WorksheetsKnight Capital Group Case Study Quiz
Total questions: 20
Worksheet time: 10mins
What type of firm was Knight Capital Group?
Commercial bank
Investment advisory firm
Market maker and electronic trading firm
Insurance company
On what date did the Knight Capital software failure occur?
May 6, 2010
August 1, 2012
June 15, 2012
July 10, 2017
Approximately how long did it take for the software error to cause massive losses?
One trading day
Less than one hour
One week
Three days
What was the estimated financial loss suffered by Knight Capital due to the incident?
$100 million
$250 million
$440 million
$1.4 billion
Which trading system was directly involved in the failure?
PMON
BNET
SMARS
RLP
What does SMARS stand for?
System for Market Algorithmic Routing Software
Smart Market Access Routing System
Strategic Market Analysis and Routing System
Securities Market Automated Routing Software
What new NYSE program triggered the rushed software deployment?
High Frequency Trading Program
Dark Pool Exchange
Retail Liquidity Program (RLP)
Circuit Breaker Program
How many servers were used to deploy the new SMARS code?
5
7
8
10
How many servers were incorrectly updated during deployment?
None
One
Two
All eight
Which algorithmic code was unintentionally activated?
RLP Core
Circuit Breaker
Power Peg
PMON
Why was the legacy code dangerous in a live trading environment?
It slowed system performance
It bought high and sold low intentionally
It disabled trading limits
It encrypted trading data
What poor software practice contributed to the failure?
Excessive encryption
Using open-source libraries
Retaining dead code in production systems
Outsourcing development
What critical safeguard did Knight Capital lack during the incident?
Backup servers
Manual approval process
Automated deployment checks
A kill switch for trading algorithms
How many servers were affected by the deployment error?
None
One
Seven
All eight
What immediate action finally stopped the faulty trading?
SEC intervention
Goldman Sachs purchase
Shutting down SMARS on all servers
Reverting to legacy systems
What deployment mistake directly activated the legacy code?
Incorrect server IP mapping
Repurposing an old configuration flag
Missing unit test coverage
Incorrect database schema
What company bought Knight Capital Group after the bankruptcy crisis?
Goldman Sachs
Citadel Securities
Getco LLC
Virtu LLC
What key DevOps principle could have prevented inconsistent server updates?
Agile sprint planning
Manual verification
Automated deployment and configuration management
User acceptance testing
Why did reverting to the “old code” worsen the situation?
The code was incompatible with NYSE systems
All servers then ran Power Peg with no throttle
It doubled transaction fees
It disabled monitoring tools
Which broader lesson best summarizes the Knight Capital failure?
Financial firms should avoid automation
Speed is more important than testing
Technical debt and weak risk management can destroy firms quickly
Regulation always prevents system failures
