Recently, the traders and commentators revealed the background information behind the error, see here and further references therein. The algorithm should execute a large block trade worth of $5bn over a 5 days period without disturbing the markets. However, the algorithm executed it immediately. Conclusion: The recent event shown us why it is important to spread block trades over a long period and do not execute them instantly.
The recent "accident" was not the first one, see this link. The error on KCG's algos disrupted trading of 30 ETFs on March 31, 2011, when these vehicles were introduced into the market. The accident forced NYSE to cease up the trading.
Finally, the market seems to punish the Knights for their error since rumours says that they are considering the bankruptcy. This 30-minutes event produced a loss exceeding the quarterly profits and they have tough times. The picture below shows the evolution of their shares. And why "Ironic" in the title? The morning increased volumes in trading with their shares evokes the previous days' trading pattern of their victims, it just lasts a bit longer... till the Knight's end, perhaps.
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| KCG US equity after the error. |
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