Algorithmic Trading Glitch Costs Firm $440 Million

alstor writes "Yesterday an update to Knight Capital Group's algorithmic trading software caused massive volume buys and sells, resulting in large price swings on the New York Stock Exchange. As a result, the NYSE canceled some of the trades, but today the loss to Knight has been calculated at $440 million. Ignoring adjustments for inflation, this makes the cost of this glitch almost as much as the $475 million charge Intel took for the Pentium FDIV Bug, which might warrant adding this bug to the list of worst bugs. In light of this loss and the May 6, 2010 Flash Crash, perhaps investors will demand changes from firms using algorithmic trading, since the SEC is apparently too antiquated to do anything about it (PDF)."

Comments

At least the stock analysts are on the job

[cpm99352]

Today, after the stock dropped 50%, analysts are beginning to downgrade the stock from buy to hold. Excellent analysis there!!!

http://finance.yahoo.com/news/knight-capital-downgraded-hold-buy-155956204.html

Knight really this screwed up...

[turkeyfeathers]

Some programmer's going to lose their job over this error that resulted in a $440 million loss. If the programmer had done the job properly, Knight would have lost $1 billion and been eligible for a government bailout.

Re:Too bad

[pnutjam]

They did save the game before running the software.

Re:Visual walkthrough and commentary of the mayhem

[GameboyRMH]

Good point, I can't imagine what the benefits of having huge amounts of money would be without an accompanying unfair advantage in the marketplace.

Re:Too bad

[MarkGriz]

-The algorithm, rather stupidly, bought high and sold low.

“I always do that. I always mess up some mundane detail"

Re:Automatic Trading should be Throttled

[crazyjj]

The new HAL 9500D will make you rich, and poor again, and rich again...and all in less than 4.2 milliseconds.