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When extra algo testing isn’t worth the cost

Europe’s initiative to verify trading algorithms offers limited extra safety at substantial cost, market participants say

Regulators are keen to avoid another market 'Knightmare'
Regulators are keen to avoid another market 'Knightmare' Photo: Getty Images

It is every electronic trading firm’s worst nightmare. A computer algorithm, the firm’s secret technology that directs trades into the stock market, suddenly, without warning, goes awry.

Knight Capital, now part of electronic market-making firm KCG Holdings, faced just that situation in August 2012 when a rogue algorithm lost the company more than $400 million in the space of 45 minutes.

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