Knight rescue means pain for shareholders

They were once market makers in over 500 stocks, a giant of Wall Street with their own trading floor, but now mighty Knight Capital Group has been brought to its knees by a computer glitch.

Last week’s software error cost the company 30 percent of its shareholders’ equity in under an hour of trading. Less than three weeks ago a Knight share cost more than US$12. After falling a further 30 percent on Monday, they were trading at just under US$3.

But a group of investors has ridden to the rescue, recapitalising Knight to the tune of US$400 million, which will give the group more than 70 percent of the company.

Existing shareholders will take huge losses, and may strike back with litigation. Liability could increase if it is found that Knight violated a new rule specifically designed to eliminate rogue algorithmic trading programmes such as that which produced 2010’s “flash crash”.

Many analysts believe the rescue is just an overture to a breakup of the company.

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