Algorithms Gone Wild

Robert Charette looks at a series of costly mistakes that can all be attributed to algorithms gone wrong. Staring with India’s stock exchange recently falling over 800 points due to 59 erroneous trades. The mistake (while corrected), resulted in the financial services company’s stock dropping by 10%. Charette then looks to another mistake ““ this time within the NASDAQ: Earlier this week, the NASDAQ had its own trading uffda, but this time caused by yet another trading algorithm gone wild. As told by the Wall Street Journal, some twenty seconds after the NASDAQ opened on Wednesday at 0930, “sales in Kraft’s shares bounced back and forth between levels that were more than $7 apart, without hitting any prices in between. That gulf, known as the “˜bid-ask spread,’ was far wider than those typically seen in stocks like Kraft.” This all occurred in a span of 5 seconds, which, as the WSJ stated, is “a long stretch in a largely electronic market dominated by computers that measure trading times in millionths of a second.” This goes to show the impact that faulty IT can have on the real world ““ granted, these were shares and not, let’s say, algorithms that control manned flight ““ but all the same, the impact is clear. As IT continues to be used more and more in the world for every task imaginable, the security and consistency of algorithms, codes, and programs will likewise become more and more important to work correctly. Charette indicates that the government is noting this as well, as the SEC Chairperson Mary L. Schapiro chided the companies behind the mistakes and indicated that the government will take action if necessary in the future.

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