Question

In: Operations Management

Categorize the causes of the events at Knight Capital on August 1, 2012, into policy, governance,...

Categorize the causes of the events at Knight Capital on August 1, 2012, into policy, governance, process, and people failures.

Expert Solution

Knight Capital :It is a specialized firm that executes the trades for retail brokers

On august 1st 2012 , it lost almost $440m in cash due to faulty test of new trading software

Here are the serious of events occurred on that particular day !

As per Nanex , that offers forensic analysis has experienced a strange behavior on that D day

In trading ,generally there would be always a some gap between the price people are asking for to sell their shares, and what people are bidding to buy them.

On the morning where knight capital mishap occurred they rolled out new software , a strange behavior has been observed that lots of trades happening within that bid/ask gap.The software went out and bought at the paid ask price and then sold at the bid price again and again .

One of the stocks the program was trading, electric utility Exelon, had a bid/ask spread of 15 cents. Knight Capital was trading blocks of Exelon common stock at a rate as high as 40 trades per second – and taking a 15 cent per share loss on each round-trip transaction.

As the program continued , Knight capital fast buys and sells ,moved prices up and attracted more action from other trading program and as a result it increased the amount of losses resulting from their trades and finally resulted in loss of $440m

As a part of retrospection , it went all because of one bad algorithm and deploying in to production with out proper testing and confirmation

It was a combination of ISV software bugs , bad documentation and mainly human error

In addition to that Knight Capital violated the requirements of rule, because it did not have technology governance controls and supervisory procedures sufficient to ensure the orderly deployment of new code or to prevent the activation of code no longer intended for use

There are always 4 things we should mind when introducing any change or risk:

1.) Configuration Management

2.)Production Monitoring

3.) Risk Management

4.) Control on high volume transactions

keosha answered 11 months ago

On August 1, 2012, Lincoln Services was started and at the end of the year December...

On August 1, 2012, Lincoln Services was started and at the end of the year December 31, 2012, had the following unadjusted trial balance. please prepare the year-end adjusting and closing entries. please record the transactions in the General Journal provided. Account Title Debit Credit Cash 17,500 Supplies 8,900 Prepaid Insurance 6200 Equipment 131000 Accumulated Depreciation Equipment 25250 Account Payable 5800 Interest Payable 0 rent payable 0 wages payable 0 property tax payable 0 notes payable 24000 common Stock 77600...

On August 1, 2012, all of the outstanding stock of Bridge Corporation (a calendar year taxpayer)...

On August 1, 2012, all of the outstanding stock of Bridge Corporation (a calendar year taxpayer) was purchased from an unrelated party for cash by Infrastructure Corporation. On July 1, 2015, Bridge adopted a resolution providing for a plan to completely liquidate. The plan of complete liquidation provided that Bridge would be liquidated upon payment of its indebtedness to a large, publicly held lender, but in any event not later than March, 2018. Bridge’s loan agreement had been entered into...

The following events occurred in August and September: 8/1 YOU filed a charter with the State...

The following events occurred in August and September: 8/1 YOU filed a charter with the State of Louisiana to form the YOUR Accounting Corporation. The charter authorizes you to issue 5000 shares of $2 par common stock. The state charged you a $75 fee to file the charter. Since your business is not yet approved, you had to pay this fee using personal funds. 9/1 You received your charter from the State of Louisiana and officially opened your business. Your...

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits...

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31? Select one: A. $1,000. B. $2,400. C. $1,400. D. $400. E. $1,200.

Violetta's Violins purchases a fire insurance policy for her storefront on August 1st, Year 1. The...

Violetta's Violins purchases a fire insurance policy for her storefront on August 1st, Year 1. The policy lasts two years, ending on July 31st, Year 3. The policy costs a total of $12,000, which Violetta pays in full up front. Assume Violetta records adjusting entries at the end of each month. Answer the following questions regarding Violetta's Year 2 financial statements ending on 12/31: How much Prepaid Insurance will show up on Violetta's Year 2 Balance Sheet? How much Insurance...

Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000....

Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000. At that date the shareholders’ equity of Tam Ltd was: $ Share Capital 2,200,000 Retained Earnings 640,000 Additional information for the year ended 30 June 2014: (1) Intercompany sales: (a) Tim Ltd to Tam Ltd $42,000 (b) Tam Ltd to Tim Ltd $36,000 (2) Unrealised profits in closing inventory as at 30 June 2014 is $2,400 for goods sold by Tam Ltd to Tim...

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000...

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000 in cash and other assets. Nephew had a book value of $828,000 and the 20 percent noncontrolling interest fair value was $170,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $348,250. Uncle’s appropriately adjusted book value as of that date was $1,127,500. Separate operating income figures (not including investment income) for these two companies follow. In addition,...

Economy Laundry Company had the following transactions in August: Aug. 1 Issued capital stock for cash,...

Economy Laundry Company had the following transactions in August: Aug. 1 Issued capital stock for cash, $ 150,000. 3 Borrowed $ 40,000 from the bank on a note. 4 Purchased cleaning equipment for $ 25,000 cash. 6 Performed services for customers who promised to pay later, $ 16,000. 7 Paid this month’s rent on a building, $ 2,800. 10 Collections were made for the services performed on August 6, $ 3,200. 14 Supplies were purchased on account for use this...

true or false? 1,In the context of DCF, a company maintaining a capital structure policy of...

true or false? 1,In the context of DCF, a company maintaining a capital structure policy of zero debt will have a levered equity beta equal to its unlevered equity beta. (All all other inputs remain unchanged.) 2,If the corporate income tax rate were to drop to 0% then the use of debt will become more desirable in terms of increasing net income and ROE. 3,Not every company with growing earnings and dividends will be worth even more if management were...

13.Inflation sometimes causes people to pay capital gains tax than they ought to, . 1.less;...

13.Inflation sometimes causes people to pay ________ capital gains tax than they ought to, ________. 1.less; because inflation creates the opportunity for a tax write-off 2.more; because the inflation adjustments in tax laws overcompensate for inflation 3.more; if they neglect to claim the inflation adjustment that tax laws allow 4.more; if much of their calculated profits from selling assets was due to inflation 5.less; because tax laws do not typically account for inflation 15.Wanda owns a store and has not...