Knight Capital pegs losses at $440 million

From the perspective of market maker Knight Capital, the Facebook IPO scandal suddenly looks like small beans.

The software disaster that wreaked havoc on so many Big Board stocks this week will cost the firm up to $440 million in pre-tax losses. These losses, which were much bigger than expected, threaten the viability of the New Jersey company. The stock plunged nearly 60 percent to about $3 a share in the wake of the fiasco. The company says it is "actively pursuing its strategic and financing alternatives to strengthen its capital base."

Although the company says its capital base has been "severely impacted," the company's broker/dealer subsidiaries remain "in full compliance with their net capital requirements." Knight said it would continue its trading and market making activities at the commencement of trading. This issue was related to Knight's "installation of trading software and resulted in Knight sending numerous erroneous orders in NYSE-listed securities into the market. This software has been removed from the company's systems."

This is surely fodder for the many critics of our current market structure who contend that technology has run amuck, with lots of snafus with systemic impacts. This isn't quite as bad as the Flash Crash in terms of system-wide effects, but it's much worse for the market maker itself.

For more:
- here's the article from MarketWatch

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