'Technical Issue' Could Cost Firm $170m


The latest black eye for U.S. equity markets is proving a body blow for Knight Capital.

Bloomberg reports that shares of the Jersey City, New Jersey-based firm plunged 33 percent, the most ever, in record volume Wednesday as investors speculated on how much a breakdown that whipsawed owners of 140 stocks will cost the company. Its loss may be as much as $170m, according to analysts at JPMorgan Chase.

Knight, led by 57-year-old Chairman and Chief Executive Officer Thomas Joyce, has been at the center of U.S. equities for a decade as one of the biggest market makers, executing almost $20bn of trades a day in June. Its importance was never so visible as Wednesday, when its computers helped spur sudden price swings of 10% or more in dozens of companies.

'This isn’t good for the market overall and it’s not good for Knight', Sang Lee, managing partner at Boston-based research firm Aite Group LLC, said in a phone interview. 'They took a beating in their share price. It’s not going to devastate the business of Knight since they’re a major market maker in equities. But when you’re a major player like Knight, mistakes will have a more expanded impact'.

Knight’s stock tumbled $3.39 to $6.94, its lowest close since 2003, as a record 64m shares changed hands. More than $300m was erased from the company’s market value to leave the shares worth $682m.

As stock swings mounted Wednesday, Knight told some clients of its market-making business that a 'technical issue' was affecting its systems and advised them to route orders elsewhere, according to e-mails from spokeswoman Kara Fitzsimmons Wednesday. The issue was confined to that unit and its other operations were unaffected, she said.

Hit the link below to access the complete Bloomberg article:

Knight Bruised as Analyst Estimates $170m Loss


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