24 November 2014

Knight Capital blames tech glitch for stock market chaos; faces $440m pre-tax loss

02 August 2012  |  6645 views  |  0 graph

Knight Capital says that a "technology issue" at its market making unit was behind the volatile price movements in 140 shares yesterday that forced Nyse Euronext to cancel trades.

In early morning trading prices in dozens of stocks went haywire, reviving memories of the May 210 flash crash. After reviewing 140 stocks, Nyse Euronext eventually cancelled orders in six.

With the finger of blame pointing at it and a faulty algorithm, Knight Capital confirmed that it was behind the chaos, saying: "This morning, a technology issue occurred in Knight's market-making unit related to the routing of shares of approximately 150 stocks to the Nyse."

The Securities and Exchange Commission has confirmed it will be looking at the issue, saying: "As is our practice, we are closely monitoring the situation and in continuous contact with the Nyse and other market participants."

Shares in Knight - which, according to Bloomberg, helped execute almost $20 billion of equity transactions a day in June - closed yesterday just shy of 33% down, at $6.94.

Update:

In a statement on Thursday, Knight says: "As previously disclosed, Knight experienced a technology issue at the open of trading at the Nyse yesterday, August 1st. This issue was related to Knight's installation of trading software and resulted in Knight sending numerous erroneous orders in Nyse-listed securities into the market. This software has been removed from the company's systems.

"Clients were not negatively affected by the erroneous orders, and the software issue was limited to the routing of certain listed stocks to Nyse.

"Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million. Although the company's capital base has been severely impacted, the company's broker/dealer subsidiaries are in full compliance with their net capital requirements. Knight will continue its trading and market making activities at the commencement of trading today. The company is actively pursuing its strategic and financing alternatives to strengthen its capital base."

You can see Nanex's analysis of the meltdown here

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board, sign up now.

Related blogs

Create a blog about this story (membership required)

Related stories

14 May, 2012
20 October, 2011
27 July, 2011
24 March, 2011
18 February, 2011
12 August, 2010
12 May, 2010

Related company news

 

Featured job

Basic 1-1.3 million SEK - OTE 2.5 million SEK - NO...
Stockholm (possibly Oslo or Copenhagen)

Find your next job