Published Date: 2012-08-02
| Postmortem Analysis | |
|---|---|
| Timeline | 1. The software failure incident at Knight Capital Group occurred on August 1, 2012 [13725, 13829, 13830, 13455]. 2. The incident date was estimated based on the published date of the articles and the information provided in the articles. |
| System | 1. Trading software system at Knight Capital Group Inc failed, leading to a flood of erroneous orders in NYSE-listed securities [13725, 13829, 13830, 13455]. 2. Algorithmic trading system at Knight Capital Group Inc malfunctioned, causing millions of mistaken trades in various stocks [13455]. 3. Automated stock trading program at Knight Capital Group flooded the market with millions of trades due to a rogue algorithm [13455]. |
| Responsible Organization | 1. Knight Capital Group Inc [13725, 13829, 13830, 13455, 13931] 2. Automated stock trading program [13455] |
| Impacted Organization | 1. Knight Capital Group Inc [13725, 13941, 15435, 13829, 13830, 13455] 2. Investors of Knight Capital Group Inc [13931] |
| Software Causes | 1. The software glitch at Knight Capital Group on August 1, 2012, was caused by a "technology issue" in the division of the company that uses computer algorithms to buy and sell stocks from other market participants [13830]. 2. The glitch resulted from new software that had been improperly installed and conflicted with old code that was supposed to have been deleted, leading to a flood of erroneous orders being sent to the New York Stock Exchange [15435]. 3. The incident was triggered by a rogue algorithm that repeatedly bought and sold millions of shares of various companies, causing trading volume to surge and creating turmoil across Wall Street [13455]. |
| Non-software Causes | 1. The trading glitch at Knight Capital Group Inc was exacerbated by the conflict between new software and old code that was supposed to be deleted, leading to a flood of erroneous orders to the New York Stock Exchange [13725]. 2. The incident was also influenced by the high-speed trading systems and algorithms used by Knight and other firms, which have introduced instability into the stock market system [13455]. 3. The complexity of the market structure, with multiple exchanges, market makers, high-frequency traders, and investors using different systems, contributed to the potential for disasters like the one experienced by Knight Capital [13829]. 4. The reliance on automated trading facilities and the lack of human intervention in the trading process were highlighted as factors contributing to the failure incident [13829]. 5. The pressure on market participants to cut costs, including technology spending, as trading margins narrow and regulatory costs increase, was mentioned as a factor in the occurrence of technology problems in the market [13455]. |
| Impacts | 1. The software failure incident at Knight Capital Group resulted in a massive loss of $440 million in just 45 minutes, leading to the firm seeking new funding and facing the possibility of bankruptcy [13725, 13829, 13830]. 2. The incident caused Knight Capital's shares to plunge by as much as 80% in two days, leading to uncertainty among investors and concerns about the potential failure of the firm impacting the brokers who rely on it [13830]. 3. The software glitch at Knight Capital led to a significant loss of confidence in the firm, with many of its biggest customers, including TD Ameritrade, Vanguard, and Fidelity Investments, stopping routing orders through Knight [13830]. 4. The incident raised broader concerns about the fragility and instability of the stock markets, especially with the increasing dominance of sophisticated high-speed trading systems, leading to a loss of confidence in the markets' infrastructure [13455]. 5. Following the software glitch, Knight Capital had to secure $400 million in rescue financing from a group of investors, resulting in a new deal where the investors purchased a majority stake in the trading firm for $400 million, significantly impacting existing shareholders [13931, 17328]. |
| Preventions | 1. Better pre-testing of the new software: Knight Capital's software glitch that led to the $440 million trading loss could have been prevented with more thorough pre-testing of the new software before it went live [Article 13829]. 2. Implementation of reliable circuit breakers: The stock market could benefit from the implementation of reliable circuit breakers that can halt trading when extreme movements occur, both in terms of price and volume, to prevent situations like the one experienced by Knight Capital [Article 13455]. 3. Simplification of market structure: There is a suggestion to consider changing the structure of the market to simplify it, as the current complex structure with multiple exchanges, market makers, high-frequency traders, and different systems interacting can lead to unexpected problems and failures [Article 13829]. 4. Enhanced controls at individual firms: The fault in trading systems often lies in the lack of controls at individual firms, indicating the need for better internal controls and oversight to prevent technology-induced disasters like the one faced by Knight Capital [Article 13830]. 5. Continuous monitoring and oversight: Regulators and market participants need to continuously monitor and oversee the market infrastructure to ensure that orders are processed correctly and to detect and address any anomalies or errors promptly [Article 13455]. |
| Fixes | 1. Implementing more rigorous pre-testing procedures for new software installations to catch potential bugs or issues before they impact live trading [13829, 13830]. 2. Enhancing controls and monitoring systems to quickly identify and halt erroneous trades to prevent massive losses [13829, 13830]. 3. Simplifying market structure to reduce complexity and potential points of failure in the trading system [13829]. 4. Developing reliable circuit breakers and fail-safe mechanisms to prevent technology-induced disasters and extreme market volatility [13829]. 5. Enhancing regulatory oversight and coordination to address the challenges posed by high-speed trading systems and automated algorithms [13455, 13829]. | References | 1. Article 13725 2. Article 13941 3. Article 15435 4. Article 13829 5. Article 13830 6. Article 13455 7. Article 17328 8. Article 13931 |
| Category | Option | Rationale |
|---|---|---|
| Recurring | one_organization, multiple_organization | (a) The software failure incident having happened again at: - Knight Capital Group Inc faced a massive trading loss due to a software glitch that led to millions of unintentional orders flooding into the market, resulting in a loss of $461.1 million [Article 17328]. - Knight Capital Group suffered a $440 million trading loss from a software glitch that caused a flood of erroneous orders in NYSE-listed securities, leading to concerns about the firm's viability and potential bankruptcy [Article 13931]. (b) The software failure incident having happened again at other organizations: - The article mentions other incidents in the financial markets, such as the botched Facebook IPO, the failed IPO of BATS Global Markets, and the Flash Crash in 2010, which have raised concerns about the stability and reliability of the markets [Article 13725]. - The article highlights the broader issue of computer-inspired disasters occurring too often in the U.S. financial markets, including the flash crash of 2010 and recent technical errors, indicating a trend of increasing incidents related to high-speed trading systems and automation [Article 13455]. |
| Phase (Design/Operation) | design, operation | (a) The software failure incident at Knight Capital Group was primarily due to a design failure. The incident was caused by a "technology issue" related to the installation of new trading software that conflicted with old code, leading to a flood of erroneous orders being sent to the New York Stock Exchange [13725]. The glitch resulted in a massive loss of $440 million and forced Knight to seek new funding to avoid bankruptcy [13725]. The incident highlighted the risks associated with automated trading systems and the complexities introduced by high-speed trading algorithms [13829]. (b) The software failure incident also had operational implications as it led to turmoil across Wall Street due to the flood of mistaken trades generated by a rogue algorithm from Knight Capital [13455]. The incident caused trading volume to surge and resulted in extreme movements in the prices of various stocks, impacting investor confidence in the markets [13455]. Additionally, the glitch forced Knight to halt trading in certain stocks and raised concerns about the ability of regulators to keep up with electronic programs dominating the market [13455]. |
| Boundary (Internal/External) | within_system, outside_system | (a) The software failure incident at Knight Capital Group was primarily within the system. The incident was caused by a "technology issue" in the company's market-making unit that affected the routing of shares to the New York Stock Exchange, leading to abnormal volatility in the markets [13725]. The glitch resulted from new software that had been improperly installed and conflicted with old code, causing a flood of erroneous orders to be sent into the market, leading to significant losses for the firm [15435]. Knight Capital's CEO mentioned that the issue was related to a technology breakdown in the trading algorithm, and the software responsible for the glitch was removed from the company's systems [13829]. (b) Contributing factors that originated from outside the system also played a role in the software failure incident. The incident highlighted the broader issue of the fragility and instability of the nation's stock markets due to the dominance of electronic programs and high-speed trading systems, which have undermined investor confidence [13455]. The incident at Knight Capital was part of a series of market snafus that had occurred, including the botched Facebook IPO and the failed IPO of BATS Global Markets, which had raised concerns about the safety and reliability of the market infrastructure [13725]. Regulatory measures and circuit breakers implemented after previous market disruptions like the Flash Crash were not fully effective in preventing the abnormal trading activity caused by the software glitch [13455]. |
| Nature (Human/Non-human) | non-human_actions, human_actions | (a) The software failure incident occurring due to non-human actions: - The software glitch at Knight Capital Group on August 1, 2012, resulted in a flood of erroneous orders due to a technology issue in the trading algorithm, leading to significant losses [Article 13829]. - The automated stock trading program on August 1, 2012, flooded the market with millions of trades, causing turmoil across Wall Street. The trades were initiated by a rogue algorithm, not human traders, impacting various stocks [Article 13455]. (b) The software failure incident occurring due to human actions: - Knight Capital Group faced a $440 million trading loss on August 1, 2012, caused by a software glitch that wiped out much of its capital. The issue was attributed to a technology problem in the division using computer algorithms to buy and sell stocks [Article 13830]. - Knight Capital's trading glitch on August 1, 2012, led to millions of unintentional orders flooding the market due to a software problem, resulting in a huge position that had to be unloaded at a loss. The glitch was a result of new software conflicting with old code that was not properly deleted [Article 17328]. |
| Dimension (Hardware/Software) | software | (a) The articles do not mention any hardware-related issues contributing to the software failure incident. (b) The software failure incident at Knight Capital Group was primarily due to a software glitch. The incident occurred on August 1, 2012, when a technology issue in Knight's market-making unit affected the routing of shares of around 150 stocks to the New York Stock Exchange, causing abnormal volatility in the markets [13725]. The glitch was attributed to new software that conflicted with old code, leading to a flood of erroneous orders being sent into the market, resulting in a massive loss of $440 million [15435]. The software issue caused Knight to seek new funding and consider strategic alternatives, including a possible sale or facing bankruptcy [13725]. The incident highlighted the risks associated with automated trading systems and the complexity of modern market structures dominated by high-speed trading systems [13829]. The software glitch also led to Knight Capital seeking a $400 million deal with a group of investors to cover most of its losses [13931]. |
| Objective (Malicious/Non-malicious) | non-malicious | (a) The software failure incident at Knight Capital Group was non-malicious. The incident was caused by a "technology issue" in the market-making unit that affected the routing of shares of around 150 stocks to the New York Stock Exchange, leading to abnormal volatility in the markets [13725]. The incident involved a glitch in the automation process that generated thousands of mistaken orders for stocks, resulting in a devastating $440 million loss for Knight Capital [13941]. The software glitch led to a flood of erroneous orders being sent to the market, causing extreme movements in stock prices and leaving Knight with a massive position it had to unload at a loss [13829]. The incident was attributed to a new software that conflicted with old code, sending a flood of orders to the NYSE, unrestricted by volume caps [15435]. The software failure incident was a result of a rogue algorithm repeatedly buying and selling millions of shares of various companies, causing trading volume to surge and leading to extreme movements in stock prices [13455]. (b) The software failure incident at Knight Capital Group was non-malicious. The incident was described as a "technology issue" that caused a flood of erroneous orders in NYSE-listed securities, affecting around 150 companies listed on the NYSE [13931]. The glitch was attributed to a software problem that led to millions of unintentional orders flooding into the market over a 45-minute period, resulting in a huge position that Knight had to unload at a loss of $461.1 million [17328]. The incident was characterized as a trading glitch that caused a massive loss for Knight Capital, leading to the company seeking new funding and facing the possibility of bankruptcy [13830]. The software failure incident was a result of a trading software snafu that sent numerous erroneous orders into the market, affecting 150 companies listed on the NYSE [13931]. |
| Intent (Poor/Accidental Decisions) | poor_decisions, accidental_decisions | (a) poor_decisions: - The software failure incident at Knight Capital Group was due to a "technology issue" caused by new software that had been improperly installed, leading to a flood of erroneous orders sent to the New York Stock Exchange [13725]. - Knight Capital's CEO, Thomas Joyce, mentioned that the firm had made the right choice for the company, indicating a decision-making process that led to the software glitch and subsequent financial losses [13931]. (b) accidental_decisions: - The software glitch at Knight Capital was described as a "technology issue" that resulted in erroneous orders being sent to the market, leading to significant losses [13725]. - The incident was referred to as a "trading glitch" that caused a $440 million loss due to a flood of erroneous orders sent to the New York Stock Exchange, suggesting unintended consequences of the software malfunction [13830]. - The software failure incident was characterized as a "self-inflicted explosion" at Knight Capital, indicating that the incident was not intentional but rather a result of unintended consequences of automated trading programs [13941]. - The incident involved a "rogue algorithm" that repeatedly bought and sold millions of shares of various companies, leading to surging trading volume and extreme movements in stock prices, highlighting the accidental nature of the software malfunction [13455]. |
| Capability (Incompetence/Accidental) | development_incompetence | (a) The software failure incident occurring due to development_incompetence: - The incident at Knight Capital Group on August 1, 2012, was caused by a "technology issue" in its market-making unit that affected the routing of shares, leading to abnormal volatility in the markets [13725]. - Knight Capital's loss of $440 million was attributed to a software glitch that caused erroneous orders to flood the market, resulting in a huge position that had to be unloaded at a loss [13455]. - The software problem in August led to millions of unintentional orders flooding into the market over a 45-minute period, causing a significant loss for Knight Capital [17328]. (b) The software failure incident occurring due to accidental factors: - The software glitch at Knight Capital on August 1, 2012, was described as a "technology issue" that affected the routing of shares, leading to abnormal volatility in the markets [13725]. - Knight Capital experienced a massive loss from a trading glitch that was caused by a software problem, resulting in unintentional orders flooding into the market over a 45-minute period [13455]. - The incident at Knight Capital was due to a trading software snafu that sent numerous erroneous orders in NYSE-listed securities into the market, affecting around 150 companies listed on the NYSE [13931]. |
| Duration | temporary | (a) The software failure incident at Knight Capital was temporary. The incident occurred on August 1, 2012, when a technology issue in Knight's market-making unit led to the routing of erroneous orders to the New York Stock Exchange, causing abnormal volatility in the markets [13725]. The glitch resulted in a massive loss of $440 million for Knight Capital [13725]. The incident lasted for about 45 minutes, during which Knight Capital flooded the market with millions of trades, affecting over 140 stocks [13455]. The software issue was related to new software that had been improperly installed and conflicted with old code, leading to a flood of orders and leaving Knight with a massive position it had to unload at a loss [15435]. (b) The software failure incident at Knight Capital was not permanent. The company took immediate action to address the issue and sought new funding to avoid bankruptcy [13725]. Knight Capital was able to secure a $400 million deal with a group of investors to cover most of its losses from the trading glitch, which helped the firm survive and continue trading [13931]. The incident did not result in a permanent shutdown or closure of Knight Capital; instead, the company restructured and received new funding to stay afloat [13931]. |
| Behaviour | crash, omission, value, other | (a) crash: The software failure incident at Knight Capital Group on August 1, 2012, resulted in a crash. The incident involved a technology issue that caused the system to send numerous erroneous orders in NYSE-listed securities into the market, leading to abnormal volatility and significant losses for the firm [Article 13830]. (b) omission: The software failure incident at Knight Capital on August 1, 2012, can be considered an omission failure as the system omitted to perform its intended functions correctly. The incident involved the system sending a flood of erroneous orders to the New York Stock Exchange, leading to massive losses for the firm [Article 13455]. (c) timing: The software failure incident at Knight Capital on August 1, 2012, did not involve a timing failure. The incident was more focused on the system's erroneous orders and the resulting financial losses [Article 13455]. (d) value: The software failure incident at Knight Capital on August 1, 2012, can be considered a value failure as the system performed its intended functions incorrectly, leading to significant financial losses for the firm [Article 13830]. (e) byzantine: The software failure incident at Knight Capital on August 1, 2012, did not exhibit a byzantine failure. The incident was primarily characterized by the system sending erroneous orders and the resulting financial impact [Article 13455]. (f) other: The software failure incident at Knight Capital on August 1, 2012, can be considered a failure due to a glitch in the automation process that generated thousands of mistaken orders for stocks, leading to a devastating $440 million loss. The incident highlighted the fragility and instability of the stock markets due to the dominance of sophisticated high-speed trading systems [Article 13455]. |
| Layer | Option | Rationale |
|---|---|---|
| Perception | processing_unit, embedded_software | (a) sensor: Failure due to contributing factors introduced by sensor error - The software glitch at Knight Capital Group on August 1, 2012, led to erroneous orders being sent into the market for 45 minutes, affecting around 150 stocks listed on the New York Stock Exchange [13830]. - The glitch was attributed to a technology issue in Knight's market-making unit, which resulted in abnormal volatility in the markets [13725]. - The trading software error caused a flood of erroneous trades to the New York Stock Exchange, leading to significant losses for Knight Capital [13455]. (b) actuator: Failure due to contributing factors introduced by actuator error - The software glitch at Knight Capital resulted in the firm having to unload a massive position at a loss of $461.1 million due to the flood of erroneous orders sent into the market [17328]. - The glitch caused Knight Capital to suffer a $440 million trading loss, leading to the need for new funding and potential bankruptcy [13830]. (c) processing_unit: Failure due to contributing factors introduced by processing error - Knight Capital experienced a technology issue that unleashed a flood of orders to the New York Stock Exchange, causing abnormal volatility and significant losses [13931]. - The glitch was related to Knight's installation of trading software, which resulted in numerous erroneous orders in NYSE-listed securities [13725]. (d) network_communication: Failure due to contributing factors introduced by network communication error - The software glitch at Knight Capital led to a surge in trading volume and turmoil across Wall Street, highlighting the fragility and instability of the stock markets [13455]. - The glitch caused Knight Capital to suffer a massive loss from a trading error, leading to a deal with a group of investors who purchased a majority stake in the firm for $400 million [13931]. (e) embedded_software: Failure due to contributing factors introduced by embedded software error - Knight Capital's loss of $440 million was attributed to a software glitch that caused erroneous orders in NYSE-listed securities, leading to significant market stress and potential bankruptcy [13830]. - The glitch was related to new software that conflicted with old code, resulting in a flood of orders to the New York Stock Exchange and leaving Knight with a massive position to unload at a loss [15435]. |
| Communication | unknown | The software failure incident at Knight Capital Group was not directly related to the communication layer of the cyber-physical system. The incident was primarily caused by a trading glitch in the software that led to millions of erroneous orders flooding into the market, resulting in a massive loss of $440 million [13725, 13829, 13455]. The failure was more related to the software itself and the trading algorithms that were improperly installed, conflicting with old code and sending a flood of orders to the New York Stock Exchange [13725, 13829, 13455]. The incident highlighted the risks associated with automated trading systems and the complexity of market structures dominated by high-speed trading systems [13829, 13455]. |
| Application | TRUE | The software failure incident at Knight Capital Group in August 2012 was indeed related to the application layer of the cyber physical system. The incident was caused by a "technology issue" in Knight's market-making unit, which affected the routing of shares of around 150 stocks to the New York Stock Exchange, leading to abnormal volatility in the markets [13725]. The glitch was attributed to new software that had been improperly installed, conflicting with old code that was supposed to have been deleted, resulting in a flood of erroneous orders to the NYSE [15435]. This issue was specifically related to the application layer as it involved the malfunction of the software used for trading operations. |
| Category | Option | Rationale |
|---|---|---|
| Consequence | property | (d) property: People's material goods, money, or data was impacted due to the software failure The software failure incident at Knight Capital Group resulted in a massive loss of $440 million due to a trading glitch, leading to the firm seeking new funding and facing the possibility of bankruptcy [13725]. The glitch caused Knight to take on additional investors and re-examine its entire business, resulting in a loss of $461.1 million [15435]. Additionally, Knight Capital Group struck a deal with a group of investors who purchased a majority stake in the trading firm for $400 million, severely cutting into the value of existing shareholders' stakes [13931]. |
| Domain | finance | (a) The failed system was intended to support the finance industry, specifically in the trading of equities on Wall Street. The incident involved Knight Capital Group, a major player in the U.S. market operator [13725], [13941], [15435], [13829], [13830], [13455], [17328], [13931]. |
Article ID: 13725
Article ID: 13941
Article ID: 15435
Article ID: 13829
Article ID: 13830
Article ID: 13455
Article ID: 17328
Article ID: 13931