Regulations put in place to protect investors after $862
billion of market value was briefly erased on May 6, 2010, were the same rules
that almost ruined Knight Capital Group Inc. (KCG) this month.
The good people at Bloomberg report that Knight, whose market-making unit executes 10 percent of U.S.
equity volume, lost $440 million on Aug. 1 and its stock has plunged 73 percent
after a computer malfunction bombarded the market with unintended orders that
exchanges declined to cancel. A decade ago, the firm suffered almost no
consequences in a similar breakdown when officials agreed to void trades after
Knight mistakenly sold 1 million of its own shares.
The refusal to let Jersey City, New Jersey-based Knight out
this time shows that brokers face increasing risks from technology errors after
regulators toughened rules following the so-called flash crash two years ago…..
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