Aug 02, 2012
Knight seeks to recover after US$440 million trading error
Knight
Capital Group has said that software glitches it encountered yesterday at the
open of trading have led to pre-tax losses of US$440 million.
The
disruption, which Knight claims was related to an installation of trading
software, led the broker to send numerous erroneous orders in NYSE-listed
stocks into the market. The orders caused price fluctuations that led NYSE
Euronext to review trading in 148 symbols. The US bourse subsequently
cancelled trades executed between 09.30 – 10.15 EST in six stocks: Wizzard Software, China Cord Blood, Reaves Utility
Income Fund, E-House (China) Holdings, American Reprographics, Quicksilver
Resources.
Knight
said the software had been removed from its systems and that clients were not
negatively affected by the erroneous orders. Stocks listed on Nasdaq OMX and
other bourses were not impacted and the company continued its market making
activities from the start of trading today.
Knight
said the US$440 million loss “severely impacted” its capital base but
stressed that its broker/dealer subsidiaries were in full compliance with the
Securities and Exchange Commission’s net capital requirements. However, the broker
said it was actively seeking strategic and financing alternatives to cover the
shortfall.
The
1 August incident is the latest in a string of technology failures that have
stung the US markets in recent months and reignites fears that were first
raised over the stability of market infrastructure following the 6 May 2010
flash crash.
During
the flash crash, a rogue algo deployed by a mutual fund sent US markets sharply
downwards in the space of 20 minutes, before they recovered just as quickly. In
May, the much-anticipated IPO of Facebook was disrupted after Nasdaq OMX had
trouble setting an opening price for the stock, while BATS Global Markets was
forced to abandon the debut IPO of its own company on its new listings service
after a technology glitch.
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk