How did a botched deployment lose $440 million in 45 minutes?

A botched deployment lost Knight Capital about $440 million in 45 minutes because one old, forgotten piece of code woke up on a single server and kept sending orders until the damage was done. Knight was the largest trader in U.S. equities, using high-frequency trading algorithms for a 17.3% share of trading on the NYSE. On August 1, 2012, it was updating its automated order router, which ran on eight servers, and a technician forgot to copy the new code to one of them.

That mattered because of a flag. The new code reused a flag that used to switch on an old function called Power Peg. On seven servers the flag meant the new feature. On the eighth, which still had the old code, it triggered Power Peg instead. Power Peg was supposed to stop when enough orders had been filled. But the code that reported fills had been altered after Power Peg was retired, so the orders were never recorded as complete, and the server sent out orders indefinitely.

The result was a flood. For 212 incoming orders, Knight sent millions of child orders: 4 million executions in 154 stocks, more than 397 million shares, in about 45 minutes. Prices moved for 148 companies on the New York Stock Exchange; shares of Wizzard Software went from $3.50 to $14.76.

Knight took a pre-tax loss of $440 million, and its own share price fell by over 70%. Days later, on August 5, it raised around $400 million from investors led by Jefferies to stay in business. The company was merged into KCG Holdings in 2013.