Rage Against the Machine
I shook my head this morning when I read that Icap's EBS currency-trading system accidentally set off a brief run on the Swiss franc on Wednesday.
According to a Dow Jones report, a mapping error "between the test- and production-trading environments" mistakenly sent a false bid into the market where the euro was priced 0.5 percent higher against the Swiss franc than the going rate. To borrow a line from Seinfeld, “Yada, yada, yada,” and traders began buying euros in the event that this was a sign of a greater trend.
This goes to show how fragile these markets are, and that there is so much more to worry about than just fat-finger mistakes. This wasn't human error; this was a machine—the world's biggest bank-to-bank currency-trading system, according to Dow Jones—responsible for the "mistake.”
Icap is conducting an investigation into exactly what happened, but shouldn't this be a lot more disconcerting to everyone? Icap says it is not going to automatically cancel any Swiss franc trades as a result of the glitch, which means that a machine just cost traders some dough.
So now we've had a Flash Crash and a Swiss Franc Folly. Do incidents like these signal that the markets are fundamentally flawed, or do they simply amount to the price we pay for the interconnected, automated markets that trade at blinding speeds?
One final consideration: If a machine makes an error, it has to be a mistake, right? Otherwise, if it meant to screw with the test environment, that would mean the machine has become sentient ... and that's a horrifying thought.
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