heavy selling volume in AH...but let me guess..you already sold for a nice profit...right?

You and robo should date.

Thu, 08/02/2012 - 16:27 | Link to Comment The Axe
The Axe's picture

ha ha    flame so more   I can take it.....bot 300 sept 4 calls  sold 300 sept 5 calls for .20cents   I will watch it burn..cause I feel the company will survive....  

Thu, 08/02/2012 - 15:28 | Link to Comment The Axe
The Axe's picture

Tyler    ZH said the same thing about Jefferies.......i bot that dip   long 30,000     betting tonight Wall Street and Nite Partners  save the day....

Thu, 08/02/2012 - 15:40 | Link to Comment alien-IQ
alien-IQ's picture

Too bad you didn't go long MONsanto during the Vietnam War. I hear they made a killing (literally) on Agent Orange.

And now they "make" our food. Ain't that comforting?

Thu, 08/02/2012 - 16:18 | Link to Comment CloseToTheEdge
CloseToTheEdge's picture

with 2 decades of enough BSTpus in the milk to make your dick fall off

(he won't need an axe)

Thu, 08/02/2012 - 15:44 | Link to Comment Dr. Engali
Dr. Engali's picture

If I remember correctly it was Tyler's attention to Jefferies book that forced them to take action. But if you want to take a chance on a penny stock after two firms just vaporized, by all means go for it. Bet the ranch.

Thu, 08/02/2012 - 15:51 | Link to Comment The Axe
The Axe's picture

group think

Thu, 08/02/2012 - 15:57 | Link to Comment sessinpo
sessinpo's picture

"group think"

"i bot that dip   long 30,000     betting tonight Wall Street and Nite Partners  save the day.."

Thu, 08/02/2012 - 15:29 | Link to Comment Dr. Engali
Dr. Engali's picture

It won't be long before Jamie has it all safely tucked away under one roof.

Thu, 08/02/2012 - 15:39 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

You called?

Knight Capital Plummets, Looks to J.P. Morgan for Lifeline

Read more: http://www.foxbusiness.com/industries/2012/08/02/knight-capital-plummets-55-after-disclosing-huge-440m-pretax-loss/#ixzz22Q409hpr

 

By lifeline they mean - how can we give Jamie segregated accounts?

Thu, 08/02/2012 - 15:30 | Link to Comment Meesohaawnee
Meesohaawnee's picture

ok.. im gonna beat someone to the punch.. WHERES JON CORZINE? there!!

Thu, 08/02/2012 - 15:30 | Link to Comment Gromit
Gromit's picture

I own a few thou PNSN - never heard they were bought by Knight.

Thu, 08/02/2012 - 15:34 | Link to Comment malikai
malikai's picture

They sold PFF. It ended up in Knight's hands, IIRC.

Thu, 08/02/2012 - 15:59 | Link to Comment SwingForce
SwingForce's picture

OptionsHouse?

Thu, 08/02/2012 - 15:35 | Link to Comment NotApplicable
NotApplicable's picture

May 29th. It was just Penson Futures.

I have to wonder if those are the same accts that Penson got from MFG?

A game of hot potato like no other.

FCM = DOA

Thu, 08/02/2012 - 15:34 | Link to Comment Hype Alert
Hype Alert's picture

off topic but did anyone see that 137.7 print on the SPY at 3:25?   Algomania?

 

Update: I'm seeing weird prints in other stocks at the same 3:25 mark.  Anybody else?

Thu, 08/02/2012 - 15:31 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Will it?  Odds are it already has.

Thu, 08/02/2012 - 15:31 | Link to Comment Rainman
Rainman's picture

Won't this be the third canary this year to drop dead in the segregated coal mine...?? I losing count

Thu, 08/02/2012 - 15:31 | Link to Comment Jlmadyson
Jlmadyson's picture

That algo chart in just one word:

EPIC

Thu, 08/02/2012 - 15:33 | Link to Comment cluelessminion
cluelessminion's picture

deleted

Thu, 08/02/2012 - 15:32 | Link to Comment bdc63
bdc63's picture

So, 2 months ago they got their hands on $411Million and yesterday they lost $440million ... uhm ...

Thu, 08/02/2012 - 15:37 | Link to Comment alien-IQ
alien-IQ's picture

surely it must be a coincidence. after all, they would never rob clients intentionally...

but money does have a way of just...vaporizing. so....

Thu, 08/02/2012 - 15:34 | Link to Comment MountainMan
MountainMan's picture

A picture perfect scene of the "Night Rider" driving off into the sunset.

http://www.youtube.com/watch?v=Mo8Qls0HnWo

 

Thu, 08/02/2012 - 15:36 | Link to Comment virgilcaine
virgilcaine's picture

Massive Run on futures accounts unfolding now!  MF Global  gone... PFG Best gone.. Who's next?

Thu, 08/02/2012 - 15:41 | Link to Comment Getting Old Sucks
Getting Old Sucks's picture

Won't know till it's shark feeding time again.  Consoilation Bitchez!  Gotta keep TBTF BIG.

Thu, 08/02/2012 - 15:52 | Link to Comment cougar_w
cougar_w's picture

It has something to do with consolidation.

It has much more to do with playerz realizing that you can just walk in and take other peoples' money, if you are a market maker or broker. MFG did it. PFG did it. These guys will do it, with both hands, and probably did last week.

It's just money for the taking, sitting there in an account that you can open at will. Take the money and gamble with it, buy hookers and blow whatever you want to do, what's the worst can happen? You spend 2 hours sitting in Congress telling them how sorry you are, and you walk away with all the money.

No money handler worth their salt would not take this deal. In a New York minute, with both hands.

Fri, 08/03/2012 - 05:12 | Link to Comment Disenchanted
Disenchanted's picture

 

 

"You spend 2 hours sitting in Congress telling them how sorry you are"

 

"Yes sir Mr. Congressman/Senator I'm dumb and incompetent and really didn't know what was going on..."

Congressman/Senator: "Well I say there boys and girls, we all know our former colleague/former business associate/huge contributor etc. is an honorable man..."

 

Many of the Muppets seem to want to buy into that excuse everytime, those in the know/those involved make sure to try to push it in that direction. I call it the Occam's Razor rationalization. Keeps the crooks out of prison, and it also applies in other non-financial scenarios.

Thu, 08/02/2012 - 15:35 | Link to Comment Neethgie
Neethgie's picture

You know whats so weird, is if knight's algo goes and there is 15% of "liquidity" gone and the market trades fine... then the whole myth around hft is killed, there is nothing left to hide behind for the hft lobby.

Thu, 08/02/2012 - 15:36 | Link to Comment FinalCollapse
FinalCollapse's picture

My thinkorswim trades through Penson....

CME is monitoring it? Monitoring what - to makle sure that the cash is perfectly vaporized without any trace?  Fuck - with CME on top of this - my cash is as good as gone.

Thu, 08/02/2012 - 15:37 | Link to Comment MountainMan
MountainMan's picture

Short squeeze into the close. Get long.

Thu, 08/02/2012 - 15:58 | Link to Comment FinalCollapse
FinalCollapse's picture

SP500 cannot have two losing days in row. If it does, someone is getting fired over at the Treasury or the Fed. They already tuned their algos to pump it to the upside. Looking for a lively action overnight.

Thu, 08/02/2012 - 15:38 | Link to Comment centerline
centerline's picture

Sure starting to look like a trend.

PS:  The funds were already vaporized.  Only accounting gimicks cast the illusion that something tangible actually existed in the first place.  Sort of like a glass jar with a picture of cookies on the side of it.  Just don't reach in hoping to actually get a cookie.

Thu, 08/02/2012 - 15:39 | Link to Comment Meesohaawnee
Meesohaawnee's picture

you would think on a day like today they would shut down the algos for the late day manipulation "yea you think this is a free market you suckers"  ramp.

Thu, 08/02/2012 - 15:39 | Link to Comment NotApplicable
NotApplicable's picture

I wonder... will Homeland Security open fire on the farmers when they all decide to take-over DC and Wall St. with their tractors?

After all, the few remaining independent farmers are nearing a point of nothing left to lose but their life. All in a time of rising crop prices, at that.

Thu, 08/02/2012 - 15:41 | Link to Comment malikai
malikai's picture

Morgue reporting in on Standby.

Squid tentacles Attached.

Thu, 08/02/2012 - 15:46 | Link to Comment NotApplicable
Thu, 08/02/2012 - 17:46 | Link to Comment bdc63
bdc63's picture

It's 4 O'Clock on Wall Street ... MB "Do you know where your money is?"

Life support to be pulled in T minus 5 .... 4 .... 3 .....

Thu, 08/02/2012 - 15:42 | Link to Comment Seasmoke
Seasmoke's picture

we could never be so lucky !!!

Thu, 08/02/2012 - 15:43 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

Fuck! Looking at the Employees of Knight Capital through LinkedIn shows a huge amount of ex Barclay's employees.  Barclay's employees during the height of the LIEmore scandal at least.

Thu, 08/02/2012 - 15:44 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

As well as exLehman and Merrill fucks. 

Thu, 08/02/2012 - 16:11 | Link to Comment iDealMeat
iDealMeat's picture

Yup..  Little bit like squid fishing in the BOD of PD's and the ECB..

Thu, 08/02/2012 - 15:45 | Link to Comment cougar_w
cougar_w's picture

"monitoring the situation"

Translation: frantically trying to determine if they screwed the pooch. Again.

My bet is they did, and to the tune of about $400M in client accounts. Again.

Nobody will hang for this one. Again.

Thu, 08/02/2012 - 15:49 | Link to Comment malikai
malikai's picture

Of course somebody will hang for this!

It just won't be the guy(s) who are responsible.

Fri, 08/03/2012 - 00:29 | Link to Comment JohnKozac
JohnKozac's picture

That brown guy in the corner, Abdul, looks like a likely candidate. he better head back to Opiumstan before they sodomize him.

Thu, 08/02/2012 - 15:45 | Link to Comment Papasmurf
Papasmurf's picture

Who was the counterparty to walking the price a millisecond at a time?

Thu, 08/02/2012 - 15:51 | Link to Comment Meesohaawnee
Meesohaawnee's picture

good thing "hopey changey" cleaned all this mess up like he said he would in 08.. whew

Thu, 08/02/2012 - 15:51 | Link to Comment LoneStarHog
LoneStarHog's picture
Knight Capital Going Down Like the Titanic Posted by Ann Barnhardt - August 2, AD 2012 1:42 PM MST

The Knight Capital computer algorithm abortion yesterday is even worse than originally thought. The losses are being quoted now at $440 million. Egan Jones just downgraded Knight to junk CCC with this warning:

 

Tough math - KCG probably needs $600M of equity capital but its market cap is only $300M and therefore probably can only raise $80M to $90M using normal rules of thumb. A sale of the firm would take 90 days under good conditions and therefore only an equity or quasi-equity investment makes sense. However, with weakness in the markets, there is likely to be few likely buyers. In a good year KCG earns $115M and therefore the $440M loss is debilitating. (Watch for the secondary losses related the loss of client confidence.) Net revs for the June quarter declined by 13% YoY. The Market-Making segment revenues were down 21% with pre-tax income down 84% from $39.2M to $5.9M due to trading losses related to the Facebook IPO. June quarter oper inc was down from $29.5M to $5.4M. We are downgrading.

So Penson collapses and within a matter of weeks the firm that bought Penson collapses. MF Global. PFG Best. Who will be next?

And there are STILL people who are so stupid and so stuck in a normalcy bias / Stockholm Syndrome that they are emailing me asking how to open an account with me, or if I could recommend a good stock or futures broker. Heck, I had some sleazoid call me last week who - get this - said he started reading me back in November, was my number one fan, had listened to every interview I had done since, and wanted to know if I'd be interested in brokering and/or investing in a commodity pool that he was putting together to do call writing.

What does one even say to that level of cognitive dissonance?

Let me phrase this as bluntly as I can to hopefully nip any further inquiries in the bud:

DO NOT call me asking for a broker referral. The markets are dead and collapsing, and only a complete moron would expose money to the markets, either futures or stocks, at this point.

If you are one of those truly stupid people who is still trading stocks or futures and you get your money stolen, DO NOT CALL OR EMAIL ME whining about it. You're not going to get ANY sympathy. Since MF Global, the situation has been crystal, crystal clear. If you haven't totally exited the financial markets, then you are simply stupid, and there are consequences for being stupid.

Girls who go to frat parties dressed like prostitutes and then drink until they pass out get raped.

People who have money exposed to the collapsing, lawless, fascist financial markets get their money stolen.

Same thing.

DO NOT call me asking to open an account. This goes especially for people who claim to have been reading me since my Going Galt letter was published at ZeroHedge, was read on the air by both Limbaugh and Beck, and the subsequent Puplava and Schiff audio interviews, all of which totaled up to tens of millions of listeners. If you have been reading me since I went viral by SHUTTING MY FIRM DOWN, why, why, WHY would you email me asking to OPEN AN ACCOUNT? What exactly do you think "shutting down" and "ceasing operations" means? In all of those interviews when I have vociferously called for a total financial market strike, when I have repeatedly warned people to get their money COMPLETELY out of the markets, what do you think that meant? If you are so stupid that you don't understand what GET THE HELL OUT means, then you should not now and not ever be trading in any markets. There is a baseline intelligence requirement, and being able to understand one's native language spoken simply and clearly is that baseline.

If you are still, for whatever completely unfathomable and inexplicable reason, in the financial markets, get the hell out now, especially if you have an account that clears through Knight.

Oh, and for those of you who survive to the other side of this collapse and war and are charged with the rebuilding, all computerized trading, high-frequency trading and algorithm trading MUST be made illegal. In fact, I would recommend going completely old school back to open outcry markets. Orders can be entered and routed to the floor electronically, but must be executed BY HUMAN BEINGS.

Thu, 08/02/2012 - 16:00 | Link to Comment jmcadg
jmcadg's picture

You beat me to it.

This shit stinks so bad,

'but but but I know how to play this game, I won't get caught. I'm smarter than that, I'm a trader'.

I wonder how many sados are thinking this.

But they'll scoff at owning phyzz. Fuckin' LOL

Thu, 08/02/2012 - 16:01 | Link to Comment El
El's picture

Do you have a link to that Going Galt article on ZH referenced in your post? I'd like to give it a read, as it was before my time. Thanks!

 

El

Thu, 08/02/2012 - 16:21 | Link to Comment malikai
malikai's picture

Oh, and for those of you who survive to the other side of this collapse and war and are charged with the rebuilding, all computerized trading, high-frequency trading and algorithm trading MUST be made illegal. In fact, I would recommend going completely old school back to open outcry markets. Orders can be entered and routed to the floor electronically, but must be executed BY HUMAN BEINGS.

I tend to agree. Markets exist to serve humans.

Thu, 08/02/2012 - 17:24 | Link to Comment Broomer
Broomer's picture

Good knight sweet prince.

Thu, 08/02/2012 - 15:52 | Link to Comment ArrestBobRubin
ArrestBobRubin's picture

"Vaporized" = code for "stolen by Edomites"

Thu, 08/02/2012 - 15:53 | Link to Comment Meesohaawnee
Meesohaawnee's picture

well.. in a way Ann called it last Nov.. kudos

Thu, 08/02/2012 - 15:56 | Link to Comment virgilcaine
virgilcaine's picture

Amen brother..

Thu, 08/02/2012 - 16:13 | Link to Comment Dempster
Dempster's picture

OK fair enough

So what the hell can you trust?

Is there anything out there left that you can believe?

Thu, 08/02/2012 - 16:46 | Link to Comment cougar_w
cougar_w's picture

The way you asked the question implies you expect a non-null answer.

But the answer is: trust no thing and no one. Period. Go forward without any faith.

Thu, 08/02/2012 - 17:51 | Link to Comment walküre
walküre's picture

Anything tangible shiny or fury looks just fine.

Thu, 08/02/2012 - 16:15 | Link to Comment Jlmadyson
Jlmadyson's picture

Man oh man we are so cooked.

Thu, 08/02/2012 - 16:27 | Link to Comment Atlantis Consigliore
Atlantis Consigliore's picture

wE HEAR YOU ANN: 

http://youtu.be/KULM72PoaOo

Seg Funds are FAIL SAFE; http://youtu.be/-9R3w8wDrmM

 

 

Thu, 08/02/2012 - 16:32 | Link to Comment fnordfnordfnord
fnordfnordfnord's picture

well-respected...

Thu, 08/02/2012 - 16:38 | Link to Comment malek
malek's picture

@Tyler:

Do you think it possible that the "ma-functioning" algo was actually doing so on purpose, vaporizing money but into the hands of some other waiting algo?

Is that conceivable -let's say at a loss rate of less than 25%-, that one algo can pass money to another, through the "open" market?

Thu, 08/02/2012 - 16:50 | Link to Comment cougar_w
cougar_w's picture

Tyler might not have an opinion. But I do:

I suspect there was no malfunction at all, hence the reason they let it run for 30 minutes, destroying as it went. The problem was that two or more programs were at open warfare with each other, each trying to knock the other out of the ring, or to run faster and take advantage of the others' latency. The resulting thrash was probably furious even by their mechanical standards, but by human standards was nothing short of apocalyptic.

I have no real evidence for this, but I've predicted it for a long time. This is what it would look like, these would be the results, and I suspect that is what happened.

Thu, 08/02/2012 - 17:00 | Link to Comment Papasmurf
Papasmurf's picture

This is not a malfunction, it is a theft out in the open.

Thu, 08/02/2012 - 17:24 | Link to Comment malek
malek's picture

Maybe I did not make myself clear:

I'm wondering if it's possible for algo to pitch from one to another, i.e. that the vaporization on KCG's side wasn't condensing at random counterparties, but ended up (mostly) in the hands of a certain counterparty.

Thu, 08/02/2012 - 18:30 | Link to Comment cougar_w
cougar_w's picture

Unlikely, IMO. The software should not be able to identify which trade belongs to which trader.

However: if the cooperating trader could code their bids -- say, always bid with a certain sequence of offers, say $XX.5501 then $XX.5502 then $XX.5503, and then the next bid at any dollar increment ending in '5504' is the one to match, even if it is way out of line -- then they could easily play off of each other. This method is called "knock knock" in that it relies on a previously-agreed code of knocks before the desired operation is accepted without question.

You know, I wouldn't put it past them. You could probably move $10M a minute right through the exchange, into any pocket you wanted to, and nobody would notice. And if I could come up with that in 30 seconds of what-if, any of these bozos could too.

Thu, 08/02/2012 - 18:59 | Link to Comment gregga777
gregga777's picture

I would be surprised if there were not algorithms designed to specifically take advantage of traders like KCG.

Thu, 08/02/2012 - 17:08 | Link to Comment gregga777
gregga777's picture

Did Knight have their own software programming staff to write the software incorporating proprietary Knight trading algorithms?  If so, how much expertise does a company like Knight have to properly develop and test software?  It isn't easy to develop and test software to ensure that it will peform properly under all conditions?  There are almost always unforeseen conditions that obviously cannot be tested for.  It is important to have an independent test staff whose objective is to thinks of ways to break the software.  

Also, with whose computers were Knight's computers executing the losing trades?  Knight's algorithms caused them to lose $440 million to one or more other traders.  Does anyone know who earned the $440 million in profits or is it spread too thinly to identify?  Obviously, somebody took advantage of Knight's idiocy.  I would sure like to know their name(s).

Thu, 08/02/2012 - 17:41 | Link to Comment Zero Govt
Zero Govt's picture

"First MFG; then PFG; and next KCG?"

Mmm, better get out of anything with a 'G' in its initials

Goldmans springs to mind first for some reason! 


Thu, 08/02/2012 - 18:14 | Link to Comment Money 4 Nothing
Money 4 Nothing's picture

You mean GM too?

Thu, 08/02/2012 - 17:48 | Link to Comment JuicedGamma
JuicedGamma's picture

So far it's been smaller players (well except for CIO at JPM), leaves you wondering if it's only a matter of time before the next Lehman event.

Thu, 08/02/2012 - 19:28 | Link to Comment Arnold Ziffel
Arnold Ziffel's picture

Thanks for the warning!  I'm pulling my money out of MFG tomorrow.

 

 

Thu, 08/02/2012 - 19:47 | Link to Comment Totentänzerlied
Totentänzerlied's picture

I'm in the process of closing out my account with a Penson brokerage at the moment, was hoping to wait until the next QE gold/silver ramp but oh well. About to find out how segregated that account really is, never thought I'd be lucky enough to be a muppet!

PS: We were warned, most recently, in the wake of PFG, that Penson is a house of cards.

Thu, 08/02/2012 - 20:07 | Link to Comment Coreadrin
Coreadrin's picture

Soooo....

According to the first line of this article, the moral of the story is "don't buy stocks whose symbols end with the letter G".

I'll have to read further to get some context...

Thu, 08/02/2012 - 22:59 | Link to Comment jonjon831983
jonjon831983's picture

So Freakin convenient that they install some trading software on a day that they know to be a big FOMC announcement.

So convenient like RBS computer systems going down (effecting Natwest, Ulster bank, and another)around when they get downgraded.

 

Somebody mentioned that before the market collapse of 2008 there were more system glitches happening.

 

Hm.

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