Knight Capital Group has said that software glitches it encountered yesterday at the open of trading have led to pre-tax losses of US$440 million.
The disruption, which Knight claims was related to an installation of trading software, led the broker to send numerous erroneous orders in NYSE-listed stocks into the market. The orders caused price fluctuations that led NYSE Euronext to review trading in 148 symbols. The US bourse subsequently cancelled trades executed between 09.30 – 10.15 EST in six stocks: Wizzard Software, China Cord Blood, Reaves Utility Income Fund, E-House (China) Holdings, American Reprographics, Quicksilver Resources.
Knight said the software had been removed from its systems and that clients were not negatively affected by the erroneous orders. Stocks listed on Nasdaq OMX and other bourses were not impacted and the company continued its market making activities from the start of trading today.
Knight said the US$440 million loss “severely impacted” its capital base but stressed that its broker/dealer subsidiaries were in full compliance with the Securities and Exchange Commission’s net capital requirements. However, the broker said it was actively seeking strategic and financing alternatives to cover the shortfall.
The 1 August incident is the latest in a string of technology failures that have stung the US markets in recent months and reignites fears that were first raised over the stability of market infrastructure following the 6 May 2010 flash crash.
During the flash crash, a rogue algo deployed by a mutual fund sent US markets sharply downwards in the space of 20 minutes, before they recovered just as quickly. In May, the much-anticipated IPO of Facebook was disrupted after Nasdaq OMX had trouble setting an opening price for the stock, while BATS Global Markets was forced to abandon the debut IPO of its own company on its new listings service after a technology glitch.