Galen Stops argues that the back office was as much to blame as the algo in the recent Knight loss.
Yesterday market maker Knight Capital lost $440m in the
space of 45 minutes due to a technical problem in new software
that had been implemented the night before, which led to an
algorithm going bad and bidding up shares.
The consequences of this could potentially be devastating.
Knight Capital is not the type of firm that could shrug of this
kind of loss à la JP Morgan
and right now it is desperately exploring every strategic
alternative that might prevent it from going under.
So far, the
signs aren’t encouraging. Ratings company Egan
Jones downgraded Knight Capital all the way down to CCC on the
basis that its net revenues were down, there are likely to be
few buyers in the market for it, that it currently
doesn’t have enough capital to continue and
won’t be able to raise enough without a
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