$440m trading loss triggered by ‘dormant’ software

The $440 million loss incurred by US investment firm Knight Capital after its trading systems placed 1000s of unwanted trades was caused by ‘dormant’ software coming online while a new system was installed, according to the Bloomberg news agency.

Citing "two people briefed on the matter", Bloomberg reports that "once triggered on August 1, the dormant system started multiplying stock trades by one thousand."

"Knight’s staff looked through eight sets of software before determining what happened, the people said."

Speaking after the incident took place, Knight Capital CEO Thomas Joyce said: "This software problem was an infrastructutre problem. "It was more of a networking problem as opposed to using quantitative tools to trade."

To make up for the losses, Knight Capital had to sell of most of its shares.

The incident has reignited fears about the vulnerability of financial markets – and society as a whole – to software failures.

In an article entitled, "Software runs the world: How scared should we be?", US magazine The Atlantic argued that "as computer programs become more important to the financial system and hence the economy, there is insufficient incentive for trading firms to make sure their software works properly."

"The incentive is always to get a trading edge and roll it out quickly to beat the competition and maximize profits," it claimed.

Most criticism has focused on the quality of software written by financial trading firms. However, Bloomberg’s report implies that Knight Capital’s woes resulted from poor software implementation, rather than poor coding.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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