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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.
They were FINED 12M, and they LOST 460M discovering the bug. This cost them a total of 476M.
I am not understanding the outrage. Why should the SEC care if Knight Capital wanted to lose a big pile of money.
Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?
For instance in the mortgage fraud scandal they were allowed to settle fraudulent foreclosures for pennies on the dollar. Why are these companies never required to make the people they hurt whole again? Individuals that paid thousands of dollars simply got a small payment while banks just had to deal with "the cost of doing business."
I think I know the answer (lobbying/congresscritters in their pockets) but I think it's one of the most scandalous aspects of the financial mess of 2008.
That $460 million came out of Knight Capital's pockets too...and is far more effective than any fine the SEC could levy. Why should the SEC pile on, aside from the populist outrage that goes along with people handling billions of dollars?
Disinfect the GNU General Public Virus!
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.
This had absolutely jack to do with bad code, that wasn't the problem. The problem was a failure to adhere to best practices that would have prevented the bad code from ever seeing production to begin with. The lack of a process for the distribution of code to production made a failure for bad code inevitable.
This was sheer incompetence of the highest magnitude and should have been readily caught in the lab. This is what happens when cowboys run the show and ITIL is considered a four letter word. Take your younger staff, the wannabe cowboys and make them read this report. Let them learn at others incompetence. As for getting your management to read this, that's an entirely different story.
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.