The Knight Capital trading fiasco, bad as it is, looms even worse because similar high-speed trading problems are likely to keep on roiling the markets and fueling investor mistrust.
Anger and gloom swept across trading floors Thursday, the day after the New York-based trading firm reported a software malfunction that caused a surge in volume at the market open Wednesday and violent price swings for nearly 150 stocks.
Few if any were cheering the misfortunes of Knight (KCG), whose very survival is challenged by the scandal.
But the biggest concerns were for the retail investors who are likely to continue to flee the market.
“You can only assume that these glitches are going to continue into the future,” says Todd Schoenberger, managing director of the BlackBay Group in New York. “This is a huge, huge negative. It’s another black eye for Wall Street. This is not good for the retail investor. How are they supposed to trust what we do?”
Knight blamed the malfunctions on a software upgrade and said the episode would cost a whopping $440 million, a burden that will force the company to raise capital to cover.
The price tag on a market that already had been bleeding investor money is yet to be determined.
“So many good people are getting hurt in a very bad way, so many people in many industries. This hurts all of us,” says Sal Arnuk, partner at Themis Trading, an independent brokerage in Chatham N.J. “It hurts folks like us because when confidence is diminished people pull their money out of the market. When people pull their money out of the market my customers – institutions, mutual funds – trade less.”
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Has anybody ever lost $440 million in 30 minutes using a slide rule?
Just JPM…