Bloomberg View: Faster, Knight Capital! Kill! Kill!

The financial markets in the U.S. are the most sophisticated in the world, yet they can unaccountably spin out of control at a moment’s notice. The latest case involves Knight Capital Group, a securities-trading company laid low by one of its inadequately tested computer-trading programs. In less than an hour on Aug. 1, the program entered incorrect bids for about 150 stocks into the interconnected electronic marketplace. Computer programs at other firms sniffed out the errors and traded against Knight. By the end of the day, the company was out $440 million, forcing it to seek outside financing to survive.

By now, it’s pretty clear that computer-driven trading is a major source of volatility. In the so-called flash crash of May 2010, the Dow Jones industrial average shed almost 1,000 points in less than an hour, only to bounce back just as fast.