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Knight Trading Losses Attributed To Old, Dormant Software

Posted by Soulskill on from the they-set-themselves-up-the-bomb dept.

New submitter alexander_686 points out a Bloomberg article about the cause of Knight Capital Group's $440 million algorithmic trading disaster from a couple weeks ago. The report says a dormant software system was accidentally activated on August 1, which immediately began increasing stock trade volumes by a factor of 1,000. The Wall Street Journal has further details: "Knight Capital Group Inc.'s accidental trades earlier this month were triggered by a flawed upgrade of trading software that caused an older trading system connected to the computer code to inadvertently go 'live' on the market, according to people familiar with the matter. The errors at Knight on Aug. 1 involved new code the Jersey City, N.J.-based brokerage designed to take advantage of the launch of a New York Stock Exchange trading program, which was introduced that day to attract more retail-trading business to the Big Board, the people say. ... When NYSE Euronext trading floor officials called Knight at about 9:35 a.m. to try to pinpoint the cause of unusual swings in dozens of stocks, just after the Big Board opened for trading, Knight traders and their supervisors had a difficult time detecting where in its systems the problem was located, say people familiar with the morning's events. The NYSE had to call Knight several times before deciding to shut the firm off, the people say."

3 of 223 comments (clear)

  1. The NYSE shouldn't reverse trades. by Thantik · · Score: 5, Interesting

    They really need to stop giving these high frequency traders these parachutes. You screw up your algo, its your own damn fault. Lost your butt on the market - oh well.

    1. Re:The NYSE shouldn't reverse trades. by Chris+Mattern · · Score: 5, Interesting

      Where do you suggest one goes for short-term, no-risk investments? I want to go to there.

      Money-market funds. They invest in short-term Treasuries and top-rated debt. They try to be diversified, so even an unlikely nasty surprise won't nick you much. You won't get much of a return, but your money will be most likely safe (there's no absolute guarantees anywhere, but if the money market funds go south, there's not likely to be any safe place elsewhere). With current low interest rates, you'll probably make a return of less than 1%, though.

  2. Re:I keep laughing at my friends... by ceoyoyo · · Score: 5, Interesting

    Twenty years ago it was also much harder to match up buyers and sellers, and actual trades took a lot longer. It's hard to say how much of the decrease in spread is due to high frequency traders and how much is due to improved technology providing a more efficient, easier to access market.

    Not that there seems to be anything particularly bad about encouraging people to buy long term investments.