$440 million Loss due to Software Update

Bangalore: Knight Capital, a trading firm hit the news on 1^st August with its $440 million loss due to a software glitch. PRNewswire reported that Knight experienced a technology issue at the open of trading at the NYSE. This issue was related to Knight's installation of trading software and resulted in Knight sending numerous erroneous orders in NYSE-listed securities into the market. This software has been removed from the company's systems. Clients were not negatively affected by the erroneous orders, and the software issue was limited to the routing of certain listed stocks to NYSE.

Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million. Although the company's capital base has been severely impacted, the company's broker/dealer subsidiaries are in full compliance with their net capital requirements. Knight will continue its trading and market making activities. The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.

The Knight Capital (KCG) computer glitch costing it $440 million is an example of the disasters caused by software faults. Another example of a mess up in the financial markets is electronic exchange BATS being forced to cancel its own initial public offering (IPO) when a previously undetected bug in its new IPO auction software reared its head at the worst possible time, despite months of internal testing.