Fat fingers on the ASX July 30, 2008
Posted by James Webster in : finance , 2 comments
A ‘fat finger error’ occurred at the ASX on Wednesday. A broker submitted sell orders for QBE within a range of 0.1-0.2c per share, when the prevailing market price was in fact $22.85. This was an error of several orders of magnitude. Needless to say, day traders and other market participants jumped on the opportunity immediately. Fortunately the ASX quickly recognised the error, suspended trading in the shares and cancelled the original and all subsequent trades.
As I am currently reading Michael Simmon’s Securities Operations, which whilst primarily focusing on post-trade reconciliation and settlement, has been reinforcing to me the need for validation at all steps of the process. I am also starting to work in the area of trade capture at the moment. So I’m wondering why more trade ticket entry screens don’t perform simple validations to prevent errors of this sort, given that this does seem to happen somewhat regularly. I may be wrong but even in a crashing market would you really want an order to sell at less than 1% of the current market price without your screen quickly asking you to confirm? If this QBE trade was issued as an agency order at the broker’s discretion it also raises issues of best execution standards; it would be quite an embarrassing conversation to have with your client about the quality of your service and why they should continue to keep it.
I know I have some friends and former colleagues now working at trading systems vendors, if they are reading perhaps they can shed some light on the issue?
Banking on BarCamp June 13, 2008
Posted by James Webster in : finance , add a commentBack in 2006 I attended the inaugural BarCamp Sydney. It was a great day and they have recently host their 3rd event. BarCampBank is a spin-off of the popular ‘un-conference’ series aiming to ‘foster innovations and the creation of new business models in the world of banking and finance’. The first such event is being organized for London this coming 5th of July (via O’Reilly Radar). Should be worth checking out, I’ll definitely aim to be there.
A fishy derivative contract
Posted by James Webster in : finance , add a commentPrior to starting my new job (structured commodity derivatives IT), I was working with a team building a risk platform for an exotic equity derivatives desk. One of the most common OTC contracts the front-office would sell is known as an asian basket. Asian means that the strike price is not set at a predetermined absolute level (as is the case with American or European option styles) but rather taken as the average price of the underlying asset over a stated period of time before the option’s expiry. A basket option is a derivative contract that covers multiple underlying assets.
Now that I am in commodities I have been researching the field to understand it better. A broader range of commodities are traded on exchanges than I realized; in addition to the currently topical oil contracts traded on the NYMEX & ICE exchanges (and others), the agricultural contracts of the Chicago Board of Trade, and the base and precious metals contracts traded on many other global exchanges, there are exchanges in the Far East listing futures contracts over cocoons and raw silk.
Fish Pool is a recently established Norwegian exchange which provides a marketplace for trading forward contracts on fresh salmon. If they add contracts for other fish (tuna perhaps?) I wonder if a canny investment bank or hedge fund will come along and start offering the market ‘Asian seafood basket’ options 
Well… I thought it was amusing.
Continuing the recent market data theme… it appears the NYSE has decided to follow the path set by BATS and NASDAQ; NYSE to sell market data to Internet sites:
The New York Stock Exchange (Nyse) is gearing up to launch a low-cost real-time market data service for delivery over personal finance Web sites.
It would be great to see some cheap, public APIs from BATS, NASDAQ or NYSE to enable the construction of a simple Silverlight ticker with the new duplex service capabilities of Beta 2.