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Knight Capital Fined $12M For a Software Bug That Cost $460M

Posted by samzenpus on from the slap-on-the-wrist dept.

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."

6 of 192 comments (clear)

  1. The Fine was $12 M, but, by Anonymous Coward · · Score: 5, Insightful

    The cost to them was $472 M. I *think* that will discourage them.

  2. The fine wasn't all of the punishment by Jay+Maynard · · Score: 5, Informative

    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!
    1. Re:The fine wasn't all of the punishment by JesseMcDonald · · Score: 5, Insightful

      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
  3. They lost their own money by Anonymous Coward · · Score: 5, Insightful

    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.

  4. Re:Maybe I am stupid, please explain. by Anonymous Coward · · Score: 5, Interesting

    Why should the SEC care if Knight Capital wanted to lose a big pile of money.

    Because SEC has the political mission to portray the stock market as a rational, efficient, professional and socially useful apparatus - not the cesspool of mother-fucking sharks that it is. Hence all the trading rules which are selectively enforced so as to maintain the illusion without scarring the sharks away to, say, London.

  5. Wall St systems in general are bad by Andover+Chick · · Score: 5, Insightful

    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.