Knight Capital Group equity order routing system glitch
Occurred: August 2012
The August 2021 breakdown of the automated routing system for equity orders at American global financial services company Knight Capital Group resulted in massive disruption on the New York Stock Exchange, a USD 440 million loss to the company, and its eventual sale.
According to the SEC, a section of code in an algorithmic equity order router had been moved in 2005 to an earlier spot in the code sequence. As a result, one of the router’s functions became defective. In July 2012, Knight incorrectly deployed new code in the same router. That triggered the defective function, which was unable to recognise when orders had been filled.
Knight Capital was fined USD 12 million in October 2013 to settle charges that it failed to install adequate safeguards to limit the risks posed by its access to markets. The company completed its merger with GETCO in July 2013, and was eventually acquired by Virtu LLC in July 2017 for USD 1.4 billion.
Operator: Knight Capital Group
Developer: Knight Capital Group
Sector: Banking/financial services
Purpose: Route equity orders
Technology: Equity order routing system
US Securities and Exchange Commission (2013). SEC Charges Knight Capital With Violations of Market Access Rule
US Securities and Exchange Commission (2013). ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER (pdf)
Kapadia N., Linn M. (2020). What's Gone Wrong with Option Liquidity: Evidence from the Knight Capital's Trading Glitch
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Published: August 2023