ONE OF the biggest brokers in US equity markets was reeling yesterday after Knight Capital Group revealed a $440 million (€361 million) pretax loss from erroneous trading positions triggered by a software glitch that led to huge price swings in dozens of stocks.
Shares in the brokerage and electronic market-maker plunged 53.3 per cent to $3.25 by mid-morning yesterday in New York, having fallen more than 32 per cent a day earlier.
The technical error at Knight caused the New York Stock Exchange to place 148 stocks under review on Wednesday after many fluctuated widely during the first 45 minutes of trading. The exchange later cancelled trades in six of the stocks. “It was a software bug, it just happened to be a large software bug,” Knight chief executive Thomas Joyce said.
“Nobody else except for us was wounded by this activity.”
Knight is among the biggest providers of liquidity to US markets. The trading glitch highlights the dangers associated with high-speed computerised trading, which has transformed the equity market in recent years and was pinpointed as a substantial factor in the May 2010 “flash crash”.
Knight also reported losses of $35.4 million this month from the bungled Facebook initial public offering in May.
Knight said that although its capital base had been hurt, it was in compliance with net capital requirements. JPMorgan Chase is advising Knight on possible options including a refinancing and sale, according to a source. – Copyright The Financial Times Limited 2012
