Automated trading program floods Wall Street

On Wednesday August 1st, morning, right at the market open, a program began trading shares at an accelerated rate.  In some cases, as much as 100 trades per second. The rogue algorithm bought and sold millions of shares of companies such as Nokia, RadioShack, Wells Fargo, and Best Buy.  There was a sudden acceleration in trading volume for these and many more. The algorithm was the product of Knight Capital Group, their tag lines are “the Science of trading and The Standard of Trust”.

Complex Systems
As part of our software performance engineering practice, one of the key activities I work with clients on is end to end systems performance testing for complex systems. Part of this includes defining a series of workloads to simulate during testing. What are the user profiles and what type of volume can we expect. Today, at an increasing rate across many different industries those workloads include a 10X or more.  This means to test at 10 times the expected volume.  This could be for a retail web site hosting a new marking sale, an auction, etc. In the brokerage industry, it means automated trading algorithms executing at light speed.
These performance tests and workloads help identify weak points or risks in the system, as many systems today, were not designed for the new 10X events.  I have extended our performance and scalability analysis and testing to include failover and failback under load, as well as a newer category of test, called Antagonistic testing.  This was coined by a Colleague of mine a couple of years ago.

Wednesday event reminds every one of the infamous Flash Crash of May 6th, 2010. The entire market dropped 1,000 points and recovered in minutes. Since that time the SEC has put in circuit breakers to suspend trading in stocks that move too far in too short a period of time. This helps to stop the over all market from moving too much, however, it still causes havoc for individual stocks.  For detailed analysis and updates I recommend going to the Nanex Research site.


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