Knight’s computers experienced 45 minutes of trades flooding the New York Stock Exchange. Before it could be brought under control Knight lost $440 million jeopardizing its survival. Some stocks soared 100 percent Wednesday.
Scottrade and TD Ameritrade resumed routing of trades with Knight Friday. Knight was able to secure a short term loan. Analyst are calling for computer software that would function as a circuit breaker when trades go haywire.
Washington, D.C., Aug. 3, 2012 — Securities and Exchange Commission Chairman Mary Schapiro today made the following statement:
The apparent trading error by Knight Capital Group on Wednesday reflects the type of event that can raise concerns for investors about our nation’s equity markets — markets that I believe are the most resilient, efficient, and robust in the world.
Reliance on computers is a fact of life not only in markets everywhere, but in virtually every facet of business. That doesn’t mean we should not endeavor to reduce the likelihood of technology errors and limit their impact when they occur.
While Wednesday’s event was unacceptable, I would note that several of the measures we instituted following the Flash Crash helped to limit its impact. Recently-adopted circuit breakers halted trading on individual stocks that experienced significant price fluctuations, and clearly defined rules guided the exchanges in determining which trades could be broken giving the marketplace certainty.
In addition, existing rules make it clear that when broker-dealers with access to our markets use computers to trade, trade fast, or trade frequently, they must check those systems to ensure they are operating properly. And, naturally, we will consider whether such compliance measures were followed in this case.
As with every significant incident of volatility that occurs in our markets, we will continue to review what happened and determine if any, additional measures are needed. That process has already begun.
In particular, I have asked the staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems. And I have directed the staff to convene a roundtable in the coming weeks to discuss further steps that can be taken to address these critical issues.
Posted By Valerie Garner