Algo chief departs Knight Capital
Knight Capital, a US brokerage, has
appointed a new head for its Knight Direct algorithmic trading unit to replace
outgoing managing director Joe Wald.
Brendan McCarthy, who was previously head
of relationship management at Knight Direct, has been promoted to head of
Knight Direct sales and trading and relationship management, reporting to David
Lehmann, head of electronic execution services. Knight Direct provides
execution algorithms to institutional buy-side clients.
Wald, who joined Knight following its
purchase of EdgeTrade at the end of 2007, confirmed he had left the firm to
pursue other opportunities. At the time of the acquisition, Wald was CEO of
Under McCarthy’s leadership, Knight Direct
will renew its focus on technical and fundamental algorithmic research, with
the aim of creating and refining strategies. In his new role, McCarthy will
continue to work alongside Ray Ross, who oversees the technology side of Knight
“We now have seven staff members dedicated
to generating and providing algo research for our clients, which either seek to
recalibrate existing offerings or tackle emergent market microstructure
issues,” McCarthy told theTRADEnews.com. “We are making a huge effort to get in
front of clients to differentiate ourselves from me-too players that offer
The first offering resulting from the new
approach at Knight Direct was a re-release of liquidity-seeking strategy Sumo, named
after Wald’s dog, which has been remodelled to avoid predatory strategies.
Time to rebuild
The announcement coincides with a period of
rebuilding by Knight, following a glitch in the firm’s market making system on
1 August that led to a US440 million loss. The technology error forced Knight
to seek 11th-hour recapitalisation from a consortium of competitors
While McCarthy stressed Knight’s market
making business operates independently from Knight Direct, with its own market
gateways, routing tools, algorithmic engine and management, a loss in market
share was felt across the board.
Average daily trading in US equities from
Knight’s market making unit was US$12.5 billion in August, down 34.5% from the
US$19 billion traded in July and down 65.8% from the US$36.4 billion traded in
August. Part of the decline in the market making business would have been due
to the temporary reallocation of designated market making responsibilities
Knight had at NYSE Euronext to rival market maker GETCO from 6-13 August.
Average daily equities share volume traded
through Knight Direct in Europe and the US was 112.6 million shares last month,
down 47.9% from July 2012 and down 50.3% from August.
McCarthy and his team have worked to
rebuild client relationships since the 1 August incident and claim they have
been largely successful.
“We have worked hard to explain the
situation to clients and give them comfort and assurances,” said McCarthy.
“Given that Knight Direct clients are buy-side firms that need to answer to
their own client base, rebuilding trust has been a long process. But we haven’t
had any clients tell us ‘no’ and we are close to regaining the 2.5-3% market
share of US equities traded via Knight Direct prior to 1 August.”