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Software update threatens Knight Capital’s survival

With Windows 8 on the verge of release, ‘software disasters’ are foremost on KitGuru’s mind. News has surfaced in the US of A that shows the perils of automating mission-critical tasks. As 1,500 people at Knight Capital wonder if they will have a job next week, KitGuru checks its piggy bank for signs of weakness.

Monday the 19th of October 1987 has gone down in the history book as ‘Black Monday’. Wall Street had undergone computerisation on a huge scale and, with other factors in the background, conditions were set for a perfect storm. In a single 24 hour period, the Dow Jones Index dropped more than 22% – something that the market would take almost 2 years to recover from. Key to the problem was a cascading series of automatic trades.

Right now, the Knight Capital Group is scrambling to stay alive – following a $440m loss from computerised trading following an ‘upgrade’.

The new software managed to create millions of problematic trades in less than an hour on Wednesday 1st August. Now, on Friday 3rd August, the $1.5Bn firm is facing some serious issues – not only from customers, but also from staff who want to know how their jobs were put at risk.

Initial reaction to the error saw more than 60% wiped off Knight’s own value as the company searched for new sources of liquidity. The problem with a firm like Knight, is that you need to believe they (Knight Capital) ‘know what they are doing’ if you want to invest. Losing $440m in a day is unlikely to fill many financial gurus with confidence.

Irony appears to be alive and kicking at Knight, where the company's home page appears to show a couple of engineers trying desperately to understand the spaghetti-wiring that carried $440m out of the company's valuation

KitGuru says: If you think that one piece of trading software causing a drop of $440m in Knight’s value is bad – we recommend you watch Microsoft’s valuation after Windows 8 bites.

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