Knight Capital

Following entry is a record in the “Catalogue of Catastrophe” – a list of failed and troubled projects from around the world.

Knight Capital – USA
Project type : Share trading system
Project name : Unknown
Date : Aug 2012 Cost :$440 USD

Synopsis :
In a story that reminds us of the need for proper testing standards, a software “glitch” at Knight Capital resulted in a $400M lose in just 30 minutes! According to press reports the lose amounted to 3 times Knight’s annual earnings.  Although details are hard to come by a CIO article implies the problem was caused by a rush to meet a deadline to implement changes to accommodate a “Retail Liquidity Program” (RLP) approved by the Securities and Exchange Commission (SEC) in mid-June 2012.  According to CIO magazine the RLP program was “designed to offer individual investors the best possible price, even if it meant diverting trades away from the New York Stock Exchange and onto a so-called dark markets”.  The implementation deadline for RLP was set for 1 Aug and the trading “glitch” at Knight occurred during the first 30 minutes of trading on Aug 1st.

Contributing factors as reported in the press:
Thought to be a quality control (software testing) failure.  Issue potentially caused by a rush to meet the RLP implementation date (i.e. schedule pressure failure)

Reference links :

  1. Software Testing Lessons Learned From Knight Capital Fiasco
  2. Knight Capital blames software for computer trading glitch