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.
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