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Robot trade costs firm $440m in 45 mins

Aug 03 2012 16:05
Cape Town - The dangers of high-speed computerised stock trading - which have in the past caused inexplicable "flash crashes" in the markets - have now been visited big time upon one of the companies in the vanguard of wielding the technology, newscientist.com reported on Friday.

Trading software at Knight Capital Group of New Jersey this week began automatically buying shares in a vast array of companies - like RadioShack, Ford Motor Company and American Airlines - in a 45-minute foray of unauthorised trading.

When the company then quickly resold its newly acquired, unwanted stock (its massive stock buys had moved the markets) it found it had lost $440m - four times the profit it made in 2011.

The loss has seriously hit the company's ability to conduct business, the report quoted a New York Times report.

Knight Capital Group is a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms and corporate issuers.

Quoting the newspaper, newscientist.com reported that Knight Capital has been a hyper-enthusiastic user of automated trading.

The newspaper called the company an "unapologetic advocate" of it and said Knight Capital had striven to outperform its competitors by using such systems to their fullest extent.

The US Securities and Exchange Commission is investigating the Knight Capital incident.

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