I suppose it's a positive that Knight had to recognize the losses immediately, instead of sweeping them under the rug by adjusting a parameter in a risk model (see, e.g., JP Morgan whale + a million other recent examples). Would Knight have lost even more money if the exchange hadn't shut down trading in the affected names?
NYTimes: $10 million a minute.
That’s about how much the trading problem that set off turmoil on the stock market on Wednesday morning is already costing the trading firm.
The Knight Capital Group announced on Thursday that it lost $440 million when it sold all the stocks it accidentally bought Wednesday morning because a computer glitch. ...
The problem on Wednesday led the firm’s computers to rapidly buy and sell millions of shares in over a hundred stocks for about 45 minutes after the markets opened. Those trades pushed the value of many stocks up, and the company’s losses appear to have occurred when it had to sell the overvalued shares back into the market at a lower price.
The company said the problems happened because of new trading software that had been installed. The event was the latest to draw attention to the potentially destabilizing affect of the computerized trading that has increasingly dominated the nation’s stock markets.This says it all. Previous posts on high frequency trading.
Update: My representative is on the job!
NYTimes: ... Some critics of the current market structure have said that much bolder reform is needed. One change that has been contemplated is a financial transaction tax, which would force firms to pay a small levy on each trade. At the right level, this could pare back high-frequency trading without undermining other types, supporters say.
“It would benefit investors because there would be less volatility in the market,” said Representative Peter DeFazio, a Democrat of Oregon. He introduced a bill containing a financial transaction tax last year.
Opponents of such a levy say that it could hurt the markets and even make it more expensive for companies to raise capital.
“I would be very concerned about unintended consequences,” said Mr. Sauter.
But Representative DeFazio, who favors a levy of three-hundredths of a percentage point on each trade, says he thinks the benefits of high-frequency trading are overstated. “Some people say it’s necessary for liquidity, but somehow we built the strongest industrial nation on earth without algorithmic trading,” he said.