Market Commentary and Intraday News

Ahead of the Bell: Knight Capital's roller coaster

319 days ago

(AP:NEW YORK) Shares of Knight Capital Group Inc. continued their roller-coaster ride before Friday's opening bell as investors dumped then bought the trading firm's shares as the firm tries to deal with the fallout from technical problem that briefly threw dozens of stocks into chaos, which it said will cost it $440 million.

Since the news first broke on Wednesday, the Jersey City, N.J.-based company's shares have lost about 75 percent of their value in a downward spiral reminiscent of the financial crisis. They dropped an additional 7 percent in Friday's premarket session, before rebounding to rise above their Thursday closing price.

The company said Thursday that it is pursuing ways to raise money to fund the expense, raising questions about the firm's viability.

Knight Capital 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.

The firm said the problem was triggered when it installed new trading software, which resulted in it sending numerous erroneous orders in 140 stocks listed on 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.

The NYSE 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. Knight Capital said Thursday the software had been removed and that clients were not negatively affected.

Stifel Nicolaus analyst Matthew Heinz cut his rating for Knight Capital to "Hold" from "Buy," saying that based on the value of its assets, the firm is worth about $340 million.

"Despite the major software failure we would still assign some value to market making given the overall technology platform," Heinz wrote in a note to investors. "We believe the business could be attractive to a regional broker dealer with limited presence in low touch trading, or to a competitor in wholesale market making."

In premarket trading, Knight Capital shares rose 14 cents, or 5.4 percent, to $2.58, after dropping as much as 7 percent earlier in the morning.

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