Knight Blames Trading Fiasco On "Dormant Program" Glitch

Tyler Durden's picture


Remember - when in doubt, always blame it on the software: that way the risk of tainting one's "business model" no matter how irrelevant and anachronistic it has become, may be preserved - after all it is the vacuum tube's fault. If possible add the words "glitch", "dormant" and "stupid algo" and always, always, use the passive voice: once again - it can never be insinuated that a carbon-based lifeform (human, monkey, Mary Schapiro) was behind the screw up. Sure enough, here comes Knight two weeks after nearly destroying its trading platform responsible for 10% of the daily market churn, and to a big extent for the endless levitation to VWAP on low volume we have seen every day for the past 3 years, and blaming it all on "dormant software" which was accidentally reactivated. From Bloomberg: "Knight Capital Group Inc. (KCG)’s $440 million trading loss stemmed from an old set of computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter. Once triggered on Aug. 1, the dormant system started multiplying stock trades by one thousand, according to the people, who spoke anonymously because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said." Of course, one may ask just why did someone put in code in the first place, that multiplied stock trades by one thousand: is that the special turbo buy option reserved for when the Liberty 33 phone rings?

And then there is also the whole "dormant" thing - the last time we saw that, it involved Iran, centrifuges, and a nuclear power plant. Did Knight just admit it had been Stuxnetted? That's rhetorical - of course it won't. However one thing is absolutely certain: as stock volumes continue drifting ever lower approaching zero, such glitches will become the norm as many more competitors, aka flow supply, has to be taken out in a market in which there is just no longer any trading demand. We surely can't wait to see who the next Knight proclaiming "tis but a scratch" is.

From Bloomberg:

Knight, based in Jersey City, New Jersey, hasn’t explained in detail what caused the trading losses, which depleted its capital and led to a $400 million rescue that ceded most of the company to a group of investors led by Jefferies Group Inc. (JEF) The 45-minute delay in shutting down the malfunction has confused some securities professionals, who say that trading programs can typically be disabled instantly.


“This software problem was an infrastructure problem,” Chairman and Chief Executive Officer Thomas Joyce, 57, said in an Aug. 2 interview with Bloomberg Television’s “Market Makers.” “It was more of a networking problem as opposed to using quantitative tools to trade.”


The company, whose market-making unit executes about 10 percent of U.S. share volume, will hire an outside adviser to investigate what led to the losses. Kara Fitzsimmons, a spokeswoman, said she couldn’t comment at this time.


The company was updating software in preparation for an NYSE plan aimed at luring more individual investors to the exchange, Joyce said in the Aug. 2 interview, without offering details. The Big Board’s so-called retail liquidity program, designed to attract smaller investors by giving them superior prices, was being implemented that day.

And so on. Those who still actually care, and trade stocks, all 3 of you, can read the full thing here.

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Tue, 08/14/2012 - 10:40 | 2703697 GMan_
GMan_'s picture

Knight Capital : Dicking shareholders and traders since 1995.

Tue, 08/14/2012 - 10:40 | 2703703 greased up deaf guy
greased up deaf guy's picture

it's just a flesh wound!

Tue, 08/14/2012 - 10:47 | 2703725 SHEEPFUKKER

Yeah, it was a dormant program....kinda like Mt. St. Helens was a dormant volcano. 

Tue, 08/14/2012 - 10:51 | 2703739 Pladizow
Pladizow's picture

Perhaps China will create a worm to take down the algos/skynet?

Tue, 08/14/2012 - 12:00 | 2703758 The Big Ching-aso
The Big Ching-aso's picture



These BS excuses will go on for plenty more daze and Knights.

Tue, 08/14/2012 - 12:27 | 2704051 lineskis
lineskis's picture

when in doubt, always blame it on the software

And if you cannot blame the software, blame the hardware!

Tue, 08/14/2012 - 13:04 | 2704169 saturn
saturn's picture

All three of you two, good luck against machines (GLAM)!

Tue, 08/14/2012 - 10:58 | 2703762 goldfish1
goldfish1's picture

one may ask just why did someone put in code in the first place, that multiplied stock trades by one thousand

Why ask why? It perpetuates the game.

Tue, 08/14/2012 - 11:13 | 2703803 tbone654
tbone654's picture

I can totally see it...  I often build test funchtions into my code to simulate more volume for testing, for example, I can simulate 1 million dicerolls by changing the variable from 0 to 1 and either recompiling, or just changing the variable at the commandline...

$SIMULATE=0;  //gets changed to


Forget to change it back after testing, and you have a problem Houston...

$BACKTEST=0;  //gets changed


Of course, If you do that, you should put a comment in your code as follows

// If you forget to put the program back into LIVE mode...  The last one to leave should please turn off the lights...


Tue, 08/14/2012 - 11:26 | 2703850 FrozenOut
FrozenOut's picture

I feel like I've been fighting this kind of hacktivity all my career. No, this is not what you do. Would you build a nuclear weapon like this? Would you build a remote space probe like this... oh never mind.

Tue, 08/14/2012 - 11:37 | 2703887 NotAMathWhiz
NotAMathWhiz's picture

Agreed, it's not that difficult to programmatically check to make sure you're in the development system and not in production.  Math wizards don't always make good programmers.

Tue, 08/14/2012 - 11:58 | 2703950 Random_Robert
Random_Robert's picture

I totally agree with both of you.


When I first read the Knight press release I thought "Dormant code my ass. This was a textbook Configuration and Version Management fuckup."


Some ignoramus fired off a build script that took some code off a test branch and re-integrated it onto the main release trunk.


The code was built, installed, and went live doing EXACTLY what it does in the test server environments; only this time there was real money moving around, instead of just internal test data.


Hey Knight- If you guys are looking for a QUALIFIED SCM, then figure out who I am, and get ahold of me.


Tue, 08/14/2012 - 13:23 | 2704257 Count de Money
Count de Money's picture

Simple explanation: testing in production.

Tue, 08/14/2012 - 13:33 | 2704305 Random_Robert
Random_Robert's picture

With $400 Million in liabilities racked up, That's some pretty fucking expensive testing... No?



Tue, 08/21/2012 - 11:04 | 2723836 fade2black
fade2black's picture

Kevin Slavin: How algorithms shape our world

They were missing the red button to turn it OFF.

Tue, 08/14/2012 - 11:13 | 2703810 MsCreant
MsCreant's picture

or maybe a flash wound?

Tue, 08/14/2012 - 18:05 | 2705127 TheFourthStooge-ing
TheFourthStooge-ing's picture

Clippy from Office 97 is responsible. He's fallen on hard times. He lost his job, his wife and kids left him, and he got busted for running a meth lab back in 2007. He ended up living in a cardboard server box which somehow made its way to Knight's data center.

When his SNAP card got reupped on the first of the month, he scored some bath salts and, well, just sort of went nuts.

Tue, 08/14/2012 - 10:40 | 2703699 kato
kato's picture

inexcusable is not paying attention enough to find the 'problem' in the first minute that the 'problem' existed.

Tue, 08/14/2012 - 12:32 | 2704064 dugorama
dugorama's picture

I think if I'm losing $10mm / minute, I might be tempted to just go throw the circuit breaker panel main to off and darken my whole office building.  There, my plan B would have saved approximately $420mm.

Tue, 08/14/2012 - 10:41 | 2703702 fnordfnordfnord
fnordfnordfnord's picture

Cool story bro

Tue, 08/14/2012 - 10:41 | 2703706 rtalcott
rtalcott's picture

IF true these people are grossly incompetent...

Tue, 08/14/2012 - 10:43 | 2703710 Dr. Richard Head
Dr. Richard Head's picture

Can one blame a cheating spouse for a dormant penis glitch?

Tue, 08/14/2012 - 10:54 | 2703748 icanhasbailout
icanhasbailout's picture

On August 3rd at 12:56pm, it released its epic poem, The Hunting of the Stop

Tue, 08/14/2012 - 12:34 | 2703821 The Big Ching-aso
The Big Ching-aso's picture



Obviously the algo lost its rhythm and now has the blues.

Tue, 08/14/2012 - 10:45 | 2703715 diogeneslaertius
diogeneslaertius's picture

The company was updating software in preparation for an NYSE plan aimed at luring more individual investors to the exchange

Tue, 08/14/2012 - 21:12 | 2705541 StychoKiller
StychoKiller's picture

"The best-laid plans of mice and men

have oft gone agly!"

Tue, 08/14/2012 - 10:46 | 2703716 Dr. Engali
Dr. Engali's picture

Bullshit! How in the hell does dormant software become active? Do they think tht we are all stupid or just enough people that they can get away with a lie.

Tue, 08/14/2012 - 10:47 | 2703724 greenEagles
greenEagles's picture

It sounds like some sort of bullshit techno explanation from a Star Trek TNG episode or something.

Tue, 08/14/2012 - 10:59 | 2703766 disabledvet
disabledvet's picture

"hereby convicted of a bad cover story" as well.

Tue, 08/14/2012 - 11:10 | 2703802 Vince Clortho
Vince Clortho's picture

They feel the large majority is either ignorant or stupid.  The relatively few voices of those that see what is happening is not a concern.

People are losing their job, their homes, their pensions, their children's futures, but for some unfathomable reason, still believe the government will somehow save the day.

Tue, 08/14/2012 - 11:15 | 2703820 EasterBunny
EasterBunny's picture

Dormant software?

“It was a new application,” Joyce, now chairman and CEO, said in a phone interview with Bloomberg News Aug. 6. “It was certainly a
technology issue that had been engineered to allow us to better interact with the retail liquidity program at the New York Stock
Exchange, and it was obviously a greatly flawed application.” Joyce asked the SEC to give NYSE more flexibility to cancel trades because
they were “one big error,” he said.

Tue, 08/14/2012 - 12:03 | 2703969 Random_Robert
Random_Robert's picture

Joyce is not a Software Engineer.


Therefore, Joyce does not have the FIRST FUCKING CLUE what actually happened.


He is trying to translate Techno-speak (which he does not understand) into Wall Street Speak (which NOBODY understands)


It's all double talk.


If you are a Knight Customer- you need to understand that the company does not recognize the difference between its internal test data, and your REAL money....


get it?

Tue, 08/14/2012 - 11:06 | 2703717 Mercury
Mercury's picture

 I totally have this shit under control!


And my new girlfriend is not responsible for all that havoc and destruction...that incident with the car and the whole hospital thing...

That was my old-girlfriend re-activated by my new girlfriend.


So anyway, we had some friends cancel out on us last minute...what are you guys doing this weekend?

Tue, 08/14/2012 - 10:47 | 2703718 buzzsaw99
buzzsaw99's picture

Your broker he may front run you

Your broker he may sell/lend your shares

Your broker he may steal your cash

Your broker he may eat your last piece of meat

That is all

Tue, 08/14/2012 - 10:51 | 2703740 MsCreant
MsCreant's picture

You really need to learn to self edit buzz-babe. 

"You're broker."

See how easy that was? Saved you all those words.

Tue, 08/14/2012 - 10:55 | 2703754 DOT
DOT's picture

Gonna steal that one !

Tue, 08/14/2012 - 10:55 | 2703755 buzzsaw99
buzzsaw99's picture


Tue, 08/14/2012 - 10:46 | 2703719 SmallerGovNow2
SmallerGovNow2's picture

Anyone see the gold smack down at 8:30?

$1617 to $1593 in a matter of minutes.  Smack down algo in play, but by whom?

Tue, 08/14/2012 - 10:53 | 2703747 Temporalist
Temporalist's picture

Perfectly explained away because the "markets" had "great" retail sales "news" "report."  Must. Smack. Down. Gold. Silver.

Tue, 08/14/2012 - 10:54 | 2703750 ParkAveFlasher
ParkAveFlasher's picture

I call liquidity event in the making. 

Tue, 08/14/2012 - 11:02 | 2703771 MsCreant
MsCreant's picture

Tell me more, please. There is always selling more paper, without the precious, into the market, or margin calls. I looked up liquidity event and don't have enough experience on board to surmise what you mean.

Tue, 08/14/2012 - 11:53 | 2703932 yogibear
yogibear's picture

The Central Banksters have to slap down their fiat enemy.

In the mean time anyone look at food prices lately? Just skyrocketing at the store.

A can of fish when from $2.20 to $2.75. Milk has gone up. Wait until Christmas. You ain't seen nothing yet.

Bernanke and his fellow banksters will continue to boast about low inflation, even with oil over $100 barrele.

I-Pods are still the same price William Dudley, although they have no nutritional value.


Tue, 08/14/2012 - 10:50 | 2703722 Cognitive Dissonance
Cognitive Dissonance's picture

This "victim" mentality ("and always, always, use the passive voice: once again - it can never be insinuated that someone was behind the screw up.") meaning Knight was a victim of its own software, which of course is entirely the product of humans (the term "computer error" excuses us from us) rather than a victim of its own policies and procedures, not to mention management, extends to the very basic core of our collective victim mentality.

How often do we use the following term during the day. "(Fill in the blank) made me do (fill in the blank)." Short of a gun to head (and I might argue even then that we are not compelled to "do" anything) no one makes me "do" anything.

No one makes me angry, sad, glad, happy, upset, take that job, go to that college, take out that loan etc etc. These are all preprogrammed victim/slave mentality phrases along the same lines as "you can't fight city hall".

Welcome to the Slave Nation. Freedom begins within, including understanding how the oppressor's language already has captured us.

Time to wake up Neo and reclaim your own personal sovereignty.

Tue, 08/14/2012 - 10:57 | 2703759 Dr. Engali
Dr. Engali's picture

I make it a point to push thoughts like that out of my head...especially on the emotional side. Like " you piss me off", well no they don't. I only get pissed off because I allow myself to. When I keep that sort of attitude in check I can keep a clear head in most any situation. Oncce you allow somebody or something to trigger you emotions they own you.

Tue, 08/14/2012 - 11:05 | 2703782 gmrpeabody
gmrpeabody's picture

Hard lesson learned repeatedly over the years...

Tue, 08/14/2012 - 11:09 | 2703793 Cognitive Dissonance
Cognitive Dissonance's picture

"Once you allow somebody or something to trigger you emotions they own you."

I like to call it renting space in my of charge naturally. 

Of order to rid myself of these thoughts I must become personally accountable for EVERYTHING that I do and say. That doesn't make for a very good slave. However, it DOES make for a powerful (and extremely dangerous) individual in the eyes of the controllers and manipulators.

One (wo)man cannot change the world. But one idea can.

Tue, 08/14/2012 - 11:36 | 2703884 i-dog
i-dog's picture

"People only do what you let them do" --- i-dog

Tue, 08/14/2012 - 11:12 | 2703808 jayman21
jayman21's picture

CD - Who are you?  I see your comments day in and day out and they are priceless.  Thank you for this public service.  You write some pretty funny shit too, but this one is a topper in the thinking catagory.

Tue, 08/14/2012 - 11:34 | 2703869 Cognitive Dissonance
Cognitive Dissonance's picture

"CD - Who are you?"

Just some rouge HFT algo having some fun poking at myself and any others who wish to tag along for the ride.

Thank you for the high praise. I have not submitted a new ZH contributor article in many moons (several in the works but I never seem to finish anything lately) but you might like to look over some of my older stuff.

I am not an original thinker by any stretch of the imagination. But I try to use a different approach to describe ancient issues. How many times have we read or heard the same thing dozens of times. Then, suddenly, it all clicks. Often this was because we are finally ready to hear it.

For me, it usually pops up on my personal radar because a description or explanation is phrased differently. I'm just looking to create lots of cognitive clicks out there, beginning with my ID.

Tue, 08/14/2012 - 11:54 | 2703934 jayman21
jayman21's picture

"Often this was because we are finally ready to hear it."  Yep...looking at myself in the mirrow.  Sometime in 2007/2008 was my day to begin the new conscience and start the listening process.


I will have a look at your posts.  Thanks.

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