Knight Capital, a firm that specialises in executing trades for retail brokers, took $440m in cash losses Wednesday due to a faulty test of new trading software. This morning reports were calling it a trading “glitch", which isn’t nearly as accurate as the term I’d use: “f**king disaster".
Briefly, here's what happened: Knight Capital's worst day in IT started Wednesday morning with a test run of its new trading software. An old pal of mine who's following the story closely (and is also deep in both IT and trading) told me that the company set up the software to work with only a few stocks. They also set the buy/sell points well outside where the markets were currently trading to ensure that nothing would actually execute.
But somehow - and this will probably the be the subject of several lawsuits, books, and maybe even a Broadway musical - the software didn't behave as expected. It went out and did what it was designed to do: execute lots and lots of trades very, very quickly.
Read more about the disaster/hilarity here.