A Knight in the Kospi
Algo gone wild again in the Kospi index options in Seoul yesterday. The Korean broker Hanmag Securities confused calls with puts and did so in an automated matter. Their prop desk placed a program order right after market open.
The story is : selling for a few KRW per contract, while buying for a few thousand KRW. Comparable with Knight Trading, however it lasted only for a few minutes. Impacted strikes were the 215-250 calls and the 270-287.50 puts.
Estimated losses are above 40 million USD. Firms pocketing the money will most likely be the foreign liquidity providers, given the nature of their business (in other words : not delta punting). Jump, Optiver, IMC, SIG, Virtu and some smaller firms will have had a fine day. Other firms with a nice end of the year result could be Ingensoma, ARK (former Tibra traders) and Quiet Light. Rumor has it Getco left the Kospi a month ago.
Hanmag requested the KRX for an Error Trade Bail-out, but this was rejected as it didn't meet the error trade requirements. My knowledge of the Korean mistrade regulations is fairly limited, but given the fact the trades have been executed against unrealistic prices this puzzles me.
There is a Korean fund (350 million USD, financed by Korean brokers over the years) against systematic risk of collapsing brokers. There are no clients involved, so this probably won't be of any help.
Without a white knight, the firm is history. The losses are most likely bigger than their total equity of 19.8 billion KRW. Firm is (was..) privately held, so somebody must be having a really bad day. It has always been a bad idea to use a red tent as company logo.
Update
See also the Korea Times on the matter, especially for the numbers. They have no clue about the difference between exercising options and executing trades. Anyway : 46 counterparties and 36.100 trades.
Update January 13
Optiver returned $600k trading profits to Hanmag Securities. Other firms returned money as well. At the same time, the exchange will introduce a “kill switch” in February. A mistrade regulation would be all they need, just copy paste a form of any other derivatives exchange. Five minutes work.
R.I.P. Yeah for all intents and purposes they don’t really have outtrade rules in Korea
Tibra pulled out months ago from the Kospi. Tim Berry must be kicking his heels all the way to Woolagong.
isn’t it time for some obvious mis-trade rule then, kospi has got such great volumes
even if tibra would have been in kospi, doesn’t ensure they would have made a killing, there are much greater costs to keep the business running with empty tank
red tent might have cultural meaning in korea, don’t use your western ideas for orientals, 13 is a good eg of it
if the firm had 20 bucks and dropped 40, who is going to make for rest, exchange, clearing house, exchange broker, prime broker?
tibra itself could have been on the other side of mistake and dropped mios of core capital
Mistrades don’t happen often in Kospi, considering how tight the markets are and for what volumes. Retail will never have a mistrade, so the only ones who need it are the automated traders. They should just make sure that their systems don’t f*ck up. If they do, it’s economic Darwinism at work.
That tent looks like they chopped off the top of the Optiver delta.
tibra pulling out of the kospi is big news that was kept under wraps ?
Wasnt that the desk kick started by clint maddock that took them to dizzy heights.
in any automated framework, there are going to be rare mis-trades, what’s wrong with making some mis-trade rules, didn’t hurt when they made those in US?
how do you define dizzy heights for tibra?
You don’t have any idea what automated trading system is.
Risk controls are automated too and there are to prevent any mistrades.
care to enlighten the dumb market participants on your highly automated trading and risk control systems?
btw, are you the only market participant and shouldn’t regulators make sure that they democratize considering the ‘less automated’ dumb participants to prevent monopolization from great geniuses like you?
clint madock moved from tibra to ARK.. trading the kospi, chances are he would have cleaned up.
Tibra weren’t making any money so they got out of the kospi only recently. and liquid are the cavemen of trading when it comes to systems and automated methods, so they don’t trade it.
IMC and Optiver would have had a field day getting hit and lifted.. especially in condensed strikes.. good ol’ free money in the auto spreads.
tibra have not stopped trading the kospi. they did well on the error last week.
sorry, which one was ARK?
define, tibra did well on error?
http://www.amsterdamtrader.com/2013/12/a-knight-in-the-kosp
Always the same problem.
It should be mandatory to have pre-trade risk checks implemented on exchange side -> problem solved!
Of course this adds latency but who cares if everybody has added 10us???
You all need to man up if you want to trade the KOSPI. Can’t expect the exchange to save your sorry arse when you fuck up. Welcome to the real world, bitches.
calm down rambo, it’s the real world, not some bloody ideal world full of geniuses.
who is going to implement the pre-trade risk check, the exchange?
would be best for everybody
do exchanges have the mental capacity to implement the pre-trade risk check, it’s entirely in their favor to not have these periodic blow-ups and have non-sophisticated participants losing confidence and of course scaring away smaller market makers and lead to monopoly like optiver who then turns around to screw the exchange by setting up TOM
yes they do an it’s easy to create rudimentary rules which would avoid the massive blowups. they refuse to spend the money to do it but are then happy to fine firms that trade out of range. as long as exchanges are for profit, it won’t happen.
Some exchanges have a flavour of it (at eurex for instance if shit happens a vola auction is triggered; on millenium platforms (lse) there are “circuit breakers”; at euronext cash you have the price collars, etc). Some offer it only as a service to each participant. Some only for market makers (market maker protection in different flavours, eurex and liffe).
Yeah, and OSE has SCB/DCB on any big price deviation, too. But those are pussy exchanges. You want training wheels? Go ahead and trade those exchanges. That’s not the way the game works on KRX. Market makers are not the core customer base: core customer base of KRX is retail. If market makers all pissed off tomorrow, KRX wouldn’t give a shit. You want to trade KOSPI? You play by the rules.
Can`t agree rambo. 😉
Also retail clients will get hurt if their broker goes down.
Efforts for pre-trade risk checks on exchange side should be very limited and they could charge their customers for it like Nasdaq OMX does.
exchanges are being penny wise and pound foolish by not putting in the safegaurds but it’s expected from mediocre people who work there
KRX might not give a shit now, but give enough time, a more safer platform would make KRX realise its mistake, probably too late
Don’t understand how pre-trade rules on exchange would save them. They confused puts with calls which means they bid deep in-the-money for pennies which never traded and hit other’s bids hard thinking there’s big edge. So what? Everyone can hit market as much as they want.
Assuming they were trading reversals thinking the real OTM options are cheap ITM and hitting them as well they were flat risk so nothing could stop them.
why not stop assuming and wait for facts to emerge?
how about all these new algo strats having auto-kill if the bid-offer being sent by them crosses the market at first instance to begin with or alternatively trades more than x in it’s first few days of initiation?
That’s not something you would implement at an exchange but rather on MM’s side. My comment was about pre-trade rules at exchange.
of course, genius
did your comment on exchange side preclude the suggestions for MM side?
did any other tibra traders join Clint at Ark?
what’s the gross trading pnl at ark?
> did any other tibra traders join Clint at Ark?
Yes I know at least one
Wo is Ark?
New kid in town?
here is this from another helpful soul on the forum in the comments above
anonymous
December 16th, 2013 at 1:41 pm
http://www.amsterdamtrader.com/2013/12/a-knight-in-the-kosp
who is the tibra trader who joined clint at ark?
Probably Csaba Josa – the two of them traded together at IMC before Tibra, and Csaba was highest paid trader at Tibra at one point.
how much did he get paid?
Pretty sure csaba josa never was the highest paid trader at tibra, although i’m confident clint probably was a top mofo there…
How much did mofo get paid?
Here’s another one for the graveyard
http://www.reuters.com/article/2013/12/19/us-forex-hedgefunds-idUSBRE9BI0P720131219
Is the source of pure liquidity making money in Kospi? Everything else their is broke.
Tibra broke?
you meant everything else there is broke?
Seems like a Singapore prop firm got the most our of if about 35 million USD, smallers gains for Optiver and other local securities firms. Optiver gave back its gains as Hanmag pleaded market participants, they will be hearing from the Singapore prop firm’s final answer by the end of this week.
haha, you can give up small gains for long term greed, gs pioneered this all along prior to it’s transformation to a publicly listed hedge fund, nothing surprising there, optiver is the goldman sachs of the town
singapore prop firm would be stupid to give back 35 bucks, they should atleast get a Guinness world record for stupidity if they go along with this hanmag plead, what balls to even raise a return money plead, hanmag wouldn’t think 2 seconds before back stabbing it’s saviors tomorrow