This is the stuff that nightmares are made of. Knight Capital is a retail broking & trading firm based in Jersey City, USA. On Wednesday, 1st August, morning, its automated computer trading systems went berserk and bought and sold millions of shares in hundreds of stocks in just a few minutes. The stock prices fluctuated wildly owing to the large volume of transactions executed.
The buying and selling action resulted in Knight Capital having to bear a mammoth loss of Rs. 2,332 crores (USD 440 Million). The firm wrote to the NYSE stating that the transactions were “erroneous” and ought to be nullified but the NYSE agreed to do so for only a couple of dozens of trades as compared to the hundreds of trades that the computer systems had executed. NYSE refused to review the other trades and demanded that they be settled in the normal fashion.
The losses have severely eroded Knight Capital’s capital base of USD 681 Million and it needs fresh funds to be able to survive in business.
Predictably, Knight Capital’s shares plunged nearly 50% on the stock market.
PRESS RELEASE: Knight Capital Group Provides Update Regarding August 1st Disruption To Routing In NYSE-listed Securities
JERSEY CITY, N.J., Aug. 2, 2012 /PRNewswire/ —
Knight Capital Group, Inc. (NYSE Euronext: KCG) today provided an update on the August 1, 2012 disruption to routing in NYSE-listed securities.
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.