There are a lot of good options and I’m not prepared to make a definitive choice at this time, but I can at least say that one of my favorite recent financial crooks is David Miller, the doofus who put a fat suit on his finger, bought 1.6 million instead of 1.6 thousand Apple shares, and brought down Rochdale Securities. His story is nearing its sad conclusion:
David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC’s charges. He also pleaded guilty today in a parallel criminal case.
The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer’s profit if Apple’s stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.
The phrase “planned to share in the customer’s profit” is a little vague, and when we first talked about Miller I assumed that he was hoping to claim a fat finger either way and just keep the profits for Rochdale. Nope – Miller’s customer was in on the plan. From the criminal complaint: Read more »
A trader at RBS has admitted to making a fat finger trade in the EUR/CHF pair Monday, a spokesperson for the bank told Reuters. The error caused a series of algorithmic trades from other traders to flood the market, sending the pair spiking for a short period of time. The trades which took place on the EBS foreign exchange platform sent the currency pair to spike to levels just shy of 1.21, the highest levels seen in a long time…EBS daily charts showed that the euro surged to 1.20928 francs from around 1.2015 within three minutes on Monday as the algorithmic traders went berserk…Initial reports had claimed that it was RBS’s algorithms that caused the spike. However, those reports were later proven wrong. It turns out that it was a simple fat finger trade that caused the spike and algos reacted to send the pair even higher. [MarketWatch, Reuters]
Yesterday I and others pointed out that, while UBS was not alone in getting screwed by Nasdaq failures on Facebook, it was alone in losing 10x as much as other, more competent market makers like Knight Capital, and ha ha ha. This apparently had a jinxing effect:
Knight Capital Group Inc., one of the largest trading firms, told brokerages to send their orders elsewhere and was probing a software problem, according to people involved in the matter. U.S. exchanges said they were examining potentially erroneous trading in more than 100 securities that saw big price swings or unusually high volume. Knight saw a fifth of its own market value wiped out. …
The system error and reports of irregular trading stoked suspicions that trades had been accidentally duplicated via computer algorithms, rather than the problem being contained to one server, as has happened in the past, traders said.
Knight is down ~21%, vs. ~4% yesterday for UBS and its costly Facebook fail, a useful reminder that focusing on perfecting your market-making business may make you less likely to fuck it up, but when you do fuck it up it goes far worse for you. That’s maybe some sort of a metaphor for high-frequency electronic market-making generally, which it will not surprise you to learn is coming in for some flak today.* Algorithmic high frequency trading makes it more likely that your small trade will be executed quickly and cheaply, but it also makes it more likely that larger orders will go horribly awry as prices move away from them.
Which is why this coincidence (?) pointed out by the Journal is kind of tantalizing: Read more »
Since we did two of these when the markets were in a tailspin last week, we thought it only fair run an early Call the Close contest when all indications point to a big triple-digit gain.
We’ll see if those fat fingers and high-frequency trading systems have the same impact on the way up. Dow futures were up as much as 400 early this morning.
“I went to lunch and the market dropped 800 points. People were pretty chill and like, ‘Oh, it’s just some program trading thing,’” a source in Goldman’s investment management said. “[The] Citi rumor spread here before I started seeing it hit the news, because people were talking to clients on trading desks who were all hearing it too.”
Today’s Stock Market Crash Was Not Citi’s Fault, Says Citi; Goldman Remains ‘Chill’ [NYO]
4:30: Citi is hosting a call right now entitled “The Panic Button – What Happened?”
Amusingly (suspiciously!) this call was planned before the shit hit the fan, possibly weeks ago, to discuss “what is happening in global funding, foreign exchange, credit and equity markets.” At least that’s what they want us to believe.
4:35: Armando Diaz, Citi’s US Head of Franchise Trading takes the mic. “As believer of market efficiency and sniffing out the truth we were concerned about the Citi rumors.”
“We have done a very thorough examination multiple times in terms of trading logs, systems, runs”
“We have not found any info that would lead us to believe we were involved in a technical error” (so S a D, CNBC) Read more »