Technology and market experts reckon it's a good idea to design "kill switches" to stop computer glitches from causing chaos with stocks, à la Facebook's IPO, but said they better be well-designed. The markets have been plagued by a number of high-profile cock-ups, including the crazy day of Facebook's first stock offering, when …
"All those nasty hackers..."
"If we simply build in this kill switch they might turn us off, but at least will leave the rest of our data alone.
Of course we're not making it easier for them; who would want to use such a scheme to blackmail us? That's absurd. Besides; if they do then at least we got their address. Its a full proof plan!"
Lets talk about in, say, 3 years or so. I can see it now: "Hacker threatens to shut down $small_cloud_provider by pulling kill switch".
They I'll go: "Told you so!".
I'd vote NO on this - the markets and their programmers need to take responsibility for their jobs. You want to just add a big "opps" switch in there? All you'll get will be more sloppy coding because after all if the program goes tits up and "buys" or "sells" everything then they can just hit "undo"
Risk is the only thing that keeps these people even halfway honest and now you want to get rid of that too?
"Risk is the only thing that keeps these people even halfway honest "
Oh yeah , thats really been proved in the last few years hasn't it.
Have you just arrived from the 1980s?
Re: Risk is the only thing....
from the article:
Brokerages and investors now move at lightning speed with algorithmic trading - automatic buy and sell orders when stocks reach certain prices or quantities. So one mistake can trigger a cascade of trades that wipe out or drastically inflate company value.
So what! The market wants faster trading algorithms, etc; so the market can deal with the fallout of poorly implemented trading procedures.
Consider it the cost of doing business. IOW, if you fuck up. it comes out of your ass!!!!
Only today there's been another f*** up announced, and Nasqaq have cancelled a load of trades. Problem is, the kill switch is intended to manage the market, rather than accept that the market is there to trade. If Knight Capital f*** up and end up $400m out of pocket, then good! Serve the clumsy bu99ers right. Likewise all the other "fat finger" trades and systems problems. Look at how UBS whined when they lost $300m on the flotation of Farcebook because of the trading systems being down and they couldn't offload the shares on retail punters or commercial clients.
So what the "kill switch" is about is purely about protecting the city traders from things that cost them money. Would the scrotes at UBS be whining if they'd MADE $300m? No. Would said scrotes be whining if they'd offloaded the toxic Farcebook shares, and somebody else had been stuffed with $300m of losses? No. However, if I were a private day trader, had a fat finger moment, and bought a load of options I didn't intend to, and were going to cost me a packet, will I be allowed to say "Whoops, didn't mean that!". I doubt it.
I don't buy that risk keeps these people honest, but the purpose of the kill switch is precisely to protect the wrong people from their own incompetence, when they should be intimately exposed to the risks.
The kill switch is there to protect the market from it's user.
If an algorithm war between two faulty bits of software drove the price of Apple down to zero then Apple might respond by moving it's listing to a different stock exchange - the exchange would like to avoid that.
Remember the market doesn't care about the traders or the listed companies as such - it just wants things to work so people keep using it.
Re: Yet Another Anonymous coward
"Remember the market doesn't care about the traders or the listed companies as such - it just wants [to keep the illusion that it's all working] so people keep using it."
ROBOTS MAY MOVE SUDDENLY AND WITHOUT WARNING
Oh yeah, system design and all that.
A "kill switch" like in any industrial processing unit that needs to pass certification? Who would have thunk it? Problem is, when do you press it? You would need a computer to do so, things are happening fast.
> how to failsafe market systems
Let retards take the risk and pay, as opposed to the taxpayer or the people whose pension money just went buh-bye.
> These single exchange problems are not a result of complexities or fragmented markets, but rather a result of more basic technology 101 issues.
More like overpaid cretins driving to work in a Ferrari, then hacking random code which "must be good" because they are so shit-hot that they understand differential equations and apply String Theory to derivatives trading, then drive home at 16:00 while World & Dog has to pick up the pieces.
as the average time of ownership of a stock/share is now milliseconds
I'd just enforce a MINIMUM HOLD TIME OF ONE MINUTE for all casino bank transactions.
Markets might be fractal, so as the trading time epochs get narrower - they have to accept quantum fluctuations, if the free markets get back to the minute's scale they might begin to see value based fluctuations. Hypothesis.
Don't I qualify for an ig-noble prize in Economics with this made-up stuff?
Re: as the average time of ownership of a stock/share is now milliseconds
Yep, always seemed to me that a minimum hold time would stop an awful lot of the silliness and help return stocks and share to the investments they should be. Invest for dividend returns and long term gain - changes over fractions of a second are nonsense.
How about adding a random number of miliseconds to each transaction settlement, say up to 1000. That'll sort out the gamblers from the genuine trades.
I still think that gambling tax aught to be added to stocks that are held less than, say, 7 days.
Considering the major screw-ups have been deliberate actions from humans - Sub-prime and LOCOS to name but two, this is just anther financial tool designed to screw us over better.
Oh, and BACS apparently got transfers down to a few seconds but pulled the project as not enough people wold have made enough money in such a short space of time.
A Kill Switch
Brilliant idea. That'll fix the underlying problem....
No... wait. It wont.
Re: A Kill Switch
It would if it was attached to the traders and their CEOs.
On the other hand, it would turn software deployment into Russian roulette...I like it.
A Turing Test maybe
it would be interesting to know the philosophical basis for decisions. Is it really possible reliably to tell the difference between a fault in a complex complex computer system and human stupidity, folly and greed?
Re: A Turing Test maybe
A fault in a complex computer system generally gets identified and blamed on somebody - who is then either fired or promoted.
Basic human stupidity and greed is rarely identified and always promoted.
All this shit is made up and exists only in the computer.
How about a law saying "you can't buy or sell something that isn't real".
Re: All this shit is made up and exists only in the computer.
Tell me, AC - where did you find an ISP that takes gold bullion as payment?
What went wrong with the Facebook IPO?
Seems to me that a grossly overvalued company underwent a bit of a stock price rectification. The people who lost out were gambling, and as such should have been aware that there's no such thing as a sure thing.
Re: What went wrong with the Facebook IPO?
Yepp, what is needed is a kill switch to stop people totally over hyping their company prior to an IPO.
Re: What went wrong with the Facebook IPO?
"The people who lost out were gambling"
The problem is that, if you have any kind of investments (like a pension), they are gambling with YOUR MONEY!
The whole trading system needs to be overhauled so that it performs the task intended: providing those who need access to capital and those with capital to invest a place to trade.
Automated trading is just a way for people with faster trading capability to put one over the slower traders; as soon as enough investors have the capability to trade automatically the system becomes susceptible to cascading effects.
Re: What went wrong with the Facebook IPO?
"The problem is that, if you have any kind of investments (like a pension), they are gambling with YOUR MONEY!"
Well, yes. That's in the nature of giving your money to other folk to invest on your behalf; you have to trust that they aren't a bunch of cowboys. There's no risk-free way of saving or accumulating money. However, in this case anyone with half a brain should have been able to see that the Facebook thing was a catastrophe waiting to happen. If they weren't going in and shorting FB from the get-go then they cannot be trusted to manage an investment; if your pension fund lost money on Facebook then the chances are it is being run by people who don't know what they are doing and you'd better have a backup plan for your retirement.
mull kill switch?
What they need to do is stop the whole pointless parasitic pig trough altogether.
if you must have a "stock" market
There should be a rule - if you buy a share you keep it for a year, or multiples thereof
Re: mull kill switch?
Hmm, the expansion of the share market to flog off the 'utilities' companies resulted in more shares being held by fewer people.
The institutions just waited until the fuss was over and the shares dropped below what many had paid for them and went 'thank you very much'.
The pig trough is based on a non-attainable thing called 'growth' where anyone with half a brain can see that 'growth' is not infinite.
Re: mull kill switch?
good one elmer,
It saddens me that our whole system , including our pensions, is based on this myth of creating wealth by strategic passing around of money.
none of which puts one more mouthful of food in anybodys mouth
They just dont seem to get that cant create matter or energy, which is what wealth is when alls said and done
F*****king beancounters *spit*
Are kill switches supposed to save the algorithmic traders?
If so then no, they're not a good idea. The sooner those parasites - like Knight - go out of business the better. They have made the stock markets far more volatile and made it almost impossible for the average home trader to make any money and it just creates a pointless arms race since as soon as one company does it they all have to do it or be left out. It should be banned. End of.
Tobin tax time then?
Tobin tax time then?
Surely each trade gets charged some sort of fee, so if computer programs are buying and selling millions of shares per second the broker is making money out of it?
Because those on the "inside" don't pay fees. Everyone else does. How do you think the banks gets their, um your money to loose in the first place. :P
Why not just ban massively automated trades? Stock brokers are meant to be able to predict the market (I thought) and those who use them pay them for their expertise. Let them actually trade with skill instead of holding stocks for nanoseconds.
The simple answer
Is to have meatsack only trading as opposed to computerised monitoring and automated trading based on some kind of trend analysis.
Traders will still need to use stops as they cannot be awake 24 hours a day but the rise of machines style trading that is currently happening is a race to the bottom as eventually it will lead to an economic mutually assured destruction.
re: Experts mull 'kill switch' for stock-wrecking techno-blunders
> Technology and market experts reckon it's a good idea to design "kill switches" to stop computer glitches from causing chaos with stock
The simplest solution is to ban High-frequency trading (HFT) systems ...
IMHO: all this bullshit about "liquidity" and "efficiency" is just that: bullshit. It is designed to hide the fact the market is no longer about allowing a business to raise funds to become more profitable, and is all about pumping money from suckers to the people who control the market - AND that is why we see ever-more drive to force people to play the market (first 401(k), and now all the plans for privatizing Social Security, plus all the other mechanisms to allow/require more suckers^W "average investors" into the market). All these microsecond trades do NOTHING to improve the productivity of society; they are only to allow the hams-what-ams to work around what few rules are in place to "level" the playing field (all these fast trades do is allow the people who can afford to have their computer plugged directly into the exchange the ability to see what bids lie behind the current ask and sell values).
The simplest solution is to impose a sales tax on all stock trades. Not only would this mean that people who make most of their money on the market (yes, Mr. Romney, I am looking at you) would be paying more money, but it would wipe out any profit from these short-cycle trades.
Live by the sword...
...die by the sword.
These guys shouldn't be able to only take one half of the risk/reward balance. Because if they do, then they'll program the system to hand them the reward, and all of the rest of us will get caught holding a big bag of risk. If they want to risk their whole company to chance a big fat reward then that is their decision and they better understand what they're risking (and what their odds may be.)
Problems with valuing a company
I think the real issue boils down how a company is valued.
in a world where a company's value can change second to second, high frequency trading systems make sense. However, if there was a common and legally enforceable way to actually place a real value on a company then trading this often would be a waste as valuations wouldn't change more often than monthly and sometimes even less often depending on their size.
I have a startup and we've been going through the process of setting a valuation. Unfortunately the best guidance anyone can give boils down to completely making a number up then negotiating with interested parties. I had originally tried to set it based on real revenue vs expenses. But that only gets you part way there, and even that is pretty much ignored by most investors.
So, the FB fiasco really boils down to the fact that a bunch of high priced people picked the wrong number. Boo hoo.