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Knight Capital Fined $12M For a Software Bug That Cost $460M
Mark Gibbs writes "Knight Capital monumentally fouled up a software update. According to the SEC, 'Knight did not have supervisory procedures to guide its relevant personnel when significant issues developed.' In other words, not only was Knight's code management inadequate but their human management processes were just as bad. The fine for what could have been a biblical financial disaster? A measly $12 million."
The cost to them was $472 M. I *think* that will discourage them.
What they did was criminal negligence, plain and simple. And they did it out of greed. As long as mismanagement this severe has no personal consequences for the perpetrators, nothing will change.
Most ACs are not even worth the keystrokes to insult them. Be generically insulted by this and ignored otherwise.
This isn't a slap on the wrist. This is a pat on the back for inflicting harm with egregious negligence.
Therefore this was probably engineered as an assault.
Businessweek weighs in.
The dangers of knowledge trigger emotional distress in human beings.
As a proprietary trading firm, they were working entirely with their own money. They had no external investors or whatnot (like hedge funds do). So, they made a mistake and they paid for it dearly. It's not clear to me that they should have paid any fine.
The article's whole argument seems to be made by comparing the size of the trading loss to the size of the fine, but no logical reasoning is given for why the one should have any relation to the other.
TFA sucks.
I'm not joking when I say that procure number one when money is flying out of your servers is to Shut Them Down instantly. I would have pulled the cables out so fast the CPU might have been yanked out with the network cable. Or a good old shutdown -h now !!!!! (The exclamation marks speed up the shutdown)
And I wouldn't have done this one server at a time it would have been all the servers at the same time. I suspect they would lose money by not having the servers up but not at the firehose rate that they were losing money as they were.
The worst part is that the admins were probably following some procedure in their book and were refusing to just pull the plug in some vain attempt for 99.9 percent up time or other admin related metric instead of the clear "Don't Lose $48 Million a minute!!!!" metric. So probably another clear case of IT's priorities getting way out of sync with the company's actual priorities.
It's a bad thing...
Just make sure they suffer all the pain caused by the $450 Million loss
In other words: don't allow them to pass any of this loss on to their customers by drawing funds from their accounts.
Most all Wall St firm's systems are bloody awful. There are many reasons for this. First, the true business is sales/brokerage so the engineering side, though it is a strategic asset, is often neglected. This includes putting clueless business side people in charge of IT system. Second, the boom and bust cycles of tech investment are a bad way of building tech systems. It's like not watering your garden all summer except for one day when you use a high-pressure fire hose on it. Third, as part of the boom/bust cost cutting they have no employee longevity in tech so no one understands how the mind-bogglingly complex and obscure layers of technology work. Fourth, and more recently for cost cutting, they've dispersed their dev teams around the globe so communication and teamwork are seriously compromised. Fifth, when there is a boom they try to build their systems so quickly that they take all sorts of dangerous engineering short cuts. All this adds up to engineering disaster.
What if you were an investor in that stock who had set a stop-loss at $10? Knight's wild selling would have triggered the stop-loss, and you'd lose money because of Knight's actions.
No, you'd lose money because you sold at the wrong time based on an automated trading rule rather than your own informed judgement. That is the risk you take when you enter a stop-loss order: if the drop in price is temporary, you're going to lose money. It makes no difference why the price moved. Knight's inadvertent trades are not to blame here. No one who payed attention to the fundamentals lost anything. Only those who panicked took a loss, and deservedly so.
"The state is that great fiction by which everyone tries to live at the expense of everyone else." - Bastiat