

Too Dumb to Fail? - kenshi
http://logiccolony.com/2010/10/14/Too-Dumb-to-Fail.html

======
karzeem
This reminds me a little of the kid who "hacked" into Sarah Palin's email by
guessing her easily guessable security questions. One on hand, if someone is
sufficiently careless or stupid, it's unfair to punish you for helping
yourself to the fruits of their carelessness. But on the other hand, you have
to respect people's desire not to be exploited. If you leave laptop in a park
for 10 minutes, it's wrong for someone to hop on and use it, even if you
should have known better than to leave it unattended.

I have less sympathy for this exploited bot, though, since you go in knowing
the stock market can be a ruthlessly zero-sum kind of place.

~~~
pavel_lishin
I'd compare this to leaving your house's front door unlocked and open. You're
an idiot, but if someone walks in and trashes the place, they still committed
a crime.

That's my brain talking, of course. My gut reaction is to say, "stupid is as
stupid does", and blame the person who wrote a buggy piece of software.

~~~
tdoggette
If you can guess how a _person_ will react to market fluctuations and make
money off of it, is that a crime?

~~~
yummyfajitas
If you cause the fluctuations, yes. It's called "market manipulation" and it
has been illegal for a very long time.

------
Murkin
The problem here is not the outwitting - but rather the manipulation:

    
    
      If I _know_ that a news item about a major law suite against a company
      will bring down it stock (predict behavior of others) - trading is valid.
    
      If I create a false news item in an attempt to bring down the stock - jail.
    

They didn't analyze current affairs to guess how the trading algorithm will
respond, rather they used it to manipulate the stock price.

------
wheaties
Wow, that's just idiocy. What do they think some HFT algo's do?

------
obiterdictum
_"The two men worked out how the computerised system would react to certain
trading patterns – allowing them to influence the price of low-volume
stocks."_

The key phrase here is _"influence the price"_. Taking the quote at face
value, they deliberately tried to manipulate the market.

Also, there seems to be a knee-jerk reaction to HFT in the comments to this
story posted anywhere. If you just run an algo, it doesn't automatically mean
you manipulate the market.

------
andjones
This reminds me of the scene in "The Social Network" where Mark Zuckerburg
sits in front of the Harvard disciplinary board for hacking into house face
books to harvest student images.

The Zuckerburg in the movie thought that he deserved credit for pointing out
security vulnerabilities in the Harvard network.

I do not believe the actions of these traders (or Zuckerburg) were correct.
That being said, I still think their actions have value.

One way we learn is through our mistakes. There are many proprietary
electronic trading platforms. Who checks them for bugs? Who checks them for
accuracy or possible manipulation? I do not think these Norwegian programmers
should be gaming a trading robot. At the same time, the SEC and other market
regulators need to uphold their end of the bargain. If they would like to see
a fair market, I think they should check trading robots for possible
manipulation.

------
Dylanlacey
Isn't the entire market about manipulating people's perceptions?

------
known
They tried <http://en.wikipedia.org/wiki/Pump_and_dump> which is illegal.

~~~
dagw
This was not a pump and dump scheme. Pump and dump involves manipulating the
price via spreading false information, which is not at all what they did. They
manipulated the price by actually executing trades and predicting how (certain
parts of) the market would react to those trades.

~~~
yummyfajitas
True, it's not pump&dump. It's "painting the tape". Still illegal.

<http://www.investopedia.com/terms/p/paintingthetape.asp>

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ramy_d
i'm a little confused about how this trade stuff works.

How are high speed trading systems not manipulating the market by making
faster than human trades/micro-transactions?

how is it market manipulation if someone automates a patterned behaviour of
trading and someone else exploits that behaviour to their advantage at the
expense of 1 and only 1 party, the one overseeing the automated transactions.

if only the one HFT machine is affected, or exploited, how is it that
exploiting a patterned behaviour isn't considered to be a mistake, or a bad
decision, on the part of the HFT algorithm but instead considered a
manipulation of stock?

if the exploit was subtle enough that no human trader could distinguish it
happening, or if a human trader would never fall for the exploit (as a matter
of common sense)then could the exploit be attributed to a bad algorithm and by
extension a mistake by the trader who owns the HFT machine?

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rbarooah
This might turn out to be fairly straightforward if the 'discovery' of the
flaw took place through industrial espionage or breach of contract.

~~~
dagw
According to the court documents he noticed strange patterns in orders being
placed on a stock he was trading and through careful observations of these
patterns over several month in 2006 he managed to conclude that there was an
algorithm at the other end and managed to reverse engineer how that algorithm
worked.

He apparently also documented his findings and conclusions on a trading forum
so there might have been other people out there doing the same thing that
haven't been caught.

------
aneth
The systems they manipulated were systems that were likewise designed to
outwit dumb human and computer traders.

I can see there is some distinction if you make trades purely for the purpose
of invoking a reaction from other traders, but an intelligent AI system will
discover this effect and do the same thing, albeit without any explicit human
intention behind.

~~~
borism
"intelligent AI systems" don't do HFT

------
borism
here're the court proceedings in norwegian:
[http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a...](http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a.pdf)

description of what they did from another forum:

 _\- TMB is showing 5k bid @ 9.7 / 5k ask @ 10 \- Norwegian viking takes out
the ask

\- TMB increases the bid to 9.8 and the ask to 10.1 \- Viking is a violent
heathen so he continues to hit the ask, though with less size

\- Iterate this for a couple of steps

\- Suddenly the viking feels full and decides to drop his inventory at TMB's
bid, and then he repeats the same procedure but by shorting in several steps
instead_

Looks like incredibly dumb system to me. Albeit that was 2007 when the HFT
arms race has just begun.

