It's turning out to be one costly glitch.
A technical problem that briefly threw dozens of stocks into chaos Wednesday will cost Knight Capital Group $440 million, the trading firm said Thursday. Knight's own stock plunged for a second day, erasing 75 percent of its value in two days. The company also said it is pursuing ways to raise money to fund the expense, raising questions about the firm's viability. And at least two financial institutions announced they had halted trading with Knight, at least temporarily.
Knight's embattled CEO Thomas Joyce appeared publicly for the first time Thursday to defend his firm in the aftermath of the trading disaster.
"You cannot keep people from doing stupid things," Joyce said in an interview on Bloomberg Television. "That is what happens when you have a culture of risk."
In the two days since the glitch occurred, Knight's stock has fallen to $2.58 from $10.33 on Tuesday. Knight takes orders from brokers like TD Ameritrade and E-Trade and routes them to the exchanges where shares are traded.
E-Trade Financial and Vanguard said they were not routing trades through Knight for the time being, but would continue to assess the situation. Vanguard spokesman John Woerth called Knight "a longtime and valued partner."
TD said it was doing test runs before routing trades through Knight. It planned to keep sending orders as long as Knight "remains in good standing" with stock exchanges. "They've been a good and trusted partner," TD spokeswoman Beth Evegan said.
Knight, which on Wednesday had directed clients to route their trades with other vendors, didn't make the same request Thursday, according to TD. A spokesman for another brokerage, Fidelity, declined to comment on whether the brokerage was still routing trades through Knight.
Knight Capital Group said the problem was triggered when it installed new trading software, which resulted in the company sending numerous erroneous orders in 140 stocks listed in the New York Stock Exchange. Those orders were behind some sudden swings in stock prices and surging trading volume shortly after the market opened on Wednesday.
Wizzard Software, for example, shot above $14 after closing the night before at $3.50. Abercrombie & Fitch jumped 9 percent within minutes, hitting $36.75 after closing the night before at $33.80. Harley-Davidson suddenly fell 12 percent, to $37.84 from $43.23.
The New York Stock Exchange said Wednesday morning that it was examining unusual trades in about 140 stocks. Later in the day it canceled trades of six smaller stocks that had wide swings, including Wizzard. Knight Capital said Thursday the software had been removed and that clients were not negatively affected.
For investors, it was the latest breakdown in the increasingly complicated electronic systems that run stock trading. Those systems have been showing signs of strain as more traders and big investment firms use powerful computers to carry out trades in mere fractions of a second.
These trading issues have become so problematic and frequent that many experts believe they have shaken investors' faith in markets, especially after the deep losses they suffered during the financial crisis and the recession that followed. As a result, many small investors have been fleeing the stock market.
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