Fallout from the Knight Capital Group mishap continued this week. Many of you will remember that a mere forty five minute computer glitch almost brought down the prominent financial services firm. Last Wednesday Knight lost a stunning four hundred and forty million dollars in bad trades. Their stock slid sixty three percent on Thursday following the glitch and speculators said the company would not last more than forty eight to seventy two hours unless it could secure a substantial loan.This weekend, Knight executives were able to broker a deal and shore up the company’s losses. Sources involved in the discussions reported that Knight saw multiple offers, but on Sunday evening, Knight was wrapping up an agreement for a four hundred million dollar capital infusion lead by Jefferies Group. Other big names attached to the deal are the Blackstone Group, Getco, which is a rival market maker, TD Ameritrade Holding Corp and Stifel Nicolaus. Jefferies will get a twenty two point eight percent stake in Knight out of the deal, but in total, Knight handed over seventy three percent of its worth.Investors and financiers alike are shocked by the magnitude of Knight’s loss and the short amount of time during which the trades transpired. This scandal comes on the heels of Nasdaq’s Facebook IPO debacle in May. In this case, market makers had lost upward of five hundred million dollars when Nasdaq failed to confirm many pre-market orders due to a software malfunction.Most trades are conducted by computer software that implements complicated algorithms on a mass scale. But in the wake of these recent failures, some are calling for a change in the way we rely on these systems on a regulatory, or even trading, level.
