[ by Melanie Gretchen ]

According to SEC Chairman Mary Schapiro, it's unlikely that the Knight Capital trading debacle will inspire the SEC to introduce new trading rules.  At SIFMA's annual meeting in New York, Ms. Schapiro said firms are responsible for following the rules created by the SEC - and in Knight's case - it did not. 

i.e., - the current rules would appear to be sufficient;  what's needed is for firms to comply with the terms and conditions of the laws.

What Happened on August 1. Reportedly, a "large software bug" triggered "dormant" computer code to start emitting erroneous orders at the outset of trading on the first day of August.  At one point, the erroneous purchase orders resulted in Knight holding a securities inventory valued at about $7 billion. Unwinding the flood of erroneous purchase orders ultimately cost the financial services firm $461 million and Knight’s shareholders 70% of their equity in the firm.  A consortium of other 6 market firms, led by Jefferies & Co., rescued Knight.

Minority Report.   Mary Schapiro referred to the errors as a "fluke" for which the industry should not make an exception.  [C-I Note:  On what basis did Schapiro reach that conclusion?  It sounds a "cut-off" line - her way of saying "discussion is over."]  Ms. Schapiro added the following:

"While I know it was painful for Knight's shareholders and for Knight's management, there was not a good reason to socialize the losses from their technology mistakes broadly through the markets. It's important for firms to realize this is serious stuff and that the use of technology, or misuse of it can be a life-threatening experience.''

The firm, like the shareholders, must suffer the consequences of a hand poorly played, and "bear those costs themselves."

For further details, go to [Traders Magazine, 10/23/12].