SEC slams NASDAQ with $10m fine for Facebook IPOcalypse NASDAQ is forking over $10m to the Securities and Exchange Commission as penance for its poorly executed Facebook IPO. The fine was levied against the exchange for the Facebook IPOcalypse, which saw punters at first unable to buy shares in Zuck & Co's data farm social network, and then able to buy but only at unreliable prices …
Having worked on HFT systems I have to comment. You would be amazed at how many changes are made on the fly without care and consideration to investors. Think FIAT: Fix It Again Tomorrow as a working mantra. Part of the problem is this. You can't recreate a live complex organic trading system in beta. Often the beta isn't even running the same release as the live system. So it isn't just a question of numbers i.e. only testing 10% of the orders. Its also a question of real-world complexity in the way orders are placed and in the complex interaction between all the different players.
Complexity is exponentially increased with automated market makers (AMM) and their interconnected exchanges, HFT systems, hardwired bank and institutional screens, retail systems, and legacy phone or pit orders etc. When you sprinkle in AMM stock-pinging, liquidity-rebate-trading, front-running, fat-finger trades, legitimate cancelled orders, and competing orders from co-located servers versus those at a distance... life can get very messy.
Its very difficult to build a good simulation. I wish the regulators would acknowledge this and herald it as warning.... Instead they continue to see these events as one-off problems in tunnel vision fashion. So when-is the next flash-crash or IPO non-event...? ...FIAT!
> You would be amazed at how many changes are made on the fly without care and consideration to investors.
Yeah but Knight showed that its not just investors you can burn doing this. Losing 1 million dollars a minute will even get management's attention to the importance of decent QA testing. You may not be able to replicate totally but you better well at least try.
"You may not be able to replicate totally but you better well at least try."
Agree. If anything I wanted to illustrate the scale of testing that's needed to have confidence in the system. Otherwise we're merely making assumptions, and as Knight know now, assumption is the mother of all f*ck-ups!
.. is that people with money to spend valued the company at $100 billion and were prepared to buy shares of it at that price. If you just listen to the people trying to flog you the company about it's worth and don't do your own research then you probably shouldn't be investing anyway. Everyone with a brain must have known the stock was going to nosedive the moment the bell trolled (literally) and the system was going to come under massive pressure. That's what provisioning is supposed to be for! I really can't believe that with the worldwide buzz that had been generated about the sale of Facebook and the straightforward market analysis that it was heavily overpriced that they didn't expect a practically exponential period of trading compared to normal, and provisioned for it, although reading AC's post above, that plainly wouldn't be a simple task. But the people running the systems are paid to do that task.
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