Wednesday, August 1, 2012

Technical Glitch at Knight Capital Group (NYSE:KCG) Creates Trading Panic on NYSE – GE, MCP

A technical glitch in trading firm Knight Capital Group Inc.(NYSE:KCG) led to erroneous trades in about 140 stocks listed on the NYSE, impacting prices and investor confidence.

Knight Capital's shares plunged nearly 33 percent to a nine-year closing low of $6.94 at the end of the day's trade.

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While the exact cause of the technical glitch was unknown, it resulted in a rush of orders for stocks of blue-chip companies such as General Electric Company (NYSE:GE) which saw an alarming rise in their prices.

Knight Capital did not provide any explanations apart from acknowledging the trading errors.

"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 a statement.

Knight also had to ask its clients to place their orders elsewhere as soon as the problem was identified right at the start of trading when the wild orders poured in.

While some stocks witnessed heavy buying there were others which saw heavy sales, but the volumes in many of the stocks was high.

For instance shares of Molycorp, Inc.(NYSE:MCP) swung between $17.50 and $14.35 in 45 minutes of trading on volume of 5.7 million shares, against its normal daily average of 2.65 million shares.

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Knight Capital is a market maker, buying and selling shares as well as providing liquidity to stocks. The haywire trades worried investors, marketmen as well as exchange officials as prices of stocks showed unusual movement due to the orders placed.

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."

Those trades which showed they had been executed at a variation of 30 percent either way from the opening price would be cancelled, NYSE Euronext said in a statement.

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