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Knight Capital Debacle Underscores Technological Market Risks
How stable are the electronic trading markets? The Knight Capital glitch once again throws this into question into the limelight.
As the trading systems for firms grow increasingly complicated, the risk for massive system failures also rises. A trading glitch within a money center bank is also a concern, especially if the institution was deemed too big to fail. Taxpayers would likely pick up the tab if this scenario unfolds.
There have been so many glitches—from S&P’s technical error in downgrading France from its AAA rating last November to the flash crash of 2010—that they are too numerous to count. If this trend continues, investors will demand more return to participate in the markets, which could result in less robust trading across all asset classes.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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