Knight Blowup Shows How High-Speed Traders Outrace Rules

The U.S. has the most sophisticated financial markets in the world, yet they can unaccountably spin out of control at a moment’s notice.

The latest case involves Knight Capital Group Inc. (KCG), a securities-trading company inJersey CityNew Jersey, that was 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.

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