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."

Comments

  1. I work in IT and I'll tell you right now: computers are only as good as the programmers and operaters who manage them.
    And that's kinda scary. Everything is unpredictable.

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  2. Fantastic!!! I could not be happier to see this massive loss for these types of traders!!! It is criminal that they are allowed to exist in the first place and shame on the government for allowing them to exist. The whole system is f@#*ing broken and I hope the Mom & Pops out there get out of this market while they still can. When they do then there won't be any people to buy stocks from these criminals. Payback is a bitch and these guys deserve everything they got and more!!!
    Now if only we can take out the Corzine's and Wasendorf's and do an old fashion "Tar & Feather". Maybe that will be the first step in fixing this mess. Crime cannot be allowed to pay for itself...

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