For those who need convincing that code review is worth more than gold, Dealbook, a financial news service of the New York Times, ran an article yesterday detailing the near collapse of Knight Capital Group, a market maker on the NYSE and NASDAQ markets, due to a software “glitch.”
According the article, when trading began last Wednesday, Knight Capital updated code to enable trading on the New York Stock Exchange’s new trading platform, just released that day. This new platform transitioned trades from retail investors to a special area. Firms like Knight Capital had to implement code updates to trade in this designated area and compete to offer the best price to these investors.
When Knight’s new system went live, however, “the firm ‘experienced a human error and/or a technology malfunction related to its installation of trading software,’ the firm explained in the filing on Monday.” The result – a software bug initiated a chain reaction: Knight Capital unintentionally executed unauthorized offers to buy and sell shares of 148 major stocks, which drove up trading volume, influenced prices of stocks, and impacted traders and exchanges alike. They then had to sell those stocks at a $440 million loss, which drained their cash reserves and almost destroyed the company.
Although a rescue package has been approved to save the company, it dilutes shareholder value for Knight Capital investors who are actively selling the stock as you read this. As of yesterday morning, Knight Capital shares had plummeted 33 percent in pre-trading (MarketWatch). Further, the NYSE reassigned the firm’s market-making responsibilities to another market maker, Getco, for an undisclosed time period.
So, what do you think of code review now?
Read this Bloomberg article to learn more about how other software bugs cost BIG money.