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Knight Capital Debacle Underscores Technological Market Risks

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How stable are the electronic trading markets? The Knight Capital glitch once again throws this into question into the limelight.

As the trading systems for firms grow increasingly complicated, the risk for massive system failures also rises. A trading glitch within a money center bank is also a concern, especially if the institution was deemed too big to fail. Taxpayers would likely pick up the tab if this scenario unfolds. 

There have been so many glitches—from S&P’s technical error in downgrading France from its AAA rating last November to the flash crash of 2010—that they are too numerous to count. If this trend continues, investors will demand more return to participate in the markets, which could result in less robust trading across all asset classes.


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