I’ll go further. I want a financial transactions tax, but that is not enough. If a company crashes the market, I want management to be held personally responsible and not the slap-on-the-wrist nonsense that we see from the SEC. The corporate veil should not just be pierced, but burned away. Crashing the market costs a bundle and I want the assets of the company AND management to be used to make people whole. If that forces management into chapter 7 bankruptcy, too bad, so sad.

I think we are in agreement. I do not believe that computer trading should exist, period. These clowns have proven that the nature of the industry is indeterminate. It is not remotely possible to test all of the variables, not to mention that variables continue to be added.

But then again, I believe that hedge funds and just about every other company on Wall Street are parasites.

You are correct that my Newegg example was not nearly as complicated as computer trading. A better example would have been Amazon, which has become fairly complex, but things are still sometimes broken. If people cannot buy on Amazon, no big deal, but if the markets crash, big deal.

I like the idea of making people responsible for their trades (the Flash Crash trades should never have been canceled), but when these issues crop up several times a year I have to question your assertion that “even high-frequency markets can work fine”. Trades that bring down firms add to the systemic instability.

And personally I love volatility. It is very profitable for somebody who trades on fundamentals. Gotta wonder about the chumps who are taking the other side of those trades, though.

Instead, let’s make people responsible for their trades. If you program your computer such that it sells IBM at 0.01, well, looks like you should have programmed your computer better and are going to have to come up with some money. Secondly, if your behavior causes exchanges to malfunction and be unable to deliver accurate quotes (as in flash crash), let’s target that behavior and ban it. But on a day-to-day basis, even high-frequency markets can work fine as long as we all appreciate that stocks are going to bounce around and we aren’t entitled to have them smoothly compound every day at a 10% annual rate.

Amazing that Knight managed to wipe out 3-4 years of earnings and a third of their equity capital with a single mistake. Somebody won’t be getting a bonus this Christmas! The dollar amount isn’t quite up to the London Whale, but the firm is much smaller.

Doesn’t that apply in this case?

As for Newegg’s servers, their task is much simpler — distributing static information that is not time sensitive. It isn’t a big deal if it takes a couple minutes for an update to push through the network (and it might happen more quickly than that).

Might a market be described as a dynamic consensus? A much knottier problem, and one whose behavior depends on all of the participants. Might be able to program something robust if you had a single programming team working with ALL the HFT machines, but they are each doing their own thing (and reacting to code they don’t control). I don’t see how you can possibly pretend to test that!

Nonsense.

If Newegg, a favorite supplier for IT people, were to add servers in a new city to meet demand, prices would not rise or fall. The only effect would be that availability would be a little better and response times would be a little less. It is a simple concept known as load balancing.

Yes, the two examples are not completely comparable, but competent people are expected to test their systems before putting them online. If systems cannot be thoroughly tested due to the nature of the business, perhaps the business should not exist.

The problem with high-speed traders is that they use extremely complex algorithms that depend on a myriad of factors. The speed of the trade is paramount. The flash crash and this newest episode has proven that this industry is dangerous.

I agree with TFF regarding his ststement “Hang your hat on unconstrained algorithms and you deserve to lose your shirt from time to time.” All businesses like the one Salmon described should be shuttered and their equipment given to schools.

I’m a little less worried about this than Felix, as I don’t see how this will bring down civilization. (They ought to have allowed the Flash Crash trades to stand.) Hang your hat on unconstrained algorithms and you deserve to lose your shirt from time to time.

This all underscores the question as to the social value of such markets and their unstable hyper-liquidity.