Knight: It Was Us
August 1, 2012
Market maker Knight Capital said it incorrectly sent orders for 150 symbols to the New York Stock Exchange at the outset of trading Wednesday, due to a “technical issue.”
By 2 p.m., the NYSE was reviewing trading in 147 NYSE stocks and 13 NYSE MKT stocks.
Trading in all the symbols, which included Citigroup, Ford Motor, Alcoa, Nokia and other mainstays of the Big Board, continued throughout the day. No trades had been broken as of 2:15 p.m.
If any erroneous trades get broken as a result of the routing, they become the responsibility of Knight Capital.
The trades are being reviewed by both Knight Capital and the New York Stock Exchange. That review likely will last days.
Knight, in a statement, said:
An initial review by Knight indicates that a technology issue occurred in the company’s market-making unit related to the routing of shares of approximately 150 stocks to the NYSE. Knight notified its market-making clients this morning to route listed orders away. The company’s OTC securities and trading in its other businesses are not affected. The company continues to review internally.
That Knight Capital should be the source of the latest malfunction on increasingly high-speed automated markets is something of a turnabout.
The market maker in July said it is taking a $35.4 million pre-tax charge against earnings in its second quarter, due to the delayed and confused opening of trading of Facebook shares. In that initial offering of stock on the Nasdaq Stock Market, many confirmations of transactions did not get relayed from its IPO Cross system for hours.
The charge cuts net income to $3.3 million in the quarter, down from $17.6 million.
“We are evaluating all legal rights and remedies in connection with the Facebook IPO,’’ said chairman and chief executive Thomas M. Joyce, after that technical drubbing.
Nasdaq, for its part, has set aside $62 million to compensate market makers and other firms in that incident. But UBS this week said it is seeking $357 million of payback.
The disruption of trading occurred on the same day that NYSE Euronext launched its Retail Liquidity Program, which offers price improvement to retail investors in off-exchange trading.
But that did not affect the unusually high volume of orders that came into the NYSe at the outset of trading Wednesday. Where the market usually handles trading of about 100 million shares at the open, that leaped to 300 million shares.
That leap is attributed to the mistaken routing of orders from Knight.
The flood of orders did not disrupt the NYSE’s market center, which operates out of a data center in Mahwah, N.J.
“Our systems operated as they should,’’ spokesman Rich Adamonis said.