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Knight is looking for a white knight

posted 3 Aug 2012, 08:48 by Mpelembe   [ updated 3 Aug 2012, 08:49 ]

Knight Capital’s trading customers are deserting, its stock price is down 75 percent in two days and the Wall Street firm is looking for a savior after a technology glitch caused a $440 million loss.

USA-KNIGHT CAPITAL - The dark deepens around Knight Capital Group and its looking for a White Knight to come to the rescue.

The Wall Street firm is fighting for its life after losing $440 million due to a technology glitch on Wednesday; its stock plummeting in a two-day loss totaling 75 percent.

As one of the top market makers, Knight is supposed to ensure an orderly market by stepping in to buy or sell stocks to keep the market moving - but that's not what happened.

Baruch Professor Bernard Donefer gives his interpretation of the mishap.


"The night before the event they made a change to their infrastructure in order to interface with the New York Stock Exchange, the new system the New York Stock Exchange was putting in and they wanted to do it early and be prepared. The problem apparently occurred in that infrastructure and not in the trading models themselves, which caused them to keep repeating the same trades over and over again."

About 140 stocks listed on the New York Stock Exchange were impacted, leaving Knight's credibility in shambles and its future in the dark.

Some of its biggest customers are sending orders elsewhere, and the company is exploring "strategic and financing alternatives": that's code for putting itself up for sale or at worse bankruptcy.

But Knight is not alone in paying the price. The chaos follows the May 2010 flash crash, and the more recent botching of the Facebook IPO, along with electronic exchange BATS; events which have eroded investor confidence.

Bill Singer is a securities attorney at law firm Herskovits.


"Explain to me how something like Knight could have occurred after we just went through three similar scenarios in the last two years. So we are not learning anything. We are not fixing anything and that's dangerous because at some point when you look into the abyss, the abyss looks back at you and one day Wall Street is going to blow up and we're not going to be able to put it back together."

With computer-driven trading here to stay - analysts say Wall Street has to figure out quickly how to give the machines a more human touch.

Conway Gittens, Reuters