Knight incident highlights software risks

Software glitch which led to US$440 million losses highlights need for software contracts need to be drafted carefully.

The tremendous power of software was illustrated last week at Knight Trading. A software upgrade for the NYSE company's financial trading system introduced an algorithm from an old program that produced erratic trading behaviour, causing US$440 million losses in just 45 minutes.

That amounted to over US$10 million lost for every minute and brought the company to its knees. Just imagine, in the time most of us take for lunch, a respected company with 1,400 employees, plunged into crisis. 

Although it asked the SEC to cancel the trades, the SEC took the stance that the trades would stand.

Tech lawyers read cases about the tremendous amount of financial loss poor software can cause (one of the key cases involved billing software created for a municipal water supplier) and we are reminded that software contracts need to be drafted carefully and software testing can never be compromised. 

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