Error by Knight Capital rips through U.S. stock market
NEW YORK, (Reuters) - A technology breakdown at a major trading firm roiled the prices of 140 stocks listed on the New York Stock Exchange yesterday, undermining fragile investor confidence in the stability of U.S. stock markets.
The problems at Knight Capital Group Inc, one of the largest firms that buys and sells stocks to provide liquidity to the markets, emerged at the beginning of trading.
Heavy computer-based trading caused a rush of orders for dozens of stocks, ranging from well-known bellwethers like General Electric to tiny Wizzard Software Corp, whose shares soared to $14.76 after closing the previous day at $3.50. The NYSE has canceled trades in six particularly volatile issues.
The trading glitches are the latest in a series of market snafus that have hurt retail investors’ confidence, including the botched Facebook initial public offering, the 2010 “flash crash” in which nearly $1 trillion in market value disappeared in minutes, and the failed public offering of BATS Global Markets, a rival to the NYSE and the Nasdaq.
The exact nature of the technology issues were unclear. The magnitude and fallout for Knight, which was forced to tell clients to send orders elsewhere, and for the broader market were also unknown. Knight’s stock plunged nearly 33 percent to $6.94, a nine-year closing low for the stock.
Knight Capital issued a terse statement acknowledging the trading errors, but company officials were not available for further comment.
“This morning, a technology issue occurred in Knight’s market-making unit related to the routing of shares of approximately 150 stocks to the NYSE,” Knight said in the statement.
Observers said the problem highlighted the weaknesses in the market that remain two years after the Flash Crash.
“The structure that we have in place is so complicated and intertwined, that all of these entanglements have created real issues in the marketplace,” said Christopher Nagy, a consultant to exchanges and brokerages.
“Today it’s Knight. Tomorrow, who’s it going to be? And the day after that, who’s it going to be? The fixes that we’re putting in the marketplace are just not fixing things.”
Trading glitches are nothing new, but years ago there was more accountability when the mistakes were caused by individuals, said one discount brokerage executive who declined to be named.
The executive recalled a situation in the 1990s where a clerk accidentally submitted a trade for $2 million worth of the Nasdaq 100 tracking stock, instead of 2 million shares, and was fired the next day.
But the May 2010 Flash Crash, as well as the Facebook IPO debacle suggest there is less accountability now. “If you had a program where firms were put in a penalty box when these things happen, you probably would see people be more careful,” the executive said.
SOME STOCKS SOAR
WHILE OTHERS SLUMP
Heavy buy orders in some stocks sent prices soaring, while others plunged. Many of the names were lesser-known issues such as Molycorp Inc, a stock that usually averages about 2.65 million shares daily but which saw volume of more than 5.7 million shares in the first 45 minutes of trading, bouncing between $17.50 and $14.35 in that period.