Knight Capital

Knight Capital Trader Flubs $800K Trade One Day Before $400M Loss

Knight Capital Trader Flubs $800K Trade One Day Before $400M Loss

FOX Business Network’s Senior Correspondent Charlie Gasparino reports that Knight Capital’s “specialist” unit at the New York Stock Exchange “lost $800,000 on a single specialist trade” the day before the big tech glitch that lost the firm $400 million. The “loss could wipe out most, if not all of Knight specialist’s unit profits.”

Excerpts from the report are below:

On Knight Capital Group Inc. (NYSE:KCG)’s specialist unit losing $800,000 on ENSCO PLC (NYSE:ESV):

“A day before the firm’s massive computerized trading error, a Knight trader on the floor of the New York Stock Exchange flubbed an order for the stock Ensco PLC (NYSE:ESV), that cost Knight nearly $1 million, people with knowledge of the matter say.”

On the significance of the loss:

“The NYSE loss was nowhere near the $440 million algorithm glitch that has crushed shares and forced Knight Capital Group Inc. (NYSE:KCG) to find new investors. But, people close to the firm say it’s still significant: It may wipe out the year’s profits of Knight’s NYSE “specialist” unit and, given the firm’s post-error financial condition, could imperil its NYSE Euronext (NYSE:NYX) trading division, one of the few remaining on the floor of the Big Board. One of the problems with even such a relatively small loss is that it is still nearly half of Knight’s “value at risk” or VAR, a measurement of how much the firm expects to lose in any given trading day.”

On the NYSE trading estimated loss:

“Knight tells analysts that, given its risk controls, it doesn’t expect to lose more than $2.2 million, making the NYSE trading loss almost half its VAR, and raising additional questions about the firm’s risk controls. A spokeswoman for Knight would not deny the NYSE Euronext (NYSE:NYX) loss, but said that for now, the firm has no plans to close its specialist unit.”

On possible layoffs following the NYSE loss:

“One problem for the traders is that one of Knight’s new investors, Getco, also a trading firm, has its own unit, meaning the two teams could be consolidated at some point. Knight has about 20 people on the NYSE Euronext (NYSE:NYX) floor.

One additional reason to combine the units would be Knight’s lack of profitability. Even before the NYSE loss, Knight’s unit was profitable, but pulled just $1 million and $2 million a year, according to people with knowledge of the matter. A Knight spokeswoman did not deny those numbers.”

LEAVE A COMMENT


Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted & limited time offer for being a sophisticated and loyal reader.

ValueWalkPremium is a website and newsletter on the latest industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 4/30/2020 or after the next 40 subscribers take advantage whichever comes first – please do not share this discount with others

 

0