After its skillful communication the day following an embarrassing trading debacle, Knight Capital Group has gone quiet. That’s odd, because the firm seems to have stabilized itself, with news reports saying it secured fresh financing and dealers resumed routing trade orders to the firm. But without more communication from Knight, speculation about its future is growing.When a wayward computer program sent hundreds of erroneous stock orders, Knight was quick to respond. It issued a brief press release taking full
Knight Capital Group CEO Tom Joyce
responsibility for the matter and pegged its losses at $440 million. CEO Tom Joyce did an early morning Bloomberg television interview. The moves helped quell speculation and gave the firm time to focus on finding additional capital and reassuring clients.
Those efforts appear to have been successful, at least for now. Knight’s share price rallied sharply late on Friday as word spread that Goldman Sachs agreed to provide new financing and TDAmeritrade and Scottrade resumed routing client orders to Knight.
But Knight has not confirmed the Goldman financing, nor has it offered more details about what exactly went wrong with its trading program. So it’s not surprising that media reports have been free to speculate about what happened and what will come next, relying on unnamed sources at Knight and elsewhere:
Some Knight employees and New York Stock Exchange officials noticed the blizzard of erratic orders in the minutes after trading started and sent alarmed messages to Knight managers, according to the exchange and Knight employees who declined to be identified discussing the matter.
As Knight struggled to survive on Friday, employees at the company, market overseers and other electronic trading firms were asking the same basic question: Where was the off switch?
Several market insiders said that they were bewildered, because in a market where trading losses can pile up in seconds, executives typically have a simple command that can immediately halt trading.
“Even just a minute or two would have been surprising to me. On these time scales, that is an eternity,” said David Lauer, a trader at a high-speed firm until a year ago. “To have something going on for 30 minutes is shocking.”
Regulators are planning to look into why there was such a lag between the discovery of the problem and when Knight’s trading ceased, according to people with knowledge of the discussions. But so far the company has not provided any answers, even to its own staff, employees said.
Rumor and conjecture is the last thing Knight needs, so a good communication plan is a must. For Knight and its advisors, it looks like a busy weekend is in store.