Losses From Trading Glitch May Make Knight Capital Inc. The Next Firm To Go Under

Friday, August 03, 2012 01:06
Losses From Trading Glitch May Make Knight Capital Inc. The Next Firm To Go Under

Tags: markets | NYSE | risk

Knight Capital Group Inc. suffered the most from the computer trading glitches on Wednesday, August 1, recording a $440 billion loss. Faulty software is being blamed for millions of trades that were executed within about an hour’s time. Knight held positions in many of the 150 stocks that were affected by the glitch.

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Knight’s stock value plummeted 63% and officials at the firm are requesting a bailout and may be faced with having to sell. If an investor doesn’t materialize within the next two to three days, Knight may fail. Some of its largest customers—including Vanguard and TD Ameritrade—have stopped doing business with the firm.
Knight is a 17-year-old firm that is considered a pillar of the stock market. The firm’s problems follow the failure of MF Global Holdings, Inc., and Peregrine Financial Group Inc., both of whom left investors holding the bag when they filed for bankruptcy.
The program responsible for the glitch was supposed to integrate with a new system the New York Stock Exchange was installing that same morning. A software error in the Knight system caused it to malfunction. Traders couldn’t shut the system down fast enough to prevent the steep losses.
Rather than risk further losses, investors moved their business elsewhere the next day. In an effort to keep its capital requirements designed to offset trades at a minimum, the firm requested certain customers stop sending in orders. The trades won’t settle until Monday—a fact that gives the firm a few days to find capital.

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