Knight Capital Group facts for kids
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| Subsidiary | |
| Traded as | NYSE: KCG, until July 1, 2013 |
| Industry | Financial services |
| Fate | Merged with Getco LLC in 2013, forming KCG Holdings |
| Founded | 1995 |
| Headquarters | Jersey City, New Jersey, United States |
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Key people
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Thomas Joyce, chairman and chief executive officer |
| Products | Market making and trading |
| Revenue | $1.404 billion USD (2011) |
| $115.2 million USD (2011) | |
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Number of employees
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1,418 (2012) |
The Knight Capital Group was a big American company that worked in money and finance. They were known for "market making," which means they helped buyers and sellers of stocks find each other. They also used special computer programs for very fast trading, called high-frequency trading.
Knight Capital was once the biggest trader of U.S. stocks. They handled a large part of all stock trades on the NYSE and NASDAQ stock exchanges. In 2012, the company had a huge computer problem that caused them to lose a lot of money. Because of this, they agreed to join with another company called Getco LLC. This merger happened in July 2013, and together they formed a new company called KCG Holdings.
Contents
About Knight Capital Group
Knight Capital Group started in 1995. It was first known by other names like Knight/Trimark Group, Inc. and Knight Trading Group, Inc. The company had offices in many places around the world.
What They Did
Knight Capital's main job was "market making" for U.S. stocks. Imagine a market where people want to buy or sell things. A market maker is like a helpful person who always has something to sell or is ready to buy. This makes it easier for everyone to trade.
Their special computer group, called the Electronic Trading Group (ETG), handled over 19,000 different U.S. stocks. In May 2012, they traded more than $21 billion worth of stocks every day. Knight also helped trade options in the U.S. and stocks in Europe.
Over the years, Knight Capital had some issues with rules.
- In 2002, they paid $1.5 million to settle claims that they didn't follow trading rules.
- In 2004, they paid $79 million to customers they had charged too much.
- In 2008, they traded about 3.97 billion shares of stock each day.
- In 2011, the company was worth about $1.5 billion and had around 1,450 employees.
The company was also accused of something called "spoofing." This is a tricky way of trading where someone pretends to want to buy or sell a lot of stock. They do this to make others think the stock's price will go up or down, but they don't actually intend to complete the trade. It's like faking interest to trick the market.
Where They Were Located
Knight Capital's main office was in Jersey City, New Jersey. They also had many other offices in the United States. Plus, they had offices in countries like the UK, Germany, Switzerland, China, and Singapore.
Different Parts of the Company
Knight Capital Group had different parts that focused on various types of trading:
- Stocks (equities)
- Bonds (fixed income)
- Money from different countries (currencies)
- Raw materials like oil or gold (commodities)
Some of their main business groups included Knight Capital Americas, L.P., Knight Execution & Clearing Services LLC, Knight Capital Europe Limited, and Hotspot FX Holdings, Inc. The company stopped its asset management business in 2009.
The Big Trading Problem of 2012
On August 1, 2012, Knight Capital had a major computer glitch that caused a huge problem in the stock market. This led to a massive loss of money for the company.
What Happened
The problem started because a technician made a mistake. They forgot to copy new computer code to one of Knight's eight main computer servers. These servers were part of a system called SMARS, which automatically sent out stock orders.
The new code was for a program called Retail Liquidity Program (RLP). This RLP code used a special "flag" (a signal in the computer program) that used to be for an old function called 'Power Peg'. When orders with this "repurposed" flag went to the server that didn't have the new code, it accidentally turned on the old, broken 'Power Peg' function.
The 'Power Peg' function was supposed to execute blocks of stock trades and stop when enough orders were completed. However, the part of the code that reported when orders were finished had been changed. So, the server kept sending out orders forever, thinking they were never completed.
The Market Chaos
When this broken system started running, Knight's trading caused big changes in the prices of 148 companies listed on the New York Stock Exchange. For example, shares of Wizzard Software Corporation suddenly jumped from $3.50 to $14.76.
For just 212 incoming orders, the broken 'Power Peg' code sent out millions of smaller orders. This resulted in 4 million trades in 154 different stocks. It involved more than 397 million shares, all in about 45 minutes!
The Cost to Knight Capital
Knight Capital lost $440 million because of this computer error. This huge loss caused the company's stock price to drop by over 70% very quickly. People described the unusual trading as a "technology breakdown."
To try and save the company, Knight Capital raised about $400 million from several investors on August 5. A company called Jefferies led this effort and bought $125 million of the investment, becoming Knight's biggest shareholder. The money came in the form of "convertible securities," which are like special bonds that can be turned into ownership shares in the company later.
This incident was very embarrassing for Knight's CEO, Thomas Joyce. He had previously criticized another stock exchange for its handling of a big stock offering. On the day of the error, Knight's stock fell 33%. By the next day, 75% of the company's value was gone.
See also
- Dark pool
- Market maker
