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FBN’s Adam Shapiro, Charlie Gasparino and Credit Sales and Trading Newedge USA’s Larry McDonald discuss whether traders have lost control of tradi...
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-- McDonnell to senior director of new agent Larry when you hear about this and you hear the daily hear what Charlie saying what goes through your mind.
Well first Alter Tom Joyce is extremely likable and from a PR perspective the -- handled this whole transaction and all the media.
Well last week keeping I think you get a much better job -- that other executives.
In my book a colossal -- common sense.
When these we solid Lehman I think Lehman's exit executive group handled the the -- that those difficult days really poorly.
I think he did a nice job here.
Okay but nice job and -- to me doesn't cut -- I mean apparently.
This algorithmic.
Data that they -- that the the program that they had.
Had no even self kill switch forget human kill switch -- -- just tough -- telling us are you kidding me alarms will be going also loudly.
Nobody could even talk on the phone BGC partners -- this happen.
Well I I talked about this in the book and Charlie talks about his book as well.
21 century financial products have moved very very fast in their -- -- Lehman owned a lot of not.
Not -- not technology trading -- we're really strong on what's called -- residential mortgage backed securities structured finance those were new technologies.
In 2000.
78.
Those that -- -- long way to bring the firm down here you know you have advanced technologies that move too fast for a lot of people understand -- think going forward.
At the end of the day the bottom bottom line is the amount of firepower.
That's behind.
An algorithm has to be questioned in -- it's one thing you have an -- screw up it's another thing that.
Have that much by -- -- firepower but I'd only -- -- -- 45 minutes to.
To track this down you know.
Here's the problem I think they have it took it might take them longer getting more information that some of these pro these trades in this algorithm we're going out that morning at 4 AM in the morning.
There was nobody nobody at the at.
Around.
Making sure this thing to happen right out they -- I'm -- big believer of humans over over machines and you know I have my problems that computer -- trading but.
I don't know if this and that is just a problem with you the computerized trading -- this is about.
People playing with fire and not understanding it and that's what I get back to Tom Joyce and -- hurts me to see this as I like the guy.
He needed to have people on the ground.
Watching this thing who put it altogether new trade new -- renewed through whatever that was call out were relief program at it and say.
They were they were executing it through need to New York Stock Exchange partially at least or may be largely through the New York Stock Exchange is owned dark pools right.
Not through the floor brokers to their own dark pool.
Put all this together its new stuff.
You suppose and it's a lot of stock we're talking five billion dollars you would think it was being monitored and I'm telling you.
From best I can I could tell you -- based on.
There are not answers at night they don't call me back they just they just they barely send me emails and -- race based on that.
They did not stop it until it was too late let's go right out to Adam Shapiro who's at Knight Capital Group right now what -- that look you hear what Charlie sank.
That the company is saved at least for now but is it appeared victory.
Well it's a good question and I got one of the -- actually said that talking about -- -- speed with which financial transactions take place.
But this failure based on the reliance that math doesn't it that you don't make mistakes.
You know go back to long term capital management we've been down this road before about the taxpayer.
Glad to bail them out but there have been problems we have in print and you know.
Sure fire formulas and then you see this the question I think that maybe Charlie is getting at brats who would want to ask is one who wrote this formula who gains by the way.
By this company suffering such catastrophic mistake.
But third you know this is a retail this is a firm that deals that retail investors and they we're implementing software.
That would have taken into the stage at the very large high frequency traders who really benefits from that about the retail and best well with huge amounts of money who can make.
Who can make a great deal of profit on very by you know what -- -- I -- transactions.
At that.
Well -- -- -- -- that you got to realism by about disagree what you said but.
The suspect approval would -- doesn't know Larry -- probably help me.
-- wholesale.
Market maker for retail investments they match buyers and sellers.
Of -- when they like order flow I hate us on the program yet but they also engaged in trading and all these firms didn't do training because -- I have to make money they have to hedge their positions for an an and they are more they train right now is in these complex computerized programs okay.
I -- and they were they were installing software to take it back to take advantage of some slight changes that are excellent trade all about that requires you to -- even fat Iraq.
Well is it isn't the stock exchange supposed to be about raising capital in a big rally ran out and says little about just got -- -- -- about gambling.
The -- is stock exchange is about raising capital but you know people in order to raise capital you have to trade -- because you don't -- -- there's not.
And established price people won't buy just the way the markets go.
And you can make the point that by having the super fast programs that that some house distorts this sort of notional what is -- trade.
I will tell you this though.
This trade went wrong yes it was overall computer program and you know we want to you know.
You know we wanna go back to the stone age that's fine but you know I will say this this charade when vastly -- -- -- Because a human wasn't paying attention -- I could.
I don't know how many Larry McDonald we have the flash crash we've got the -- PO that went haywire we've got that's just as soon as the markets get their footing.
Wall Street somehow mess is that hello but it's really more and more aside from the London will trade which is that a human trade through been a lot of electronic.
Missteps hasn't.
Well I don't wanna speak specifically about ninety that wasn't there but I would say that in Lehman and does there and I and know a lot of people on the street.
When you have technologies that are advancing you have business units that operate in silos around the street.
This tremendous political pressure social pressure really not a question kind of the next big thing in.
The stakes are higher and higher I think in the future if you're gonna have a talented.
-- group of algorithmic programmers.
The firepower that's behind net purchase that transaction some risk minister has to be there was finger on the button.
How about it and we've been spending a lot of time positions in the -- not we but the securities exchange commission which is supposed to monitor this stuff.
And make sure we have we have an efficient market yet been spending a lot of time on this stuff they've been pushing us more towards a direction a fast markets.
Of of of electronic trading let's be fair Mary Schapiro has spoken out so she's consolidate our little -- -- -- -- -- controversy gets pushed back from all of the big oil she runs the show I'm just telling -- that one thing that everybody's been saying.
Is that the one thing that they pushed it back burner at the SEC is market structure.
Think about it we have a flash crash in 2010 with FaceBook -- we have this.
There's something here that needs to be done in terms of the structure of our markets and how they -- that the SEC can't get their hands around -- Maybe we should except stuff like this as a way of life it it that may be.
The this sort of better you know there's lots of benefits we get from to have an efficient vast markets people being able to trade -- use your computer into all this great stuff.
They would just accept this but we have -- -- it has to -- -- debate about it I mean we can't be left in the -- where you know -- where these small investor doesn't -- kind of get.
The benefits of being in a more like just listen let's face it the flash crash occurred right.
They reversed it a thousand -- they'd provide hundred points inundated few minutes but still people say what the market -- like that you know why should give up but then you should ask yourself -- they can go like that they can correct themselves really -- -- There's -- to be said about the efficiency here but I will point out this -- and it's always comes back to this there are humans behind all this stuff.
Screw up and -- -- to really screw up is to be a computer right.
Yes that's the saying goes and that's the problem they don't really get there's always going to be glitches you know I you know you know -- -- rally.
Tell me what I -- ask them what you like specialists to -- the former head of the you know such and I think one of the smartest guys who becomes market structure.
And people could consider him some like trouble at night because -- -- the guys on the floor.
He said listen when you have a computer in a buy here got -- sillier doesn't matter if the real price is somewhere -- -- -- it out computers a purely rational being.
