US broker in software bug fiasco gets a credit lifeline
Saturday 04 August 2012
The Wall Street firm at the centre of the latest New York stock-market calamity got an emergency cash injection yesterday that will keep it – at least for now.
A software bug this week left the New York Stock Exchange in disarray, as the prices of 148 stocks fluctuated wildly for reasons not clearly explained.
Knight Capital, a New Jersey based broker, has taken a $440m (£283m) hit from the fiasco, and has been put up for sale, say reports from the US.
Amid doubts it could continue, it got a credit line yesterday that will at least keep it in business.
The computer glitch, the sixth at the NYSE in two months, has led to calls in some quarters for an overhaul of algorithmic trading machines. They do quickfire trading on the back of maths formulas, and are an increasingly prominent and controversial source of market trading.
The London Stock Exchange argues that outages caused by algorithms are less likely here than in America due to the more powerful "circuit breakers" it has in place.
An LSE spokesman said: "Stocks on our market can enter an automatic suspension, which sees stocks enter a five-minute auction period. These actions are triggered when certain control thresholds are breached and helps ensure the continuance of an orderly market."
But City commentator Magnus Wheatley said: "Every institution and Exchange would say that they have fail-safes built into their black-box algo systems but if human error conspires with technical failure, then no amount of contingency can stop it.
"Algo trading is more prevalent in the US than in the UK so the law of averages would say that this kind of disaster is possibly less likely here than over the Pond – the US markets are driven by the algo systems with far less human interaction, so it's probably more likely over there than here."
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