Knight Capital is paying a hefty price for releasing new trading software into service too soon. The software triggered serious trading errors and within minutes the group lost $440 million – around two years worth of revenue.
Why was Knight Capital in such a rush to release?
Knight Capital rushed through the software in a bid to stay ahead of the game. They wanted to be one of the first firms to let customers participate in the latest New York Stock Exchange program. However, in the group’s rush to release, it clearly skipped over a few rigorous tests. As soon as the new program was installed, old computer software was inadvertently reactivated. The dormant system started multiplying stock trades by one thousand and caused erroneous orders in around 140 stocks.
Rick Lane, Chief Technology Officer at Trading Technologies International Inc. recently discussed with Bloomberg the potentially devastating consequences of failing to execute adequate testing. He revealed how small technical changes can easily “trigger downstream effects” that spiral out of control, and claimed that software alterations must be “run through the wringer” to make sure the systems operate properly.
Knight Capital’s failure to run their new software “through the wringer” certainly came with dire consequences. With a $440 million loss, the group was on the brink of bankruptcy and was only saved by a rescue deal with a group of investors led by Jefferies Group Inc. (JEF).
$440 Million in 45 Minutes
However, lack of adequate testing was not the only determining factor in this financial catastrophe. If Knight Capital had been able to find the source of the problem quickly, it could have hit the ‘kill switch’ before losing too much money. In this case, time literally was money. It took 45 minutes to locate the source – during which time Knight Capital lost $440 million.
“Think about an old fashioned switchboard, you know a telephone operator. They have many different systems lined up, so during this 45 minute period they were plugging and unplugging each individual system to figure out where the problem was.”
Stephanie Ruhle, Anchor, Bloomberg Television
If the group had used an automated platform with sophisticated tracking and auditing functionality, they could have identified the problem instantly and saved millions of dollars.
“It took the group so long to find the causing error, it’s obvious that it didn’t have a release dashboard or audit on the deployment process. Application Release Automation platforms have these audits in place so it’s safe to assume that Knight Capital was using a manual or scripted release.”
Daniel Kushner, VP of Marketing at Nolio
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