What the order book showed at 10:15
212 customer orders went in. Over 4 million trades came out.
$3.5 billionof shares bought by accident
$3.15 billionof shares sold short by accident
154different stocks hit
Forty-five minutes
A trading robot lost $460 million in 45 minutes. Could you have stopped it?
August 1, 2012. Knight Capital, one of the biggest traders of American shares, switched on new code. One of its eight computers never got the update.
8:00
Warning emails
0
0
$0
lost so far
0trades nobody asked for
0shares bought or sold
new codeold code
The market opens at 9:30. Watch the inbox first.
Why nobody pulled the plug
The robot was told to buy and sell for 212 small customer orders. On the eighth computer, an old feature woke up instead. It kept sending orders and never noticed they were filled.
Knight had no control that compared what went out with what came in. It had no plan for stopping its own machine. Staff hunted for the cause while the orders kept flowing.
This happened
From 8:01 that morning, Knight's own system sent 97 emails saying "Power Peg disabled". They named the broken feature. Nobody treated them as alarms.
One fix made it worse. Staff removed the new code from the seven computers that had it right. Those computers then woke the old feature too.
Knight lost over $460 million. Within days it needed a rescue of about $400 million from outside investors. The SEC later fined it $12 million.
Now give an AI model the keys to place orders. The bug will be new. The question stays the same.
Before an AI trades your money, ask: what stops it, and who presses the button?
Sources
- US Securities and Exchange Commission, Order in the matter of Knight Capital Americas LLC, Release 34-70694 (October 16, 2013). 212 parent orders, over 4 million executions in 154 stocks, more than 397 million shares in about 45 minutes; $3.5 billion net long in 80 stocks, $3.15 billion net short in 74; $460 million loss; 97 "Power Peg disabled" emails from about 8:01 before the 9:30 open; the uninstall that made it worse; $12 million penalty.
- SEC press release 2013-222, "SEC Charges Knight Capital With Violations of Market Access Rule".
- Wikipedia, "Knight Capital Group": the rescue of about $400 million raised on August 5, 2012.
- Here the counters run at an even pace, one second for each minute, so you can feel the scale. The real losses did not pile up evenly.