Saturday, November 26, 2011

HFT Trading Company Fined $850K

(Thanks to John Bates for the pointer)

According to this article, Infinium Capital Management was fined $850,000 for three separate incidents related to High Frequency Trading. It seems that they lost control of their algos at various times over the past 2 years.

I was thinking about this article in relation to a friend of mine who was interviewing at various HFT firms over the past few months (no, it's not me, and yes, he found a great job). He was asked every single little question about C++ minutiae, questions about manhole covers, questions about networking trivia, and questions about the timing of instructions. Maybe valuable stuff for a HFT developer to know. But not once did these interviews concentrate on testing and quality assurance and development practices.

This is probably the first step by the exchanges into monitoring their HFT partners. As technology improves, and as it becomes easier to recognizes errant algos (probably, in part, to the same kind of monitoring that Nanex uses), you will see these kinds of fines become more commonplace. It will also become necessary for HFT firms to come up with better simulation scenarios for their algo testing.

It would be interesting to me if Infinium hired Nanex to do a post-mortem on these three situations so that Infinium can start fixing their algos. Maybe this could grow into a sideline business for a Nanex-like startup, where other HFT firms could outsource the post-mortem and QA work. At the very least, the exchanges would be able to outsource this kind of real-time surveillance work.

©2011 Marc Adler - All Rights Reserved. All opinions here are personal, and have no relation to my employer.

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