45 Minutes to Lose $460 Million
Knight Capital, August 1, 2012: one server out of eight missed a deploy, and old code started trading.
At 8:01 a.m. on August 1, 2012, an automated email warned about code nobody was supposed to be running. There were 97 of them before the market opened. Forty-five minutes after it opened, Knight Capital was holding billions of dollars in stock it never meant to buy or sell.
What happened
Knight handled about a tenth of the trading in listed U.S. stocks. For a new NYSE program starting that morning, it put new code on its order router. The code went out to eight servers by hand, with no second reviewer and no written procedure, and one server was missed.
The new code reused a flag that had once switched on Power Peg, an old function unused since 2003 but still in place. On seven servers the flag did what it should. On the eighth it woke Power Peg, which kept sending orders without counting the shares already filled.
In about 45 minutes, Knight’s system made more than 4 million trades, over 397 million shares. It ended up about $3.5 billion long and $3.15 billion short. The loss was more than $460 million.
Why it is a Base Rate film
The trading rule wasn’t the problem. Everything around it was: a deploy with no check, a warning that wasn’t built as an alert, and no plan for turning the system off. The film follows that morning minute by minute, reconstructed from the SEC’s order against the firm. Knight settled without admitting or denying the findings.
Source: SEC Release No. 34-70694 (October 16, 2013).
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Narration and imagery are AI-generated, and historical scenes are artistic interpretations, not records. Charts marked illustrative are not real market data. Backtests and simulated results do not guarantee future results. Nothing in this film is financial advice. Crypto trading involves risk of loss, including all of your capital. Risk disclosure.