There were fresh calls for an overhaul of algorithmic trading machines today in the wake of the latest crisis at the New York Stock Exchange.
While the London Stock Exchange argues that such a dramatic mix up -- 148 stock prices fluctuated wildly due to a software bug that has cost Knight Capital $440 million in lost trades -- is far less likely to happen here, others say a proper investigation is needed.
An LSE spokesman said: “It is worth highlighting that the LSE has so-called circuit breakers in place. Stocks on our market can enter an automatic suspension, which sees stocks enter a 5 minute auction period. These actions are triggered when certain control thresholds are breached and helps ensure the continuance of an orderly market.”
City traders are less certain that London is immune.
City commentator Magnus Wheatley said: “Every institution and Exchange would say that they have fail-safe’s built into their black-box algo systems but if human error conspires with technical failure then no amount of contingency can stop it. Algo trading is more prevalent in the US than in the UK so the law of averages would say that this kind of disaster is possibly less likely here than over the pond – the US markets are driven by the algo systems with far less human interaction, certainly at an institutional level, so it’s probably more likely over there than here.”
One trader said: “Computer glitches can happen everywhere and anywhere. The NYSE had “safeguards” to halt trading in stocks but clearly they did not work.”
This is said to be the sixth NYSE glitch in just two months.
In 2010 a so-called “flash crash” prompted by a single giant derivatives trade saw the Dow Jones lose nearly 1000 points.
Regulators argued that discrepancies between “circuit breakers” on different exchanges fuelled this unprecedented volatility.
New Jersey based Knight is now up for sale, according to a report by Bloomberg.
Tim Hartzell of Sequent Asset Management, told the news wire: “You can see how this one black swan event can literally take this company out. Maybe this is the new chapter for programme trading and algorithm trading. We’ll have to go back and re-evaluate.”
