First of all, there is a lot of commentary about how exactly the HFTs and algorithms are killing the marketplaces and scare investors away from the market. Today Andrew Ross Sorkin experienced a thoughtful article in the brand-new York Times. Sorkin has turned into a lot more well-balanced reporter, I think, after he wrote the book “Too Big to Fail”. It’s almost as though all that point spent interviewing people for the book has improved his knowledge of how things really work.
Anyway, this Knight trading error is pretty frightening but I don’t think it’s a reason to move from computer trading. I’m sure when people crashed their cars early this hundred years, some needed to go back to the horse and buggy. Or think about automated traffic lights? I have no information but I wouldn’t be surprised if some of them malfunctioned in early stages causing automobile accidents.
This may have prompted someone to call for heading back to people directing traffic, or just banning cars outright. I don’t know if it happened, but you can imagine many situations where technology caused problems. That is no reason to cool off from it. We have to make it better just.
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As someone said, you can’t place the genie back in the bottle. As far as market-making is concerned, I am persuaded that computers are much better than humans. For some individual investors, none of the stuff should be relevant. 40, or if some ‘dumb’ firm blows up because of faulty software?
As for bots trading too much, that is also irrelevant to the people who don’t trade stocks often. The greater someone trades, the greater ‘taxes’ they pay to the road. But it certainly is been that way; it’s just different people that walk away with the money. I believe these bots will be the most irritating to the day traders.
Does Buffett care if HFT’s trade a billion KO or IBM shares a day? Another thought I had developed reading about this occurrence is that contrary to public sentiment, politics pressure etc., this might speed up the buggering of finance institutions actually. If a small firm like KCG can blow up on a normal market day with no triggering event, who is it possible to trust? The 2Q 2012-Morgan Stanley (MS) meeting call was interesting in that they said that volumes were down credited to clients holding back again business from MS to see how much they might be downgraded.
If you are an institutional investor or hedge account, why would the chance be taken by you of something taking place? Is it worth the chance? Why not keep your assets at a big just, supersafe bank or investment company like JPM? Many people are contacting for big banks to be split up Almost, but it seems to me that individuals are actually wanting to run to the best banks for his or her own money; they want big, safe, and diversified. When times are turbulent, it’s nice to be on a huge cruise liner rather than some ferry or yacht, hi-tech, and cool these are however.
Of course, you have the Titanic to get worried about, but those are uncommon. I think this JEF event shall strengthen this craze. I really do suspect that MER and JPM’s investment bank are doing way much better than GS and MS partly for this reason. It does seem a little unusual for a CEO that oversaw such a sizable blowup is allowed to stay on the panel. Under some other circumstance, the CEO could have been blown out immediately. But Joyce is a street veteran and it seems like he was bailed out by his friends so maybe the new owners allow him to stay.
There are all sorts of motives for bailing out KCG. Some see a decent business and a chance. Others wished to keep KCG alive for game-theory-like reasons. What is KCG Worth? This is not a deep dive into KCG whatsoever, but a quick look just. Most appear to agree that KCG is worth tangible book value at this point.
1.5 billion in collateral capital as of the end of March 2012. That they had 98.2 million shares outstanding. 3.00/shares at this time). 400 million preferred is convertible into 267 million shares. 1.6 billion. You would have diluted stocks of 365 Now.2 million shares. Here’s a table that shows how KCG has done in the recent past. As time passes, KCG has earned an ROE of 8% and a ROTE (come back on tangible collateral) of around 11%. This includes the increase times of 2006/2007 and some bad years like 2002 and the financial meltdown.