by Krishna Kotecha, Software Designer.
From today’s Financial Times (registration might be required to view full article):
Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker.
The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks.
The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks.
So it seems like out-smarting dumb trading robots is now considered market manipulation in some parts of the world.
This seems pretty ridiculous, surely the onus is on the brokers to not let dumb, easily exploitable algorithms onto the market?
No doubt there are funds all over the world writing smarter algorithms that exploit the behaviour of dumb systems. Is there a new precedent being set that some firms or systems are too dumb to be allowed to fail?
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