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Knight Capital Americas LLC

Alexandra Stevenson, NYT, Knight Capital to pay $12 Million Fine on Trading Violations, here.

On the morning of Aug. 1 2012, Knight Capital, Wall Street’s biggest trading firm, sent out a wave of accidental stock orders – more than four million – that reverberated through the market and eventually resulted in a $460 million loss for the firm.

SEC, In the Matter of Knight Capital Americas LLC Respondent, here. The dead “Power Peg” code activation on a failed production roll distribution, described here, seems real hard to test in UAT. Bet that it’s a good time to talk to Appel about Verified Software Toolchain if you are the GETCO folks who just purchased Knight and are paying the 12 million USD fine. Not obvious to me that the failed production roll distribution process is going to be in scope for VST, but who knows, maybe they thought about that. I suppose you want the gateway, FPGA or otherwise, connecting you to the exchange verified, right? Locking that up could be lucrative and the sales pitch is sort of straight forward, once you read the SEC/Knight Cap. post mortem.

On August 1, 2012, Knight Capital Americas LLC (“Knight”) experienced a significant error in the operation of its automated routing system for equity orders, known as SMARS. While processing 212 small retail orders that Knight had received from its customers
SMARS routed millions of orders into the market over a 45-minute period, and obtained over 4 million executions in 154 stocks for more than 397 million shares. By the time that Knight stopped sending the orders, Knight had assumed a net long position in 80 stocks of approximately $3.5 billion and a net short position in 74 stocks of approximately $3.15 billion. Ultimately, Knight lost over $460 million from these unwanted positions. The subject of these proceedings is Knight’s violation of a Commission rule that requires brokers or dealers to have controls and procedures in place reasonably designed to limit the risks associated with their access to the markets, including the risks associated with automated systems and the possibility of these types of errors.

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