Huh, Another Rogue Algorithm May Have Thrown Off Trading in 148 Stocks

More

Add another entry to the Encyclopedia of Weird Robot Trading Events. This morning, a poorly programmed algorithm unleashed by Knight Capital Group went haywire, disrupting the normal trading of up to 148 stocks including some of the most heavily traded names in the country, according to the New York Times.

Traders immediately pointed fingers at one of Wall Street's most powerful brokerage firms, Knight Capital Group, speculating that a "rogue algorithm" kept buying or selling millions of shares of companies for 30 minutes, sending their shares soaring or plunging. The Jersey City-based company said in a statement that "a technology issue occurred" in the division of the company that uses computer algorithms to buy and sell stocks from other market participants.

Research firm Nanex claims to know what happened based on the high-resolution time-series data they possess. It appears that an algorithm, presumably Knight's, began "buying at the offer price and selling at the bid, which means losing the difference in price." On one stock, Exelon, the algorithm was losing about 15 cents a trade, but making the same mistake 2,400 times a minute. This is a very fast and very twisted robot logic of buy high, sell low. It's not something any human being would do, and yet, here we are. It happened.

This is a field where bugs have major consequences:

As Knight, one of the biggest market makers in the United States financial markets, rushed to contain the problem, it asked customers to send trades to other brokers. Knight's stock dropped nearly 25 percent on Wednesday morning.

Jump to comments
Presented by

Alexis C. Madrigal

Alexis Madrigal is the deputy editor of TheAtlantic.com. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer has called Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science website in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.

Get Today's Top Stories in Your Inbox (preview)

What Is the Greatest Story Ever Told?

A panel of storytellers share their favorite tales, from the Bible to Charlotte's Web.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Technology

Just In