Great "letter from the CEO" post

If this is for real (and I think it is), this may go down as the greatest "letter from the CEO to our employees" letter of all time!

Strange oil trading story

This story is really strange and bizarre. Here's the underlying FSA story, and all the details.

What the documents don't really describe is how the FSA got involved.

Why was only Perkins sanctioned? Did not PVM themselves bear some of the responsibility?

And what sort of financial system has the world built for itself, when:

Perkins' employer, PVM Oil Futures Ltd, did no proprietary trading, but in the early hours of the morning on Tuesday 30 June 2009, Perkins traded on ICE without any client authorisation. He traded in extremely high volume in the ICE August 2009 Brent contract and in doing so accumulated a long outright position in Brent in excess of 7,000 lots (representing over 7 million barrels of oil).

All I can think, is: Yikers!

The home stretch

This is the first day in 3 full weeks that there isn't a World Cup game on the TV to watch. Time to get back to that "honey-do" list...

1. Uruguay


2. Ghana


3. Argentina


4. Germany


5. Netherlands


6. Paraguay


7. Brazil


8. Spain

How Big Brother knows where you are

Over at his blog, Matt Blaze has posted the PDF of his testimony before Congress regarding location-based technology in modern cell-phone systems. From the document:

As cellular carriers roll out better location technologies in the course of their business, the location information sent to law enforcement (as transmitted from the carrier's call database in (near) real time in response to a wiretap order) is becoming more and more precise. The current base station or sector ID paradigm is becoming less important to carriers, and as networks improve, sector data is increasingly being linked to or supplanted by an accurately calculated latitude and longitude of the customer's handsets.

The document ends with a chilling observation:

Cell phone location information is quietly and automatically calculated by the network, without unusual or overt intervention that might be detected by the subject. And the "tracking device" is now a benign object already carried by the target -- his or her own telephone.

None of this is new or suprising, I guess; it's all been covered on "24" for years now. But Professor Blaze puts it clearly and simply, and it's an interesting (and quick) read.

The Flash Crash and Quote Stuffing

There is a fascinating and detailed essay about the May 6th "Flash Crash" online at www.nanex.net.

You should read the entire detailed analysis at the Nanex site, but here are the two big items that jumped out at me:

1. Inaccurate quotes from the NYSE caused other trading systems to believe they were observing a downward momentum that wasn't (initially) actually present, but when those other trading systems acted on that inaccurate data, they in fact caused the behavior that they thought they were merely observing (i.e., a feedback loop):
   

   
   quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes. The delay was small enough to cause the NYSE bid to be just slightly higher than the lowest offer price from competing exchanges. This caused sell order flow to route to NYSE -- thus removing any buying power that existed on other exchanges. When these sell orders arrived at NYSE, the actual bid price was lower because new lower quotes were still waiting to exit a queue for dissemination.
   
   ...
   
   Because many of the stocks involved were high capitalization bellwether stocks and represented a wide range of industries, and because quotes and trades from the NYSE are given higher credibility in many HFT systems, when the results of these trades were published, the HFT systems detected the sudden price drop and automatically went short, betting on capturing the developing downward momentum. This caused a short term feed-back loop to develop and panic ensued.
   




2. Certain trading systems exhibited strange and unexpected behavior for which there still does not appear to be a valid explanation:
   

   
   We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was even more bizarre and can only be evidence of either faulty programming, a virus or a manipulative device aimed at overloading the quotation system.
   

   
   

The quote stuffing analysis is quite disturbing and serious. Was this in fact a malicious event? I am inclined to think it was more likely a mistake. As a software engineer, my first reaction is to favor the "faulty programming" hypothesis.

When you look at the charts and graphs in the quote stuffing section of the analysis, you'll see that they certainly look like artificially-induced, synthetically-generated data patterns.

Like test data, that is.

At work, we have an ultra-high-volume testing tool that we call the "submit-a-tron", which is designed to stress-test our server by intentionally subjecting it to implausible and overwhelming activity. Once in a while, somebody accidentally mis-configures their test system and mistakenly points an instance of the submit-a-tron against a valid production server, which then has us all running around cleaning up the mess for a few days.

Perhaps the software development staff at one of these trading houses accidentally did something similar (that is, accidentally performed an internal stress test intended for use with internal testing systems while pointed at the real production stock exchange channels)?

An ode to Leo

Nice essay, Joe!

In the most likely scenario, all Argentina have to do at this point is, consecutively: beat Germany, beat Spain, and beat Brazil. In the next twelve days. If they do it, they'll deserve to discuss that run for decades. Can it be done?

Regarding instant replay in soccer

I'm with The Daily Mash (*) on this one.

(*) For those who aren't in the loop, The Daily Mash are like The Onion, but with a funny accent.