The Knight Capital Group was a global financial services company that lost $460 million due to what they claimed to be, a software error. Apparently the company considered that a software glitch almost caused it to declare bankruptcy.

Everything started on August 1 st. 2012 when the company changed the software code to move stock prices higher and lower in order to analyse trading algorithms. When this was released into production it caused a great market impact in the prices of 148 companies that were listed at that time in the New York Stock Exchange. In a few minutes, the company was losing almost $10 million per hour. The computer program was designed to integrate a new system but by the time the engineers switched it off, millions of dollars were gone. Some shares even doubled or tripled which eventually lead to the collapse of the Knight Capital Group, which was announced to be a “technology breakdown”. Shares went down 75% percent in around two days and almost all customers were gone.

Eventually the company managed to get around $400 million from investors so that they were able to stay in business after the whole ordeal. Jefferies CEO, Richard Handler was one of the major investor purchasing approximately $124 million in shares. This made him one of the largest shareholders. After the move, most of the customers came back but a lot of them simply wanted to make sure that Knight’s operations were resuming as they should have.

It seems that many agree that there wasn’t just a software glitch but that the company failed to prepare for potential hazards such as this one. If they have tested the system thoroughly, this wouldn’t have happened and the fact that supervisors didn’t see the changes fast enough was also what caused the major loss.

Another element of the shocking event which was brought to the media’s attention was the fact that the company didn’t act on the error messages the software sent and apparently wasn’t prepared with a constructed guideline for responding to any warnings like the ones they received. This lack of risk management procedures on their side made it more of a human error rather than a computer error so the company was completely responsible with what they considered to be a glitch in their declarations. Apparently the system generated 97 e-mail alerts to staff when the market opened on August 1 st and the notifications were simply ignored by the employees. If the messages would have been taken seriously, the company would have drastically minimize the amount of  loss it had and even fixed the problem long before the markets opened.

The whole crash ultimately caused the company to seek emergency financing and merge with GETCO. GETCO or the Global Electronic Trading Company was an electronic market making firm that was based in Chicago. The merger between Knight and GETCO was the result of KCG Holdings in July 2013. Since then, they announced that they have implemented the best in class risk management processes to avoid another technological crash in the future.