Knight trading loss shows cracks in equity markets

NEW YORK,  Aug 3, 2012 – The software glitch that cost Knight Capital Group $440 million in just 45 minutes reveals the deep fault lines in stock markets that are increasingly dominated by sophisticated high-speed trading systems. But Wall Street firms and regulators have few easy solutions for such problems.

Automated trading can handle massive volumes of transactions in milliseconds, something human traders could never do. But the benefits come at a cost: stock markets have become a jumble of exchanges, market makers, high-frequency traders, and investors using different systems that can interact in unexpected ways.

The May 2010 ‘Flash Crash’, in which U.S. stocks inexplicably sank in a matter of minutes, illustrated how technological problems can cascade. These sorts of problems may be more likely given that many market participants are under pressure to cut costs – including technology spending – as trading margins narrow and regulation costs increase.

Since April, a series of embarrassing and costly technology issues have rocked markets and shaken the confidence of investors.

BATS Global Markets, an exchange, was unable to complete its own initial public offering because of a technical problem. Nasdaq botched the market debut of Facebook due to technical glitches, costing it tens of millions of dollars, while UBS AG lost more than $350 million in trading Facebook shares and is blaming Nasdaq.

“The structure just may be too complicated to work,” said Larry Tabb, founder of Tabb Group, a consulting firm that focuses on capital markets.

Boeing says to meet 787 year goals despite delamination glitch

CHICAGO, Wed Mar 14, 2012 − The head of Boeing Co’s. Commercial Airplanes unit reaffirmed on Wednesday that the plane-maker can correct a glitch on the 787 Dreamliner and meet its delivery goals for the plane this year.

The light-weight, carbon-composite airplane is already three years behind its development schedule. In February, Boeing reported signs of “delamination” on the rear fuselage of some 787s, calling into question the company’s plan to build 10 of the airplanes per month by the end of next year.

“I see nothing to date that leads me to believe that we won’t deliver all the 787s we have in our plan by the end of the year,” Jim Albaugh told a JP Morgan Aviation, Transportation and Defense conference that was broadcast over the Internet.

Delamination occurs when stress causes layered composite materials to separate. The issue was the result of a manufacturing error that occurred at a Boeing plant in South Carolina.

Boeing has said that the problem may affect the first 55 Dreamliners built and that it will take 10 to 14 days per plane to repair. Boeing has said the repair may affect deliveries in the first part of 2012, but not in the longer term.

“Between the 787 and the 747, we should deliver between 70 and 85 of those airplanes this year. It’s split pretty evenly between the two airplanes,” Albaugh said. The 747 is the largest commercial airplane Boeing makes.

Many experts doubt that Boeing can hit the 10-per-month rate target for Dreamliners. The current rate is 3.5 per month.

Despite the delays, the Dreamliner is a hit among customers, who have ordered about 870. Boeing delivered the first 787 last year. The company assembles 787s at plants in Washington and South Carolina. Boeing expects the first 787 assembled in South Carolina to be completed next month.