Knight Capital Group Inc was fighting for survival on Thursday after a US$440 million trading loss caused by a software glitch wiped out much of its capital, forcing the firm to seek new funding as its shares plunged as much as 80 percent in two days.
Many of the company’s biggest customers, including TD Ameritrade, the No. 1 US retail brokerage by trading volume, and fund giants Vanguard and Fidelity Investments, stopped routing orders through Knight. One of the biggest fears is that the company will collapse, landing trading clients and creditors with losses.
“They have about 48 hours to shore up confidence,” said James Koutoulas, head of an advocacy group for former customers of failed brokerages MF Global and Peregrine Financial.
Photo: Reuters
Knight said it was “actively pursuing its strategic and financing alternatives,” raising the likelihood the firm would be sold or face bankruptcy because of the loss, which is about four times its annual net earnings, and the subsequent damage to its business as customers and others question its stability.
As one of the leading market makers in US stocks, Knight is among the firms that are critical to smooth, orderly trading. Market makers match orders from buyers and sellers and often provide liquidity by stepping into the market themselves.
The speed at which Knight has unraveled has been particularly unnerving for investors and markets. It resulted from problems with the firm’s trading software that sent bogus, rapid-fire trades into the market for 45 minutes on Wednesday and left Knight with big losses on numerous stocks it bought at inflated prices.
“This is like a nuclear reactor or aircraft,” said Roy Niederhoffer, whose R.G. Niederhoffer Capital Management uses Knight. “There has to be some way of seeing the state of the whole system.”
He said that there was “no excuse” for Knight failing to stop its systems before the glitch had endangered the firm.
Knight is in talks with Silver Lake Partners-backed trading firm Virtu Financial LLC about a possible deal, according to the Wall Street Journal. Knight has approached JPMorgan Chase & Co for financing, according to a report on Fox Business Network. A spokesman for JPMorgan declined to comment. Spokeswomen for both Knight and Silver Lake also declined to comment.
The firm planned to set up a data room late on Thursday for potential bidders to comb through its books, a source familiar with the situation said. Some private equity firms were weighing whether to look at the company, the source added, saying that the situation was fluid.
Bloomberg reported the firm had hired Sandler O’Neill and Goldman Sachs to advise it on next steps. Goldman and Sandler O’Neill officials declined to comment.
“You have to find someone who is willing to move pretty quickly,” the source said. “It is a confidence issue.”
Knight’s trading loss has reignited debate over whether technology has elevated risk in trading to unacceptable levels.
WASHINGTON’S INCENTIVES: The CHIPS Act set aside US$39 billion in direct grants to persuade the world’s top semiconductor companies to make chips on US soil The US plans to award more than US$6 billion to Samsung Electronics Co, helping the chipmaker expand beyond a project in Texas it has already announced, people familiar with the matter said. The money from the 2022 CHIPS and Science Act would be one of several major awards that the US Department of Commerce is expected to announce in the coming weeks, including a grant of more than US$5 billion to Samsung’s rival, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), people familiar with the plans said. The people spoke on condition of anonymity in advance of the official announcements. The federal funding for
HIGH DEMAND: The firm has strong capabilities of providing key components including liquid cooling technology needed for AI servers, chairman Young Liu said Hon Hai Precision Industry Co (鴻海精密) yesterday revised its revenue outlook for this year to “significant” growth from a “neutral” view forecast five months ago, due to strong demand for artificial intelligence (AI) servers from cloud service providers. Hon Hai, a major assembler of iPhones that is also known as Foxconn, expects AI server revenues to soar more than 40 percent annually this year, chairman Young Liu (劉揚偉) told investors. The robust growth would uplift revenue contribution from AI servers to 40 percent of the company’s overall server revenue this year, from 30 percent last year, Liu said. In the three-year period
LONG HAUL: Largan Energy Materials’ TNO-based lithium-ion batteries are expected to charge in five minutes and last about 20 years, far surpassing conventional technology Largan Precision Co (大立光) has formed a joint venture with the Industrial Technology Research Institute (ITRI, 工研院) to produce fast-charging, long-life lithium-ion batteries for electric vehicles, mobile electronics and electric storage units, the camera lens supplier for Apple Inc’s iPhones said yesterday. Largan Energy Materials Co (萬溢能源材料), established in January, is developing high-energy, fast-charging, long-life lithium-ion batteries using titanium niobium oxide (TNO) anodes, it said. TNO-based batteries can be fully charged in five minutes and have a lifespan of 20 years, a major advantage over the two to four hours of charging time needed for conventional graphite-anode-based batteries, Largan said in a
Taiwan is one of the first countries to benefit from the artificial intelligence (AI) boom, but because that is largely down to a single company it also represents a risk, former Google Taiwan managing director Chien Lee-feng (簡立峰) said at an AI forum in Taipei yesterday. Speaking at the forum on how generative AI can generate possibilities for all walks of life, Chien said Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) — currently among the world’s 10 most-valuable companies due to continued optimism about AI — ensures Taiwan is one of the economies to benefit most from AI. “This is because AI is