Knight Capital shares rally despite glitch


SHARES IN Knight Capital rallied yesterday as the US equity broker continued to search for a lifeline after suffering a $440 million loss from a trading glitch earlier in the week.

The size of the loss has forced Knight to explore options ranging from raising additional capital to a sale, according to people familiar with the situation.

Knight is among the most active traders in US markets. The trading glitch, which Knight blamed on a “large software bug”, highlights the dangers of high-speed computerised trading, which was pinpointed as a factor in the May 2010 “flash crash”.

Knight lost about three-quarters of its market value on Wednesday and Thursday after a software bug on its systems left it with erroneous trading positions in dozens of US stocks.

Since then, Knight has been searching for ways to strengthen its capital base, which was “severely impacted” by the loss. Sandler O’Neill is advising the company on its next move, according to a person familiar with the discussions.

Knight shares were up 24.4 per cent to $3.22 by midday in New York, down from more than $10 a share at the start of the week.

Some of the company’s biggest clients, including asset manager Vanguard, confirmed they moved business to other companies for a second successive day.

E*Trade and TD Ameritrade, two retail brokers, were also still not routing trades to Knight, people familiar with the situation said. Knight was unavailable for comment.

Roger Freeman, analyst at Barclays, said “customers need to have confidence to transact with Knight Capital because, without that, revenue generation is impaired and the impact on earnings consequently can make it difficult for the company to retain employees”. – (The Financial Times Limited 2012)