For Knight Capital Group (NYSE:KCG), the first day of August didn’t start out as expected. ?
At the market’s open, the market maker faced technology glitches that led to confusion. Errant trades came out.
Trading irregularities ensued and clients were told by the exchange to have customers route their orders elsewhere.
Knight saw its shares plunge greater than 30% to levels last seen in 2005.
Were the problems caused by a fat finger? Algorithmic trading??
In a Knight Capital statement via FoxBusiness, it said ?after a first review, it “indicates that a technology issue occurred in the company’s market-making unit related to the routing of shares” of about 150 NYSE-listed shares. The firm said its over the counter securities and trading in other businesses had not been hit by the problem. ?
The Securities and Exchange Commission immediately swooped in on that Wednesday and worked with the New York Stock Exchange to determine the problem.
It was later determined the error came from tweaking the computer code for the installation of the firm’s new trading platform on the NYSE. When the system went live on that fateful Wednesday, that’s when the wheels came off.?
Initially a $300 million loss was estimated for Knight Trading.?
By Day 2, the loss had grown to $440 million. The firm subsequently needed help from external investors and a group came in with recapitalization plan valued at $400 million by the following Monday, Aug. 6.
This included?Getco,?Jefferies?Group, Inc. (NYSE:JEF),?Stifel?Financial Corp. (NYSE:SF), Nicolaus & Company, TD Ameritrade Holding Corp. (NYSE:AMTD), and the?BlackstoneGroup.
But this was only a Band-Aid as the firm subsequently lost its market-making responsibilities to the private firm Getco. This was seen as the crown jewel of Knight and by December it lost ownership when Getco beat out Virtu Financial Capital LLC to acquire it.
The merger is expected to close in the second quarter. ?In the combined company, Getco chief executive Daniel Coleman will become the chief executive while Knight chief executive Thomas Joyce will sit as the executive chairman of the board of directors.
For Knight, it was not alone in trading glitches during 2012. In May, the NASDAQ had problems when Facebook (NASDAQ:FB) went public; this had been preceded by the BATS Global Market’s bungled efforts with its own I.P.O. in March.
The trading glitches rattled investors’ confidence in the markets, especially raising eyebrows again about electronic trading, and in this new year, confidence hasn’t really been restored.
Starting out on another bad note was the early January disclosure that BATS?endured four years of trading glitches.?
What’s the next shoe to drop?