Garbage in = garbage out, $440 million worth!

Daylife/Reuters Pictures used by permission

Knight Capital Group said losses from yesterday’s trading breakdown are $440 million, almost quadruple its 2011 net income and more than some analysts had estimated, and the firm is exploring strategic and financial alternatives. Its stock has lost 66 percent in two days.

Knight said it will continue its trading and market-making today as it considers its options. Yesterday’s issue was related to the installation of trading software and resulted in the company sending “numerous erroneous orders,” the Jersey City, New Jersey-based firm said today…

The New York Stock Exchange reviewed trading in 140 stocks from Molycorp (MCP) to AT&T, yesterday as the market’s open was disrupted. Trades that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes…

As stock swings mounted yesterday, the company told some clients of its market-making business that a “technical issue” was affecting its systems and advised them to route orders elsewhere, according to e-mails from spokeswoman Kara Fitzsimmons yesterday. The issue was confined to that unit and its other operations were unaffected, she said.

The errors were caused by a malfunction in a trading algorithm, according to a person at Knight who asked to remain anonymous because the matter hasn’t been publicized.

Every geek knows all the excuses. It remains that the software wasn’t adequately tested before releasing it into the wild from the installation at Knight Capital. It doesn’t matter if the software provider was the source of the screw-up — it still was Knight’s responsibility to thoroughly test it before activating trades with the NYSE.

The NYSE reacted to the disaster, picked up the bad trades happening and notified Knight Capital 1 minute after they started. It took Knight 45 minutes to halt the trades. WTF? No kill switch? No way to turn off the power or shutdown communications?

No excuses, folks.

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