Thursday, August 2, 2012

Knight Capital Down 56% After Software Glitch Causes $440 Million Loss (KCG)

Knight Capital Group (KCG) is down 56% at $3 after a software glitch caused a $440 million loss at the trading firm. They are looking to raise capital to support their balance sheet (Reuters, WSJ). Financial tech has reverted back to 1998 and 2002 levels (KCG is testing those lows). Below are KCG stock charts, Knight Capital's statement to the press, an interview with Knight's CEO Tom Joyce on Bloomberg TV, and a snapshot of the enormous volume in KCG's Aug $2.50 puts (42,640 with 687 open interest). Make sure you add financial software, too-big-to-fail credit and Federal Reserve risk mis-management risk to your financial models! First here's an update on Knight Capital's bonds: Knight Capital’s $375 Million Of Convertible Bonds Decline (Bloomberg).




Doom KCG puts are active, as expected (source: Yahoo Finance):



Knight's CEO on Bloomberg TV this morning:



And here is Knight Capital's official press release:

"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."

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