NEW YORK (Reuters) - A technology breakdown at a major trading firm roiled the prices of 140 stocks listed on the New York Stock Exchange on Wednesday, undermining fragile investor confidence in the stability of U.S. stock markets.
The problems at Knight Capital Group Inc
Heavy computer-based trading caused a rush of orders for dozens of stocks, ranging from well-known bellwethers like General Electric
The trading glitches are the latest in a series of market snafus that have hurt retail investors' confidence, including the botched Facebook initial public offering, the 2010 "flash crash" in which nearly $1 trillion in market value disappeared in minutes, and the failed public offering of BATS Global Markets, a rival to the NYSE and the Nasdaq.
The exact nature of the technology issues were unclear as well as the magnitude and fallout for Knight, which was forced to tell clients to send orders elsewhere, and for the broader market. Knight's stock plunged nearly 33 percent to $6.94, a nine-year closing low for the stock.
Knight Capital issued a terse statement on the problems, but company officials were not available for further comment.
"This morning, a technology issue occurred in Knight's market-making unit related to the routing of shares of approximately 150 stocks to the NYSE," Knight said in the statement.
Observers said the problem highlighted the weaknesses in the market.
"The structure that we have in place is so complicated and intertwined, that all of these entanglements have created real issues in the marketplace," said Christopher Nagy, a consultant to exchanges and brokerages.
"Today it's Knight. Tomorrow, who's it going to be? And the day after that, who's it going to be? The fixes that we're putting in the market place are just not fixing things."
Trading glitches are nothing new, but years ago there was more accountability when individuals made the mistakes, said one discount brokerage executive who declined to be named.
The executive recalled a situation in the 1990s where a clerk submitted a trade for $2 million worth of the Nasdaq 100 tracking stock, instead of 2 million shares by accident, and was fired the next day.
But the May 2010 flash crash, as well as the Facebook IPO debacle suggest there is less accountability now. "If you had a program where firms were put in a penalty box when these things happen, you probably would see people be more careful," the executive said.
SOME STOCKS SOAR WHILE OTHERS SLUMP
Heavy buy orders in some stocks sent prices soaring, while others plunged. Many of the names were lesser-known issues such as Molycorp Inc
The mood at the Knight Capital booth on the NYSE trading floor was somber, with worried traders taking numerous phone calls as well as answering questions from NYSE officials who were making inquiries on the floor.
Many on the floor were aware that the problematic trades were coming from Knight.
At another spot on the floor, a group of Goldman Sachs traders huddled together, talking about what would be the effect on trades made and what trades would be canceled.
As a market maker, Knight stands ready to buy and sell shares at quoted prices, adding to market liquidity.
Knight's bread-and-butter is handling trade executions in small-cap stocks for other brokerage firms. When Chief Executive Tom Joyce arrived in mid-2002, the market-maker was struggling against low trading volumes and high payouts made to attract business from discount brokers.
In his 10 years at Jersey City, New Jersey-based Knight, alongside back-office operations of major firms such as Goldman Sachs Group, Joyce made aggressive moves into hedge funds, derivatives and other areas, many of which fizzled.
Joyce, whose laid-back demeanor distinguishes him from many more volatile equity stock traders, spent 15 years at Merrill Lynch & Co. While many of his colleagues have moved into wealth management, Joyce remained in equity trading, building a sizeable stake in the company during that time.
As of April 2, Joyce owned more than 1.2 million shares of Knight Capital, with a market value of nearly $16 million - a stake now worth about $8.5 million.
TRADES CANCELED
A spokesman for the U.S. Securities and Exchange Commission said the agency was "closely monitoring the situation" and is in "continuous contact with the NYSE and other market participants."
Several market participants said the large volume of orders that roiled trade may have been intended to be filled throughout the day but instead were executed in the opening minutes of trading.
The NYSE said in the afternoon that it would cancel trades in six different stocks, including Wizzard, China Cord Blood Corp
Trades executed at 30 percent higher or lower than the opening price will be canceled, NYSE Euronext
A source familiar with the matter said the exchange had not experienced any issues with its systems or its normal circuit breakers that halt excessively volatile stocks.
The broader market ended little changed, with the Standard & Poor's 500 index down 0.3 percent.
In early trade, however, the environment was described as chaotic.
"That has disrupted all the normal activities - stocks are moving all over the place, they are weird, they are trading like millions of shares, 100 shares at a time, so something went haywire somewhere," Stephen Massocca, managing director, Wedbush Morgan in San Francisco, said in the first hour of trading.
The volatility caused pauses in trading in five stocks: Corelogic Inc
"This is people's money. This is 401(k)s. Grandma's mutual fund is now being whipped around by algos that don't even understand what they're doing," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
"How many more dollars now have to come out of the market because people don't trust it?" (Additional reporting by Angela Moon, Rodrigo Campos, John McCrank and Anna Louie Sussman in New York and Sarah Lynch in Washington; Editing by David Gaffen and Leslie Adler)
Source: http://news.yahoo.com/error-knight-capital-roils-u-stocks-trading-183551322--finance.html
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