Knight shuts down stock trading after backup power failure

‘Building Emergency’

“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.

Bloomberg News

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