The New York Stock Exchange fined Credit Suisse $150,000 for failing to supervise one of its trading algorithms after the program halted traffic at five different trading posts on the NYSE and delayed the day’s closing at the posts for nearly half an hour.  It was the first time the stock exchange has disciplined a firm for algorithm infractions.  (Wall Street Journal, 1/13/10)

Algorithms are becoming more prevalent as companies attempt to understand and manipulate the tremendous amounts of available data.  Wall Street firms have been leading the charge, creating algorithms in order to gain a trading advantage.  These algorithms trigger automatic trading actions and reactions that can have a chaotic market impact creating instability and unforeseen consequences.  While this time it was only a delayed closing, Credit Suisse’s “algorithm gone wild” is likely to be the first of many unseen risks to come from dependence on computer formulas.

Eric Zavolinsky