The electronic glitch that cost global financial services firm Knight Capital Group $440m in August 2012 is emblematic of a new form of risk in the digital economy: technological risk. As one of the largest and most technologically advanced firms in the US, Knight is responsible for $20bn of trades on the New York Stock Exchange each day, about one-sixth of the exchange’s total daily trading volume. Much of Knight’s trading is handled entirely electronically, and its success and growth as a broker-dealer is a direct consequence of Moore’s Law – the continuing trend of cheaper, faster and more powerful computers.
But the financial industry differs from the semiconductor industry in at least one important respect: human behaviour plays a more significant role in finance. As the great physicist Richard Feynman once said: “Imagine how much harder physics would be if electrons had feelings.” While financial technology undoubtedly benefits from Moore’s Law, it must also contend with Murphy’s Law, that “whatever can go wrong will go wrong”, as well as its technology-specific corollary, “whatever can go wrong will go wrong faster and bigger when computers are involved”.
