Trading volumes rebounded strongly at Knight Capital in September, suggesting a successful rebuilding process is underway after the technology glitch that nearly wiped out the market maker in August.
According to the firm’s monthly volume stats, trading through Knight Direct, its institutional algorithmic trading division, grew by 81.8% to 204.7 million average daily shares traded in September, from 112.6 million shares in August. Last September’s volumes were also 7.6% higher than the 190.3 million recorded in September 2011.
August trading via Knight Direct was 47.9% down on July 2012’s figures.
On 1 August, a glitch in Knight’s market making system led the firm to fire numerous erroneous orders to the New York Stock Exchange, which led to losses of US$440 million. In the immediate aftermath of the incident, Knight was forced to seek recapitalisation from a consortium of rivals and customers led by US broker Jefferies, and it temporarily transferred its market making responsibilities to GETCO.
The firm has also taken steps to redefine the algorithmic strategies it offers to clients via Knight Direct and promoted Brendan McCarthy to head of sales and relationships management following the departure of Joe Wald.
In its Q3 results statement released yesterday, Knight revised the loss upwards to US$461.1 million and revealed the error led to a US$389.9 million loss for Q3 2012, a substantial contrast to the US$26.9 million gain recorded in Q3 2011.
Market making volumes have also recovered at Knight, with value traded reaching US$19.4 billion in September, a 55.3% rise compared to the previous month, but down 29.4% from the US$27.4 billion recorded in September 2011.
"In the aftermath of the technology issue that occurred on August 1, 2012, Knight began the process of effecting a recovery," said Tom Joyce, chairman and chief executive officer, Knight Capital Group. "The recapitalisation restored the firm's liquidity and capital, Knight's market share in US equities substantially rebounded, and we've undertaken measures to enhance processes and controls."