“The Knightmare”

GRAPHIC BY NANEX

On Aug. 1, 2012, Knight Capital’s algorithm relentlessly dumped the stock of flash memory company Spansion until exchange authorities cut them off. Price and volume data taken from multiple exchanges.

1. Market opens

Spansion’s share price peaks at $11.46 at 9:31 a.m.

2. Knight starts trading

Seconds after the markets open, Knight’s algorithm begins its Spansion share-dumping frenzy, pushing the price below $10.

3. First halt

NYSE, the venue for most Spansion trades, sees something is wrong and suspends trading of the stock for a few minutes. Spansion’s price climbs on other exchanges as the dumping pauses.

4. Second halt

The pause ends, and Knight’s algorithm springs back into action before NYSE calls another halt.

5. Final halt

At 9:58 a.m., NYSE finally stops Knight’s trading for the day. Spansion’s stock, freed of Knight’s rogue algorithm, resumes a normal trading pattern.

6. Price rebound

The stock returns slightly shy of its earlier peak. The price then falls as traders unload the stock they bought so cheaply before.

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