Knight Capital Seeks Financing After $440 Million Trading Loss
Knight Capital (NYSE: KCG) shares fell 58 percent in premarket trading to near $3 a share Thursday after it reported a pretax $440 million loss on a trading error to start the month and is now exploring financing alternatives.
The market-maker acknowledged that the loss has “severely impacted” its capital base.
The trading loss is larger than the $365 million in cash and equivalents the company had on hand at the end of June. It's more than 100 times what it earned in the second quarter.
Knight's valuation had been more than $1 billion ahead of the trading debacle; it is now valued at less than $400 million – significantly less than its smaller rival by revenue, Interactive Brokers (NASDAQ: IBKR).
As it disclosed Wednesday, Knight sent multiple bad stock trade orders due a glitch installing new trading software. The software has since been removed from the company's systems, Knight said in a statement.
The glitch appeared to affect dozens of NYSE-listed stocks including Goodyear Tire (NYSE: GT), GameStop (NYSE: GME), Manitowoc (NYSE: MTW), Pandora Media (NYSE: P), Level 3 Communications (NYSE: LVLT), Corelogic (NYSE: CLGX), Allegiant Travel (NASDAQ: ALGT) and NuSkin (NYSE: NUS).
Clients were not affected; Knight said it has since traded out of the erroneous positions.
Although the company's capital base has been severely impacted, Knight's broker/dealer subsidiaries are in full compliance with net capital requirements, the company said.
Knight plans to continue its trading and market-making business at the start of U.S. trading at 9:30 am EST.
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