Algo chief departs Knight Capital

Knight Capital, a US brokerage, has appointed a new head for its Knight Direct algorithmic trading unit to replace outgoing managing director Joe Wald.

Knight Capital, a US brokerage, has appointed a new head for its Knight Direct algorithmic trading unit to replace outgoing managing director Joe Wald.

Brendan McCarthy, who was previously head of relationship management at Knight Direct, has been promoted to head of Knight Direct sales and trading and relationship management, reporting to David Lehmann, head of electronic execution services. Knight Direct provides execution algorithms to institutional buy-side clients.

Wald, who joined Knight following its purchase of EdgeTrade at the end of 2007, confirmed he had left the firm to pursue other opportunities. At the time of the acquisition, Wald was CEO of EdgeTrade.

Under McCarthy’s leadership, Knight Direct will renew its focus on technical and fundamental algorithmic research, with the aim of creating and refining strategies. In his new role, McCarthy will continue to work alongside Ray Ross, who oversees the technology side of Knight Direct.

“We now have seven staff members dedicated to generating and providing algo research for our clients, which either seek to recalibrate existing offerings or tackle emergent market microstructure issues,” McCarthy told “We are making a huge effort to get in front of clients to differentiate ourselves from me-too players that offer benchmark strategies.”

The first offering resulting from the new approach at Knight Direct was a re-release of liquidity-seeking strategy Sumo, named after Wald’s dog, which has been remodelled to avoid predatory strategies.

Time to rebuild

The announcement coincides with a period of rebuilding by Knight, following a glitch in the firm’s market making system on 1 August that led to a US440 million loss. The technology error forced Knight to seek 11th-hour recapitalisation from a consortium of competitors and clients.

While McCarthy stressed Knight’s market making business operates independently from Knight Direct, with its own market gateways, routing tools, algorithmic engine and management, a loss in market share was felt across the board.

Average daily trading in US equities from Knight’s market making unit was US$12.5 billion in August, down 34.5% from the US$19 billion traded in July and down 65.8% from the US$36.4 billion traded in August. Part of the decline in the market making business would have been due to the temporary reallocation of designated market making responsibilities Knight had at NYSE Euronext to rival market maker GETCO from 6-13 August.

Average daily equities share volume traded through Knight Direct in Europe and the US was 112.6 million shares last month, down 47.9% from July 2012 and down 50.3% from August. 

McCarthy and his team have worked to rebuild client relationships since the 1 August incident and claim they have been largely successful.

“We have worked hard to explain the situation to clients and give them comfort and assurances,” said McCarthy. “Given that Knight Direct clients are buy-side firms that need to answer to their own client base, rebuilding trust has been a long process. But we haven’t had any clients tell us ‘no’ and we are close to regaining the 2.5-3% market share of US equities traded via Knight Direct prior to 1 August.”