“The apparent trading error by Knight Capital Group…reflects the type of event that can raise concerns for investors about our nation’s equity markets,” said SEC Chairman Mary Schapiro in a statement on Friday. And it is, according to Forbes’s Chris Barth . The idea of a computer glitch running rogue and losing nearly half a billion dollars in under an hour is exactly the kind of freak occurrence that keeps investors up at night (and leads others to stash their cash under the mattress rather than putting it to work). But is it an unlikely accident or a simple eventuality?
Consider the flash crash, just over two years in the rear-view mirror. Investors have spent those couple years convincing themselves that market circuit breakers have effectively prevented a repeat of that event. Certainly Knight Capital’s glitch pales in comparison – thanks in part, as Shapiro notes, to “several of the measures [the SEC] instituted following the Flash Crash” – but I wouldn’t want to be the one to make that point to higher ups at Knight Capital. The reality, as Christopher Steiner points out, is that these types of disasters are far from freak occurrences.