Knight Capital Group Inc., one of the largest U.S. market makers, shut down trading of equities today after backup power failed at its headquarters in Jersey City, New Jersey, amid a blackout following Hurricane Sandy.
No new orders for stock trades are being accepted, according to a memo from Knight, which almost went bankrupt in August after a computer error flooded the market with unintended orders. The broker stopped handling client business in its institutional sales and trading unit and market-making group in all exchange-listed and over-the-counter stocks and in options, spokeswoman Kara Fitzsimmons said by phone.
“Power went down at about 11:45,” Fitzsimmons said. “Other regional offices are trading,” including Knight’s institutional fixed-income business in Greenwich, Connecticut, according to Fitzsimmons. When asked when Knight would resume normal operations, she said, “I don’t have that timing.”
Knight is one of dozens of Wall Street firms affected by power outages after Hurricane Sandy flooded parts of New York and New Jersey on Oct. 29. Citigroup Inc., the third-largest U.S. bank, said its office at 111 Wall St. in Manhattan will be unusable for weeks and that a building housing senior capital- markets executives lost power.
Backup Power
Knight said in a statement after the market closed that it had also asked customers using its Knight Direct, Hotspot FX and BondPoint services to send orders elsewhere until the company regained a power supply. Trading through these systems has resumed, the statement e-mailed by Fitzsimmons said.
U.S. equity markets opened today after the storm forced exchanges to shut for the first two days of the week, the only back-to-back closures related to weather since 1888. The New York Stock Exchange’s trading floor is running on backup power and will do so through Friday if necessary, Joe Mecane, head of U.S. equities for NYSE Euronext, said in a phone interview.
Nasdaq OMX Group Inc.’s data center in Carteret, New Jersey, is operating on backup power, according to a notice disseminated earlier today. The exchange company can refill the generators, which have 72 hours worth of fuel, every evening and has a backup data center in Ashburn, Virginia, Robert Madden, a company spokesman, said by phone.
“Due to a building emergency (power issues), Knight Capital Americas is asking you to seek an alternate destination for the order handling and execution of your OTC, Options and Listed orders until further notice,” said a memo to clients, which was confirmed by Fitzsimmons. “All computer interfaces with Knight will be shut down with no new orders, both by phone or electronic, being accepted at this time.”
The market-making unit of Citadel LLC saw an increase in order flow from retail brokers following Knight’s withdrawal from equities at midday, according to Katie Spring, a spokeswoman for the Chicago-based company. She said Citadel’s trading systems are working properly.
Some of the larger retail brokers routed trade requests to other firms once Knight stopped trading.
Fidelity Investments sent orders from individual investors to other market makers including Citadel and Goldman Sachs Group Inc. after Knight’s generators failed, according to Steve Austin, a spokesman for the Boston-based asset manager. Knight handled 38 percent of immediately executable orders from Fidelity Brokerage Services LLC for companies listed on the NYSE in the third quarter and 18 percent for those listed on Nasdaq Stock Market, the firm said in a report about its order-routing practices.
Normal Trading
“We haven’t had any service disruptions for our clients,” Kim Hillyer, a spokeswoman for retail broker TD Ameritrade Holding Corp. in Omaha, Nebraska, said by phone. The broker sent customer orders to other market makers when Knight’s systems stopped accepting orders. “It’s very easy for us to move order flow,” she said. “Trading has been pretty normal today.”
TD Ameritrade sent 9 percent of immediately executable orders for NYSE-listed companies and 10 percent for those on Nasdaq to Knight in the third quarter, according to a brokerage report.
A technology error by Knight on Aug. 1 bombarded equity exchanges with erroneous orders, leading to a $457.6 million loss. The broker, one of the largest traders of U.S. shares by volume, was at the brink of insolvency as customers routed orders elsewhere and the shares plunged 75 percent in two days.
The company is now more than 70 percent owned by the companies that bailed it out with a $400 million cash infusion the following week. Almost all retail brokerage clients have come back to the firm, Chief Executive Officer Thomas Joyce has said.
Knight shares, which fell as much as 8.4 percent during trading, closed up 0.4 percent to $2.63. The stock traded for more than $10 before the August mishap.
