SEC weighing fresh steps beyond Flash Crash measures after Knight mishap
First Published 3rd August 2012
The Securities and Exchange Commission said it was looking at whether fresh measures were needed beyond post-Flash Crash steps.
Washington - In light of this week's errant trading by Knight Capital Group, the U.S. Securities and Exchange Commision said it was considering whether additional measures might be needed beyond steps taken after the Flash Crash of 2010.
"We continue to closely review the events surrounding Wednesday's trading and discuss those events with other regulators as well as Knight Capital Group," said SEC spokesman John Nester in a statement emailed to Automated Trader.
"We also are considering what, if any, additional steps may be necessary, beyond the post-Flash Crash measures that limited the impact of Wednesday's trading," Nester said.
There have been media reports that the SEC is investigating what happened at Knight but the SEC declined comment on the matter, citing policy.
Meanwhile, Knight has sought to reassure clients, counterparties and investors after steep losses in its share price following the initial news of the software glitch that roiled markets on Wednesday and the disclosure on Thursday of the $440 millon loss incurred as a result.
"We have all hands on deck," said Knight Capital CEO Tom Joyce in an interview on Bloomberg Television. "We understand what the issues are. We're talking to a lot of capable people, people who are in touch with situations like this. So we're working hard and we have all hands moving forward to address it and resolve it."
Joyce declined to comment on whether any credit lines had been pulled or any clients lost in the aftermath of the affair.
Asked what exactly happened, Joyce said:
"We put in a new bit of software the night before because we were getting ready to trade the New York Stock Exchange's RLP programme. Now, mind you, this has nothing to do with the New York Stock Exchange. It had to do with our readiness to trade it.
"And unfortunately the software had a fairly major bug in it. It sent into the market a ton of orders, all erroneous. So we ended up with a very large error position which we had to sort through during the balance of the day."
But many have been asking what took Knight so long to stop the system from trading. It sent out a flood of wrong orders during the first half hour of trading, losing millions of dollars a minute as many thousands of shares were bought and sold each second.
Asked about the length of time taken, Joyce told Bloomberg:
"Well, we were talking to our clients right away. We alerted our clients immediately that we had an issue and they got out of the way, which is great because nobody else except for us was wounded by this activity. So we don't think we acted in a slow fashion at all, because our primary focus was on alerting our clients as to the situation, and keeping them out of harm's way. "
Many commentators have noted that Joyce himself was an outspoken critic after the other two major trading glitches this year, the initial public offerings of Facebook and BATS Global Markets.
Joyce said it would be like comparing "apples and baseballs".
"Technology breaks, it ain't good, we don't look forward to it, but technology breaks," he said in the interview. "What happens next is what matters, how you escalate it. And we're very proud of the fact that we escalated it directly to you clients and got them out of harm's way."