Knight Capital Loses $440 Million In Trading Glitch, Seeks Financial Lifelines

After experiencing a technical glitch with its trading software Wednesday, Knight Capital Group (NYSE: KCG), owner of Urban Financial announced it had lost $440 million due to the errors. The company’s stock price plunged 70% over two days, effectively leading the company toward bordering on insolvency.

Company executives told Bloomberg News that Knight is looking into financing assistance from outside companies, but has not announced any agreement as of noon Thursday.

“The company is actively pursuing its strategic and financing alternatives to strengthen its capital base,” Knight said in a statement.

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Knight’s share price fell as low as $3.15 as a result of the losses, down from more than $10 Tuesday.

Fox Business reported that Knight had approached J.P. Morgan Chase for assistance with speculation of other companies in the market as well.

“We believe Knight Capital is at risk of bankruptcy following the loss and so we are lowering our rating to sell,” wrote analyst Robert Rutschow with CLSA Credit Agricole Securities in a note Thursday, as reported by Bloomberg News. “The company’s best option at this point is a sale.”

Knight Chairman and CEO Tom Joyce granted an interview with Bloomberg News where he discusses the glitch in more detail. View the video.

Urban Financial is the largest reverse mortgage lender in the business by volume.

Written by Elizabeth Ecker

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    • We used to call this “over reliance on the black box without adequate testing of its controls.”  The so called “Flash crash”   was another such example of the potential of software doing unexpected things.  The source could be hackers, disgruntled employees, software glitches, or any number of things.  It sounds as if Knight is blaming the software for these losses.

      One wonders if the real cause is similar to that of JP Morgan Chase.  Unlike that loss which was almost 10 times larger, this loss is by far a greater percentage of the equity of Knight Equity.  Considering the situation it is not surprising Knight approached JP Morgan Chase for help.

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