Bloomberg reports that, once triggered on August 1st, the dormant system started multiplying stock trades by one thousand, according to the people, who requested anonymity because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said.
'Whenever there’s software involved, there’s always a danger of something going wrong', Sang Lee, managing partner at research firm Aite Group LLC in Boston, said in a phone interview. Lee had no first-hand knowledge of Knight’s situation, he said. 'It’s a risk everyone lives with, not just in the financial services world'.
Knight, based in Jersey City, New Jersey, hasn’t explained in detail what caused the trading loss, which depleted its capital and led to a $400m rescue that ceded most of the company to a group of investors led by Jefferies Group Inc. (JEF) The 45-minute delay in shutting down the malfunction has confused some securities professionals, who say that trading programs can typically be disabled instantly.
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Finally, Fox Business Network reports that the Securities and Exchange Commission was in the middle of an examination of Knight Capital's risk-management systems just as the firm’s now-infamous trading error sparked a massive loss that nearly sunk the trading house.