Just passing along a note from the Chicago Fed. This has obviously become a big enough issue that they feel the need to address it:
“On Wednesday, August 1, 2012, a $440 million loss in 45 minutes brought market maker Knight Capital to the brink of bankruptcy. The loss was caused by a software malfunction that resulted in Knight sending a
large number of orders to the New York Stock Exchange. For a time following the mishap, three of its online retail brokerage clients—TD Ameritrade, Scottrade, and E*Trade—stopped routing trades to Knight.
In May 2012, just three months before the Knight Capital debacle, a technical error at NASDAQ delayed
the start of trading for Facebook’s initial public offering (IPO) and prevented some investors from learning
whether they had successfully purchased or sold shares. This prompted some of them to enter orders numerous times and led to uncertainty about their overall positions in the market. As a result of the error, the Swiss bank UBS is said to have suffered a loss of more than $350 million. Knight Capital reportedly lost $35.4 million in the Facebook incident as well.”
Read the full paper here….