(Bloomberg) — Newedge USA Senior Director Larry McDonald and Armored Wolf CIO John Brynjolfsson discuss what is in motion at Knight Capital today after their severe technical malfunction. They speak with Adam Johnson, Stephanie Ruhle and Alix Steel on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)
Knight Capital Group Inc. (NYSE:KCG) saw shares in the company drop precipitously Monday — at one point losing more than 7 percent of their value — as the bruised broker-dealer continued to pick itself up less than two weeks after a trading algorithm gone berserk saddled the firm with $440 million in losses.
The firm, which has since come back from the brink by securing $400 million in financing from investors, was allowed to resume market-making activities Monday by the operators of the New York Stock Exchange. The firm had continued trading and routing client orders, but been suspended as a market-maker of 680 securities the day after its trading fiasco. Rival firm GETCO had assumed marker-making duties for those issues.
“While there is certainly some trading risk for our firm, clearly everyone involved is aligned around a common desire to maintain orderly markets, continue servicing issuers and investors, and support Knight as they return to normal operations,” Todd Abrahall, head of Getco’s designated market-making unit, had told The Wall Street Journal last week.
NYSE Euronext (NYSE:NYX), the exchange operator, said in a statement the move came “in light of the completion of Knight Capital’s recapitalization plan.”
But not everyone seemed to have the same confidence in Knight. DDR Corp. (NYSE:DDR), a real estate investment fund, moved the market-making for both its corporate shares and shares in three exchange-traded closed-end funds away from Knight, picking Goldman Sachs to be the firm’s designated trade-runner. So did Genpact Limited (NYSE:G), a business process services provider.
Companies can choose to change market-makers in their shares freely, and the practice is not rare, but it appears somewhat suspect coming at such a sensitive time for Knight. Neither DDR nor Genpact commented for this story.
In mid-afternoon trading on the New York Stock Exchange, shares of Knight Capital Group traded at $2.77, down 13 cents or 4.48 percent from Friday’s close. The firm has lost nearly three-quarters of its market value following the trading imbroglio.
By ELEAZAR DAVID MELÉNDEZ, International Business Times