The following is an excerpt from Lauren Tara LaCapra and Dan Wilchins | August 3, 2012 | Reuters.com |
(Reuters) – Wall Street banks and brokers are poring over their trading systems and rethinking the way they test software to make sure they don’t become the next Knight Capital Group, the trading firm whose survival was imperiled by a software glitch on Wednesday.
Knight Capital’s $440 million loss from errant trades, which has forced the company to consider selling all or part of itself, is the third time in five months that technical bugs have caused trouble for Wall Street players.
Executives at trading firms said they are debating among one another whether new regulations could prevent these snafus. But they also said glitches were a wake-up call for firms to improve their controls on their own, without being pushed into it. At a time when Wall Street is cutting costs, spending money on better systems to test software and manage risk could be an expensive proposition.
“We want to make sure that what happened to Knight doesn’t happen to us,” said the head of one investment bank. His company was looking carefully at how it tests new trading systems, to make sure traders know when new systems are being implemented and can be on the lookout for suspicious activity during those periods.
Their efforts face plenty of obstacles. As more trading has moved from exchange floors to computers over the last decade, the speed of execution jumped along with the potential for cascading problems.
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