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Knight Capital Fined $12M For a Software Bug That Cost $460M

samzenpus posted about a year ago | from the slap-on-the-wrist dept.

The Almighty Buck 192

Mark Gibbs writes "Knight Capital monumentally fouled up a software update. According to the SEC, 'Knight did not have supervisory procedures to guide its relevant personnel when significant issues developed.' In other words, not only was Knight's code management inadequate but their human management processes were just as bad. The fine for what could have been a biblical financial disaster? A measly $12 million."

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The Fine was $12 M, but, (5, Insightful)

Anonymous Coward | about a year ago | (#45221929)

The cost to them was $472 M. I *think* that will discourage them.

Re:The Fine was $12 M, but, (0, Insightful)

Anonymous Coward | about a year ago | (#45221993)

That 472 million didn't come out of their pocket..

It came out of their CUSTOMERS...

You know.. People. All those investors who handed over cash and said make it grow... They got boned.

Re:The Fine was $12 M, but, (2, Insightful)

Anonymous Coward | about a year ago | (#45222083)

The IRS has issued $13.6 billion in bogus EIC checks last year, and over $132 billion in bogus checks over the last decade.

The money comes out of our pockets, you know, the governments 'customers.'

You know, People. All those citizens who handed over cash under threat of force and said here take it don't hurt me. They get boned.

http://www.washingtontimes.com/news/2013/oct/22/irs-paid-132B-bogus-tax-credits-over-last-decade/

Re:The Fine was $12 M, but, (1)

Sarten-X (1102295) | about a year ago | (#45222149)

Who cashed those checks?

Re:The Fine was $12 M, but, (-1)

Anonymous Coward | about a year ago | (#45222157)

A different crowd of criminals than the ones who signed them, but criminals still.

Re:The Fine was $12 M, but, (4, Interesting)

Lumpy (12016) | about a year ago | (#45222175)

Exactly, the $12M should have been a direct fine to the CEO or the board members. You have to punch in the face the people responsible.

Re:The Fine was $12 M, but, (1)

Anonymous Coward | about a year ago | (#45222277)

Exactly, the $12M should have been a direct fine to the CEO or the board members. You have to punch in the face the people responsible.

The 12M won't come out of their pocket, it will come out of the customers. They will just award themselves are 12M bonus for good management.

As soon as you start subscribing to the idea that you can't fine a corporation because it hurts the customers than you have already lost. "Hurting" the customers is the point of fining a corporation as they will either need to eat the cost or raise prices; raising prices lowers the barriers on competitors allowing someone who is not a dick to undercut them, or new players to slide into the marketplace under the raised financial limbo bar.

Re:The Fine was $12 M, but, (4, Insightful)

Dunbal (464142) | about a year ago | (#45222339)

I think you need to go over what a corporation actually is again. If board members and directors are found "personally liable" then why bother incorporating in the first place?

Re:The Fine was $12 M, but, (1, Insightful)

Rob Riggs (6418) | about a year ago | (#45222637)

If board members and directors are found "personally liable" then why bother incorporating in the first place?

Are you telling me that all I have to do to get away with murder is form "Murder Inc." -- sorry, I meant "Loving Hands, Inc."? And then as chairman I can just hire a hit man and shield myself from liability? Shweet!!

Re:The Fine was $12 M, but, (4, Insightful)

edjs (1043612) | about a year ago | (#45222815)

The purpose of a corporation is to shield the shareholders from liability beyond the value of their shares. Directors can be held liable if they are particularly negligent or criminal.

Re:The Fine was $12 M, but, (1)

sociocapitalist (2471722) | about a year ago | (#45222987)

I think you need to go over what a corporation actually is again. If board members and directors are found "personally liable" then why bother incorporating in the first place?

Which is why corporations, directed by people who are not held accountable other than to their shareholders who care nothing about anything but money, do whatever the fuck they like and more often then not get away with it.

Fine the board members? (0)

Anonymous Coward | about a year ago | (#45222407)

No, you can't fine them. You have to reward them: their paychecks are a hundredfold that of hoi polloi because of the large responsibility they bear. And no responsibility is greater than that of fscking up cool half a billion dollars in less than an hour.

That kind of responsibility comes at a price the shareholders should be happy to pay. Would you want to be responsible for that kind of loss? Certainly not. But those guys are pissing responsibility through every hole in their Armani suits.

Re:The Fine was $12 M, but, (0)

Dunbal (464142) | about a year ago | (#45222313)

Yep, risk is part of investment.

Re:The Fine was $12 M, but, (4, Insightful)

hawguy (1600213) | about a year ago | (#45222355)

That 472 million didn't come out of their pocket..

It came out of their CUSTOMERS...

You know.. People. All those investors who handed over cash and said make it grow... They got boned.

Oh, so you mean the same pockets that the $12M fine comes out of?

Re:The Fine was $12 M, but, (2)

Chrisq (894406) | about a year ago | (#45222211)

The cost to them was $472 M. I *think* that will discourage them.

Law enforcement love to rub salt in the wound. A friend of mine had an accident that wrote-off a car. He had no MOT and the insurance investigators found that the car was unroadworthy. This meant that his insurance defaulted to "road traffic act only", which is the legal minimum and only covers third party injury claims. He had lost a car, and had to pay £2,000 for repairs to another vehicle.

On top of that the police then sent him a court summons, where he was fined £30 and had three points on his license for driving an unroadworthy vehicle on a public highway. Like this - I think the $12M fine is just to rub salt into the wound and to show that the law enforcement agencies are doing their job - as you say there is enough deterrent without this.

Re:The Fine was $12 M, but, (1)

Anonymous Coward | about a year ago | (#45222427)

You friend is a criminal or a retard. Everyone knows a lack of an MOT means your insurance is going to be invalidated. He should have gone to jail if there was more than a week of lapse due to extenuating circumstances. Imagine if he did some serious damage to a person knowing his vehicle should not have been on the road. What a cunt.

* For the US readers, the UK has a law where all vehicles have an annual roadworthiness test, it's called the "MOT". It checks vehicle structure, breaking power and emission levels, only takes a few minutes, especially on cars less than 10 years old. The test is quite basic but sufficient to dissuade the usage of complete junkers from being used. People that avoid them know their car has problems, because the MOT comes with a report of everything that needs to be fixed (can be a lot) before the thing is considered legal for public roads usage.

Re:The Fine was $12 M, but, (1)

Chrisq (894406) | about a year ago | (#45222525)

You friend is a criminal or a retard. Everyone knows a lack of an MOT means your insurance is going to be invalidated.

uhm no. Its the unroadworthy condition that invalidates the insurance [drivingtesttips.biz] . That said he was a retard in that case - the reason he had no MOT is because he knew that the car would not pass and was unroadworthy.

Wait, a fine? (0)

Anonymous Coward | about a year ago | (#45221933)

A fine?

If you make bad decisions (as a company or as a person), you kinda have to live with 'em. That should be as far as it goes.

The result of this should be 'you fucked up with all the money, now go away'.

It's their money (0)

Anonymous Coward | about a year ago | (#45221941)

It cost THEM $460M. That money was not lost, HFT is zero-sum. The market gained 460M, they should receive a bonus from their competitors not a fine.

Re:It's their money (1)

K. S. Kyosuke (729550) | about a year ago | (#45222067)

What does HFT have to do with this?

Re:It's their money (1)

nedlohs (1335013) | about a year ago | (#45222325)

It's what Knight Capital was in the business of doing when they gave away $460 million to other players.

Re:It's their money (1)

home-electro.com (1284676) | about a year ago | (#45222421)

My thought exactly. What seems to be the problem? The money were not lost. Just redistributed.

Re:It's their money (2)

gnupun (752725) | about a year ago | (#45222443)

That's like saying mugging is not a crime. Your money is just being redistributed to the needy.

Re:It's their money (1)

Diss Champ (934796) | about a year ago | (#45223047)

But this wasn't Knight mugging someone, this was Knight giving up the money by their own choice.

The people who were hurt were Knight's owners, which is an incentive for them to do a better job of oversight in the future.

I refer to the trading losses, not the fine.

What, nobody going to jail for gross negligence??? (1, Insightful)

gweihir (88907) | about a year ago | (#45221943)

What they did was criminal negligence, plain and simple. And they did it out of greed. As long as mismanagement this severe has no personal consequences for the perpetrators, nothing will change.

Re:What, nobody going to jail for gross negligence (0)

Anonymous Coward | about a year ago | (#45222003)

What they did was criminal negligence, plain and simple.

In what way were the interest of other people or society's at large harmed ? At most you could say they have an obligation to the KCG shareholders, but they also have the obligation to be greedy. They've put in the cheapest system they could build, and it failed losing allot of money. Sounds like regular management to me, in no way criminal. Nowadays Microsoft does it more often than not.

Re:What, nobody going to jail for gross negligence (0)

Anonymous Coward | about a year ago | (#45222307)

When will the other traders get their bad trades annulled and suffer only a minor slap? Are they too big to fail or something? What the hell is going on?

Re:What, nobody going to jail for gross negligence (1)

ausekilis (1513635) | about a year ago | (#45222403)

I'm going to quote a bumpersticker that I think is fitting here: "I'll beleive corporations are people when Texas executes one"

Re:What, nobody going to jail for gross negligence (0)

Anonymous Coward | about a year ago | (#45222667)

"Criminal negligence"? Care to explain that or did you just rely on the fact that other angry people would mod you up for it?

"Out of greed"? Of course it was out of greed. Everything a for-profit business does is out of greed (self-interest). What exactly is the problem? Do you want to outlaw profit-making so that the only organization left doing it is government?

Moderators, please stop voting up these worthless "anger" posts. There is absolutely nothing of value in them, unless you see some kind of value in anger. Hell, this one doesn't even offer the slightest explanation or rationale for the anger. Nothing to learn, no knowledge to gain, no insight, nothing but fist-pumping and chest-beating. I guess that makes some people feel good, but for the grownups among us, it's useless noise.

Maybe I am stupid, please explain. (4, Interesting)

Anonymous Coward | about a year ago | (#45221953)

They were FINED 12M, and they LOST 460M discovering the bug. This cost them a total of 476M.

I am not understanding the outrage. Why should the SEC care if Knight Capital wanted to lose a big pile of money.

Re:Maybe I am stupid, please explain. (5, Interesting)

Anonymous Coward | about a year ago | (#45222049)

Why should the SEC care if Knight Capital wanted to lose a big pile of money.

Because SEC has the political mission to portray the stock market as a rational, efficient, professional and socially useful apparatus - not the cesspool of mother-fucking sharks that it is. Hence all the trading rules which are selectively enforced so as to maintain the illusion without scarring the sharks away to, say, London.

Re:Maybe I am stupid, please explain. (1)

wonkey_monkey (2592601) | about a year ago | (#45222675)

Because SEC has the political mission to portray the stock market as a rational

Bzzt.

No, you are not stupid. (0)

Anonymous Coward | about a year ago | (#45222091)

It's the way the story was reported.

When a firm loses money, it's their customers' money. And quite a few of those are small investors ()212 of them.). Theoretically, this fine would come out of the pockets of the actual firm's equity - i.e. the owners' pockets.

But 12 million for people like this is a month's rent for their mistress' Park Avenue penthouse.

Re:Maybe I am stupid, please explain. (1)

SJHillman (1966756) | about a year ago | (#45222103)

I think you're missing a number... 460 + 12 does not equal 476, unless M is some weird number I'm not familiar with.

Re:Maybe I am stupid, please explain. (2)

Sarten-X (1102295) | about a year ago | (#45222181)

Clearly, M = $991,596.63865.

Re:Maybe I am stupid, please explain. (1)

TheJediGeek (903350) | about a year ago | (#45222619)

So, this was calculated using the original Pentium processors?
I wonder how many people still here even know about that.

Re:Maybe I am stupid, please explain. (2)

nedlohs (1335013) | about a year ago | (#45222335)

Because they broke the rules while losing that money. Do you think the SEC should only fine institutions that make money when they break the rules?

Re:Maybe I am stupid, please explain. (2)

AlecC (512609) | about a year ago | (#45222865)

As it happens, they lost an amount of money they could just about afford. But they could have lost more money than they had - leaving other people with losses in what is supposed to be a safe market place. It is like fining people for speeding - they have not caused an accident, but they are driving in a way likely to cause an accident. As it was, it nearly wiped out Knight: if it had gone further, it would have wiped out other, innocent, parties and done serious damage to the market, which the SEC is tasked to protect.

compensation (4, Interesting)

MickyTheIdiot (1032226) | about a year ago | (#45221959)

Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?

For instance in the mortgage fraud scandal they were allowed to settle fraudulent foreclosures for pennies on the dollar. Why are these companies never required to make the people they hurt whole again? Individuals that paid thousands of dollars simply got a small payment while banks just had to deal with "the cost of doing business."

I think I know the answer (lobbying/congresscritters in their pockets) but I think it's one of the most scandalous aspects of the financial mess of 2008.

Re:compensation (0)

Anonymous Coward | about a year ago | (#45222039)

It's simple. They are so big, that giving them what they deserve would do more harm to the market than good. Can you imagine how much money regular people would lose if their bank had gone bankrupt?

Re:compensation (1)

Anonymous Coward | about a year ago | (#45222195)

Most regular people don't go above the FDIC limits. If the bank went bankrupt they would simply get their pile of cash.

Re:compensation (2)

TheRaven64 (641858) | about a year ago | (#45222393)

Most people don't, but most companies do. The FDIC limits are pretty low and it's quite easy for a month's payroll for a medium-sized company to be over it. How many people would have suffered if their employers had suddenly not had enough liquid capital to cover their salary? How many businesses would have closed if they'd been unable to purchase anything for a few months?

Re:compensation (2)

L4t3r4lu5 (1216702) | about a year ago | (#45222087)

How about suing? Did those who were hurt sue? I bet they didn't sue.

I'm saying that you don't have to wait for other people to do the right thing. In fact, I wouldn't wait at all. Go grab the appropriate paperwork and file a Small Claims case. At the 2,000 received court summons or so they'll just start settling as a default action.

Re:compensation (4, Informative)

Capt.Albatross (1301561) | about a year ago | (#45222219)

How about suing? Did those who were hurt sue?

The customers have probably signed an agreement to settle disputes exclusively through binding arbitration - I believe this is an almost universal practice in the financial industry, as a condition for doing business, and no, you can't take your business elsewhere. That arbitration is widely regarded (at least outside of the industry) as being biased towards the financial industry.

Re:compensation (1)

Anonymous Coward | about a year ago | (#45222101)

They did, the $460mil was trades Knight Capital made for nobody that they had to cover, that $460mil bankrupted the company when they paid it out. If anything everyone else in the market profited off of their trades (that $460mil mostly just went into the market).

Re:compensation (1)

SJHillman (1966756) | about a year ago | (#45222115)

A lot of times, it's because punishing them too severely would just hurt even more innocent people. It's the same reason that criminals with kids are sometimes given a somewhat lighter sentence or lesser fines so as to avoid putting the kids through even more undue hardship as a result of punishing the parent.

Re:compensation (1)

Antique Geekmeister (740220) | about a year ago | (#45222141)

Because they're careful to write contracts that legally protect them from such lawsuits.

Re:compensation (0)

Anonymous Coward | about a year ago | (#45222161)

Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?
 
Ummm, because that's a civil court matter between the institution and the clients? That's my guess.
 
There is a system in place for this and if that system fails please don't act like the answer is to give the SEC powers outside of their current scope. That much of a focus of power is A Bad Thing(tm) as we've witness with nonsense like The Patriot Act and its warrantless wire tapping abilities along with its control over "enforcement" entities like the IRS.
 
You may get a chuckle over the groups that they have targeted but don't act like it's not an abuse of power even if you agree with them at heart. This is why there are suppose to be silo structures like the branches of government, to ensure that one entity cannot be judge, jury and executioner.
 
This is Civics 101 logic, folks. If any of this is a revelation to you about how government was meant to work then I suggest not posting as much and going back to the 9th grade and retaking the course again.

Re:compensation (1)

unrtst (777550) | about a year ago | (#45222191)

Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?

Seriously? Because that would complete the loop, and someone has to be putting in more than they're taking out.

Granted, "financial institutions" is a pretty broad term, so I'm not entirely certain which situation you are talking about, but since you mentioned the mortgage stuff, I'm currently assuming you mean the big thing involving the banks and the gov't bail out to them. Doesn't really matter which situation though... someone has to lose. It's just like Vegas - lots of individuals put in money hoping for a payout; the house takes a healthy cut; most people lose; enough win that it still looks attractive to suckers; regulations keep it from being outright robbery.

Regardless of how we got there, the banks needed bailed out or loads more people would get hurt. We, the people, bailed them out (taxes -> gov't -> them). If they turned around and compensated the individuals that lost, we'd just be paying ourselves, but with the overhead of gov't and banks skimming a lot of it... what's the point in that? Someone has to take the hit. In this case, the hit was spread out out amongst the people. In most other cases, where it's some company, the company should take the hit (IMO), which seems like what happened here.

Re:compensation (1)

Thanshin (1188877) | about a year ago | (#45222207)

Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?

Because in capitalism the power is in the money and financial institutions have more money than individuals. You could as well ask for an explanation on why kings were not forced to compensate peasants in feudalism.

The society where all individuals are equal doesn't exist. For as much as we know, it would have other inequalities and problems, but we cannot be sure because it doesn't exist and never has.

Re:compensation (4, Informative)

Capt.Albatross (1301561) | about a year ago | (#45222381)

For instance in the mortgage fraud scandal they were allowed to settle fraudulent foreclosures for pennies on the dollar. Why are these companies never required to make the people they hurt whole again?

I don't intend to defend Knight Capital, but there is a big difference between its incompetence and negligence in this case, and the deliberate and fraudulent actions that characterized the mortgage mess. No individual in the financial industry has been held accountable for these actions, even while some of the people they exploited have been prosecuted: http://www.nytimes.com/2011/03/26/business/26nocera.html?_r=1&pagewanted=all [nytimes.com] [In Prison for Taking a 'Liar Loan' - Joe Nocera - NY Times; may require registration, or try reaching it through a search engine.] This, I believe, is the "most scandalous aspects of the financial mess of 2008."

Better URL (Re:compensation) (1)

Capt.Albatross (1301561) | about a year ago | (#45222455)

Doh! I should have stripped off the parameters:

http://www.nytimes.com/2011/03/26/business/26nocera.html [nytimes.com] [In Prison for Taking a 'Liar Loan' - Joe Nocera - NY Times; may require registration, or try reaching it through a search engine.]

and there is a follow-up:
http://www.nytimes.com/2012/06/02/opinion/nocera-the-mortgage-fraud-fraud.html [nytimes.com]

Re:compensation (1)

bill_mcgonigle (4333) | about a year ago | (#45222415)

The schools teach that if you vote in an election, then your interests will be represented by your elected officials. Informed adults know that's such a steaming crock, but do we really expect government schools to teach that? Meanwhile, most voters don't bother to get informed (they did that in school, right?).

Heck, my kids' school teaches that Columbus thought the Earth was flat and that Lincoln started the Civil War to end slavery - it's mostly all folklore with the varnish of history.

Re:compensation (1)

sociocapitalist (2471722) | about a year ago | (#45223137)

Can someone tell me why these financial institutions are never forced to compensate the *individuals* that suffer from these events?

For instance in the mortgage fraud scandal they were allowed to settle fraudulent foreclosures for pennies on the dollar. Why are these companies never required to make the people they hurt whole again? Individuals that paid thousands of dollars simply got a small payment while banks just had to deal with "the cost of doing business."

I think I know the answer (lobbying/congresscritters in their pockets) but I think it's one of the most scandalous aspects of the financial mess of 2008.

Conceptually it's more like they have the (bankrupt) government as a whole in their pocket.

Got enough money to buy off a (bankrupt) government and you can get away with an awful lot.

The fine wasn't all of the punishment (5, Informative)

Jay Maynard (54798) | about a year ago | (#45221967)

That $460 million came out of Knight Capital's pockets too...and is far more effective than any fine the SEC could levy. Why should the SEC pile on, aside from the populist outrage that goes along with people handling billions of dollars?

And the punishment doesn't necessarily stop (1)

SirGarlon (845873) | about a year ago | (#45222139)

Furthermore, why would millionaires trust their money to a company that is getting pilloried in the press for fundamental failures of management, not to mention development practices?

Cutting corners on developing the software that handles your money: penny wise and pound foolish.

Re:The fine wasn't all of the punishment (3, Informative)

Software (179033) | about a year ago | (#45222289)

If Knight had put the $460 million in a pile and burned it, there would be no fine. The problem was that their algorithm was wildly buying and selling shares in the open market, and thus distorting that market. See the graph at http://www.businessweek.com/articles/2013-06-06/the-knightmare [businessweek.com] for an example of a stock that was affected. What if you were an investor in that stock who had set a stop-loss at $10? Knight's wild selling would have triggered the stop-loss, and you'd lose money because of Knight's actions. This gross market distortion is what the fine was meant to punish.

Re:The fine wasn't all of the punishment (1)

Anonymous Coward | about a year ago | (#45222383)

Who cares? Normal selling can blow through your stop loss also. "But it's not the right kind of normal selling. It's evil normal selling."

Re:The fine wasn't all of the punishment (1)

140Mandak262Jamuna (970587) | about a year ago | (#45222533)

Of course, the people who suffered because of the destabilization of the markets caused by such cavalier trading algorithms can sue to collect compensation for damages. But the same people who valiant rise to the defense of free markets, and "let people do what they want with their money and if they lose it, its their problem" are the same ones who rail against the trial lawyers and push for "tort" reform to reduce penalties.

Remember this folks, when you are pushing for complete free markets, trial lawyers and courts are the only form of defense against the big players. And once the government has been shrunk small enough to be drowned in a bath tub, will the courts have any power to enforce judgements?

Look at how toothless SEC is against powerful traders. That would exactly be the situation in the libertarian paradise where everyone acts anyway they want, and any harm they cause would have to be proved in court and compensation claimed. In that world taxes are so low and the Government would be so powerless and the courts would be so overloaded, the common man will have absolutely no protection. That is the side most libertarians refuse to see.

Do you wonder what happened after all the Atlases shrugged, ditched the world of moochers and moved to Galt's Gulch? The biggest Atlas there called himself Zeus and screwed all of them.

Re:The fine wasn't all of the punishment (0)

Anonymous Coward | about a year ago | (#45223095)

Compare & contrast: "Yes I killed my mother and father, but I'm the one that has to live without my parents now. I shouldn't be punished *further* with jail time, why should the courts pile on?"

This works out to a 3% fine (1, Insightful)

mfh (56) | about a year ago | (#45221983)

This isn't a slap on the wrist. This is a pat on the back for inflicting harm with egregious negligence.

Therefore this was probably engineered as an assault.

Businessweek weighs in [businessweek.com] .

Re:This works out to a 3% fine (1)

Anonymous Coward | about a year ago | (#45222201)

Inflicting harm on who? They are the ones who lost the 460m.

Chilling (1)

mfh (56) | about a year ago | (#45222397)

Apart from the exact victims here, there is a huge chilling effect.

http://www.forbes.com/sites/christophersteiner/2012/08/02/knight-capitals-algorithmic-fiasco-wont-be-the-last-of-its-kind/ [forbes.com]

Knight Capital is a trading company so the money they used belonged to other people.

FTA: "Such an episode would take down not only the traders, but likely the brokerage house that gives them access to electronic markets and perhaps even other clients of that brokerage. It could completely subvert the little amount of trust the public still has in our stock markets."

They've done this before (1)

Anonymous Coward | about a year ago | (#45221997)

Look at the bottom of the Wikipedia page [wikipedia.org] .

Some as far back as 2002 [nytimes.com] .

I think a bit more than a fine is due. Why isn't FINRA [finra.org] on these folks?!

Re:They've done this before (0)

Anonymous Coward | about a year ago | (#45222159)

I'm not sure they have a rule against ``writing buggy code that costs you millions''. Frankly, the money did go somewhere---it's like Knight literally gave away their capital to everyone who noticed the bug early enough.

They lost their own money (5, Insightful)

Anonymous Coward | about a year ago | (#45222007)

As a proprietary trading firm, they were working entirely with their own money. They had no external investors or whatnot (like hedge funds do). So, they made a mistake and they paid for it dearly. It's not clear to me that they should have paid any fine.

The article's whole argument seems to be made by comparing the size of the trading loss to the size of the fine, but no logical reasoning is given for why the one should have any relation to the other.

TFA sucks.

Re:They lost their own money (0)

Anonymous Coward | about a year ago | (#45222177)

As market maker, they probably have an obligation not to perform destabalizing trades---and on that day, market was surely destabalized by them.

Re:They lost their own money (1)

Anonymous Coward | about a year ago | (#45222361)

You're right that the size comparison is stupid, but you're incorrect in they shouldn't have been fined.

Financial institutions are regulated to increase market confidence and stability. (Okay, you can stop laughing now. Seriously, they are though. At least the ones who don't simply own the government.) There are penalties for breaching those regulations regardless of whether they only lost their own money. The fine is an incentive to facilitate this goal.

Think about it. If one of these incidents happened every week, there'd be no confidence in the market at all. (Come on, I said stop laughing!) No confidence in the market leads to an extraordinarily painful time for everybody. Like, bank run painful. So some deterrent is necessary to let people know that yes, the regulators aren't going to put up with people doing irresponsible shit.

As a car analogy - if you drive without a license, you will be fined. Do it repeatedly and you will be incarcerated, even if you never hurt anybody else - or yourself. Why? Because having unlicensed drivers on the road presents a hazard to others. The mere presence of that hazard is enough for deterrent measures to be taken regardless of whether the hazard eventuates into an incident. Prevention is better than cure.

Another analogy - maybe you're on a job site one day and you think it's a good idea to pick up a lit welder and start juggling. You will likely pay for that mistake dearly by inflicting massive, permanent injury to some part of your person - and no-one else will be hurt. So maybe you've paid "enough". Nevertheless, that won't stop the boss from firing you on the spot, and the company commencing their own legal action against you. The laws exist to facilitate this as punishment so that others think twice before emulating stupidity.

Re:They lost their own money (0)

Anonymous Coward | about a year ago | (#45222467)

Erm, I'm not convinced that the government really needs to impose fines to dis-incentivize companies from throwing away half a billion dollars. It's kind of a self-correcting error.

Their own money? (0)

Anonymous Coward | about a year ago | (#45222851)

As a proprietary trading firm, they were working entirely with their own money.

High frequency traders are not working with their own money. They are siphoning money off from the actions of actually serious buyers and sellers. Basically one expects them to act as medicinal leeches keeping the blood flowing. Not like sharks in a feeding frenzy. Even though most of the blood in the water afterwards will be from the sharks themselves, it tends to frighten the tourists.

Not joking with this... (3, Insightful)

EmperorOfCanada (1332175) | about a year ago | (#45222015)

I'm not joking when I say that procure number one when money is flying out of your servers is to Shut Them Down instantly. I would have pulled the cables out so fast the CPU might have been yanked out with the network cable. Or a good old shutdown -h now !!!!! (The exclamation marks speed up the shutdown)

And I wouldn't have done this one server at a time it would have been all the servers at the same time. I suspect they would lose money by not having the servers up but not at the firehose rate that they were losing money as they were.

The worst part is that the admins were probably following some procedure in their book and were refusing to just pull the plug in some vain attempt for 99.9 percent up time or other admin related metric instead of the clear "Don't Lose $48 Million a minute!!!!" metric. So probably another clear case of IT's priorities getting way out of sync with the company's actual priorities.

Re:Not joking with this... (1)

RobertLTux (260313) | about a year ago | (#45222055)

when stuff like that happens the Correct And Right response is to fire an AA-12 loaded with breaching rounds through the main power /data conduits. (this should be faster than finding and yanking cables)

Re:Not joking with this... (1)

Overzeetop (214511) | about a year ago | (#45222081)

Nuke it for orbit. It's the only way to be sure.

Wimp (1)

SmallFurryCreature (593017) | about a year ago | (#45222199)

Install Windows on it. Total annihilation. No survivors.

Re:Not joking with this... (4, Insightful)

locofungus (179280) | about a year ago | (#45222185)

The problem with this is that they didn't know they were losing money.

The trading had gone haywire and they didn't understand why it was doing what it was doing but at the time it was happening they couldn't say if they were making or losing money.

They built up positions of billions of dollars and only once it was all unwound and settled were the losses finally known.

I can feel for the programmers and sysadmins. Maybe this was right - maybe pulling the plug out would prevent the unwinding of positions that would then make money for the firm.

I wouldn't be surprised if there weren't previous problems where programmers and admins had been criticized by management for "doing the wrong thing with hindsight" when they didn't understand what was going on. If you have that sort of management culture then the natural inclination becomes to do nothing and push the responsibility up the chain.

Similar disasters have happened in the past - one that springs to mind was Piper Alpha where the other nearby rigs continued to pump gas to it even when they could see it was on fire - because if you stop pumping it takes days and costs a fortune to get things back up and running and it might just have been an easily controllable fire.

There's a very fine line to be drawn between reacting to the unknown too soon and reacting too late. There's also a fine line between making a reasonable best guess with the facts available and just making a random guess.

http://en.wikipedia.org/wiki/Piper_Alpha [wikipedia.org]

The fire would have burnt out were it not being fed with oil from both Tartan and the Claymore platforms, the resulting back pressure forcing fresh fuel out of ruptured pipework on Piper, directly into the heart of the fire. The Claymore platform continued pumping until the second explosion because the manager had no permission from the Occidental control centre to shut down. Also, the connecting pipeline to Tartan continued to pump, as its manager had been directed by his superior. The reason for this procedure was the huge cost of such a shut down. It would have taken several days to restart production after a stop, with substantial financial consequences.

Piper Alpha (0)

Anonymous Coward | about a year ago | (#45223043)

Piper Alpha was a cascade of multiple design and procedural failures. [lawrenceperson.com] However, while it's true the gas feeds from other rigs were not shut off, the lines were so highly pressurized that it would have taken hours for them to bleed off anyway, and the entire disaster unfolded in less than half an hour. So that aspect had very little to do with the final death toll.

Re:Not joking with this... (0)

Anonymous Coward | about a year ago | (#45222231)

problem is they didn't realize what was happening until it was having an obvious impact on the market.

Re:Not joking with this... (1)

CastrTroy (595695) | about a year ago | (#45222327)

I guess it depends on what the trading volume was. Maybe they were losing 48 million a minute, but shutting everything down would have caused them to hold on to stuff longer than they should have. They possibly could have been losing more than 48 million a minute just by doing absolutely nothing, by not being able to sell stuff that was dropping. Personally, I wonder why it took them 45 minutes though. It should have been a simple script to revert everything back to the previous software version. It's always smart keep the previous binaries around so you can do a quick revert without even doing a build in the case where there's some unforeseen problem with the code.

Re:Not joking with this... (1)

EmperorOfCanada (1332175) | about a year ago | (#45222431)

Yes a key strategy when upgrading your servers is to have a retreat plan. Quite simply if you upgrade your servers regularly one of your upgrades is going to blow up. I know that I am nervous every time I push a new version and never push a new version and then run out for lunch.

Its who you know that matters.. (-1)

Anonymous Coward | about a year ago | (#45222019)

Follow the money and you will find they paid off the correct people .. the best government that can be purchased.

()-()

I may be missing something, but... (1)

bigHairyDog (686475) | about a year ago | (#45222021)

TFA states that the $460 million was lost by Knight Capital themselves. If they'd been fined $12M for stealing $460M, I'd be as outraged as the article author, but from where I'm standing it looks like the SEC turned a $460M loss into a $472M loss.

Sure, they're idiots, they've punished themselves amply!

Re:I may be missing something, but... (1)

nedlohs (1335013) | about a year ago | (#45222389)

So if I break the traffic laws and while doing so crash my car, you are saying I should not be fined/jailed/whatever for breaking those laws since I already punished myself amply with the damage to my car?

Re:I may be missing something, but... (1)

Impy the Impiuos Imp (442658) | about a year ago | (#45222465)

If the accident was due to you being sloppy with maintenance, the punishment should be less than if you delinberately ran someone down.

If you lost your car, destroyed $460 million of someone's fence, and already paid to repair it, is more than a ticket warranted?

biblical financial disaster? (0)

Anonymous Coward | about a year ago | (#45222051)

The fine for what could have been a biblical financial disaster?

Perhaps it shouldn't be possible for single trader or trading company to create a biblical financial disaster. Perhaps this is indication of larger problems in the marketplace.

If you're interested in this sort of thing, there's a great book about the rise and fall of "Long Term Capital Management", a hedge fund that just about wiped out the world financial markets - for REAL (none of this biblical hyperbole!) http://en.wikipedia.org/wiki/Long-Term_Capital_Management.

Bad code wasn't the problem (4, Informative)

onyxruby (118189) | about a year ago | (#45222077)

This had absolutely jack to do with bad code, that wasn't the problem. The problem was a failure to adhere to best practices that would have prevented the bad code from ever seeing production to begin with. The lack of a process for the distribution of code to production made a failure for bad code inevitable.

This was sheer incompetence of the highest magnitude and should have been readily caught in the lab. This is what happens when cowboys run the show and ITIL is considered a four letter word. Take your younger staff, the wannabe cowboys and make them read this report. Let them learn at others incompetence. As for getting your management to read this, that's an entirely different story.

Re:Bad code wasn't the problem (1)

TTL0 (546351) | about a year ago | (#45222255)

What is worse is that the wannabe cowboys think that they should be using all the latest and greatest like FB and Google do. Little do they understand the consequences between messing up a trade and losing someones cat videos.

Re:Bad code wasn't the problem (1)

jimicus (737525) | about a year ago | (#45222803)

It's not as simple as "badly-tested code" - it's actually "badly-designed deployment procedure and insufficient oversight".

TFA is light on details, but other articles have picked up the details and explained them a bit better: basically, Knight Capital were running their code on a cluster of 8 nodes.

They used a flag to signal a module to run. A particular module had been out of use for some years, so the flag to signal that module was re-used for a new module.

With me so far? OK, this is all very nice. Except when they updated their cluster, one of the nodes was missed. It still had the legacy module on there.

From this point on, their cluster was a disaster waiting to happen. Once the flag was triggered, all 8 nodes did exactly what they were supposed to do based on the code they were running - but because one of them was out of sync with the code it was meant to be running, it did something else entirely. Everything else cascaded from there.

It would have been relatively trivial to add some sort of oversight to the system so as to stop it fast if what it was doing versus what it was meant to be doing were two different things - but Knight didn't do this.

Failures in Large Software Systems Seem the Norm? (2)

BoRegardless (721219) | about a year ago | (#45222085)

I am a bit numbed by the number of failures of software systems at big companies (& governments) who should know better.

If you are designing critical systems, there has to be an incredibly detailed master system describing fallbacks, trip points and fail safe conditions, let alone a gross shutdown (seen multiple times recently.) What do these failures in both checking and security and logic mean for trusting large institutions and government?

The question: What overview system of principles of software design are going to be needed to properly organize a major software program from day one to prevent, at least, the obvious failure modes? There is something inherently wrong by design when hundreds to thousands of security breaches occur in the US on public websites and databases each year.

I don't see the point of a $12M fine. (1, Insightful)

mysidia (191772) | about a year ago | (#45222145)

It's a bad thing...

Just make sure they suffer all the pain caused by the $450 Million loss

In other words: don't allow them to pass any of this loss on to their customers by drawing funds from their accounts.

Re:I don't see the point of a $12M fine. (2)

Solandri (704621) | about a year ago | (#45222641)

Just make sure they suffer all the pain caused by the $450 Million loss

They did. It was their own money they lost. The summary and TFA gloss over that fact in some circuitous attempt to grind a non-relevant axe. Fining them makes about as much sense as charging someone who fails at committing suicide with attempted murder.

Re:I don't see the point of a $12M fine. (0)

Anonymous Coward | about a year ago | (#45222837)

Despite what you might have heard from some politicians, corporations aren't people.

It was Knight's shareholders that ultimately lost the money, as the stock price plunged following the debacle.

Wall St systems in general are bad (5, Insightful)

Andover Chick (1859494) | about a year ago | (#45222233)

Most all Wall St firm's systems are bloody awful. There are many reasons for this. First, the true business is sales/brokerage so the engineering side, though it is a strategic asset, is often neglected. This includes putting clueless business side people in charge of IT system. Second, the boom and bust cycles of tech investment are a bad way of building tech systems. It's like not watering your garden all summer except for one day when you use a high-pressure fire hose on it. Third, as part of the boom/bust cost cutting they have no employee longevity in tech so no one understands how the mind-bogglingly complex and obscure layers of technology work. Fourth, and more recently for cost cutting, they've dispersed their dev teams around the globe so communication and teamwork are seriously compromised. Fifth, when there is a boom they try to build their systems so quickly that they take all sorts of dangerous engineering short cuts. All this adds up to engineering disaster.

Be thankful they are fined. (1)

140Mandak262Jamuna (970587) | about a year ago | (#45222267)

Given the cronyism masquerading as capitalism in USA, you should be glad this behavior is considered bad enough to be punished. Be glad they did not get the contract to "improve" healthcare.gov

Accountability (0)

Anonymous Coward | about a year ago | (#45222311)

Why is it that when a company like Knight screws up and costs $460M they are penalized but when the government spends more on a useless site (heathcare.gov) nothing happens? Considering that the SEC fined them for not "having adequate safeguards in place" this should apply to other debacles. I guess we should have lower expectations for our elected officials and we can all be friends and sing kumbaya.

Good to Be A Software Engineer (-1)

Anonymous Coward | about a year ago | (#45222409)

I'll bet the Software "Engineers" only got a slap on the wrist, maybe fired at best.

Good thing they had liability insurance..oh wait, they don't..

Good thing they had a professional discipline body..oh wait, they don't

Good thing they had a license that could be revoked..oh wait, they don't

Real engineers would face much much harsher consequences. Sure, their career may be over, but hey, no jailtime, no finincial consequences, nothing. They can proceed straight into their next engineering field, sanitation engineering.

Re:Good to Be A Software Engineer (1)

Anonymous Coward | about a year ago | (#45222447)

Who cares? Nobody died. This isn't the Tacoma friggin' Narrows Bridge, or even Therac-25. Hell, the mistake was cheaper than the Mars Climate Impactor. Total impact in the real world outside of Wall Street was zero, unless you were directly related to Knight Capital in some way.

Re:Good to Be A Software Engineer (0)

Anonymous Coward | about a year ago | (#45222841)

"cheaper than the Mars Climate" (I assume you meant "Orbiter")

Are you seriously comparing a website and a collection of databases to a spacecraft with rocket science? Even with hundreds of thousands of parts (on the ground and in space) and probably obscene amounts of code a single issue (spacecraft using metric, Ground controllers using English units) was all that went wrong. By all reports the Healthcare website is nothing but issues, bad code, poor implementation, incomplete databases, the list goes on.

Software engineers licensed by the same body (1)

raymorris (2726007) | about a year ago | (#45222789)

The National Council of Examiners for Engineering and Surveying sets the standards for licensing engineers.
Their certification tests include:
Architectural
Chemical
Civil: Structural
Civil: Transportation
Electrical and Computer: Computer Engineering
Electrical and Computer: Electrical and Electronics
Nuclear
Petroleum
SOFTWARE
Structural

So what about the fines for Obamacare? (0)

Anonymous Coward | about a year ago | (#45222645)

millions of people are losing their insurance and being forced to buy from the exchange which is non-existent?

  Are we going to see articles about the lack of oversight on Slashdot and populists with torches demanding the White House do something about it?

I think not.

Measly 12 Mil? (1)

Linsaran (728833) | about a year ago | (#45223003)

Tell you what, if 12 Mil is measly to you, then I'm sure you wouldn't even notice if half a mil went missing. And I sure could use half a million dollars . . .
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