Knight has ‘all hands on deck’ to deal with $440 million bug

Knight 60-minute chart Knight 60-minute chart

Aug. 2 (Bloomberg) -- Knight Capital Group Inc. has “all hands on deck” and is in close contact with creditors, clients and counterparties as it tries to weather trading errors that cost it $440 million, Chief Executive Officer Thomas Joyce said.

Joyce said it’s “hard to comment” on discussions with creditors as Knight stock extended a two-day plunge to 77 percent and the firm explored strategic and financial alternatives following a loss almost four times its annual profit. The problems were triggered by what Joyce called “a large bug” in software as the company, one of the largest U.S. market makers, prepared to trade with a New York Stock Exchange program catering to individual investors. Some clients refrained from doing business with the firm today.

Technology breaks,” Joyce said in an interview from Jersey City, New Jersey-based Knight on Bloomberg Television’s “Market Makers” program with Erik Schatzker and Stephanie Ruhle today. “It ain’t good. We don’t look forward to it.”

Knight was fighting to preserve its business as concern grew about its solvency and pressure built for it to find a buyer or investor. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if it failed to get financing. The trading problem caused dozens of stocks to swing as much as 151 percent and left the firm with what Joyce called a “large error position.”

Knight said its broker/dealer subsidiaries are in compliance with capital requirements. The company is in contact with clients, counterparties and creditors as it works to recover, Joyce said.

‘Capable People’

“We’re talking to a lot of capable people, people who are in touch with situations like this,” Joyce told Bloomberg TV. “You might imagine during the day-to-day activity, it’s kind of hard to comment” on discussions about possible credit lines.

Knight’s shares plunged 60 percent to $2.75 at 3:06 p.m. New York time, after dropping 33 percent yesterday. Today’s price is the lowest since the initial offering in 1998 and compares with its peak of $78.47 the next year, data compiled by Bloomberg show.

About 124 million shares of Knight changed hands today, making it the most-actively traded stock on U.S. exchanges, according to data compiled by Bloomberg of companies with a market value of at least $50 million.

The programming bug swept through the market at the open of exchanges on a day when Joyce, a 57-year-old Harvard College graduate known as TJ, limped into work following knee surgery. Joyce said that while the bug sent “a ton of orders, all erroneous” into the market as the firm prepared to trade with the NYSE’s new so-called retail liquidity program, it had “nothing to do” with the NYSE.

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