A financial glitch in the middle of our stock trading economy. If this, what is next?
Knight, one of the biggest American market makers for stocks, is exploring strategic and financial alternatives as the malfunction cost the company almost four times what it earned last year. The firm’s shares lost 75 percent in two days after the faulty software flooded the market with unintended trades, sending dozens of stocks into spasms.
“You can see how that one black swan event can literally take this company out,” Tim Hartzell, chief investment officer at Houston, Texas-based Sequent Asset Management LLC, which oversees about $350 million, said in a phone interview. “Maybe this is the new chapter for program trading and algorithm trading. We’ll have to go back and re-evaluate.”
Knight fought to preserve its business as concern grew about its solvency. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if it failed to get financing. The trading problem, which caused stocks to swing as much as 151 percent, left the firm with a “large error position,” Knight Chief Executive Officer Thomas Joyce told Bloomberg Television’s “Market Makers” program with Erik Schatzker and Stephanie Ruhle today.