Knight Capital Group facts for kids
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| Subsidiary | |
| Traded as | NYSE: KCG, until July 1, 2013 |
| Industry | Financial services |
| Fate | Acquired by 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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Rhuan Pedroza, 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 helped people buy and sell stocks. It was known for being a "market maker," which means it helped make sure there were always buyers and sellers for stocks. Knight Capital used very fast computer programs, called high-frequency trading algorithms, to trade stocks.
At one point, Knight Capital was the largest company trading U.S. stocks. It handled a large part of all trades on the NYSE and NASDAQ stock exchanges. However, in August 2012, the company had a major computer error. This mistake caused them to lose $460 million. After this big loss, another company called Getco LLC bought Knight Capital. They merged in July 2013 to form a new company called KCG Holdings.
Contents
About Knight Capital Group
Knight Capital Group started in 1995. It was first known as Knight/Trimark Group, Inc., and then Knight Trading Group, Inc. The company had offices in many places around the world. This included locations in the United States, Hong Kong, China, and London.
What Knight Capital Did
Knight Capital's main job was "market making" for U.S. stocks. Imagine you want to sell a stock, but there isn't a buyer right away. A market maker like Knight Capital would step in and buy it from you. Then, they would sell it to someone else later. This helps keep the stock market running smoothly.
Knight Capital's electronic trading group handled over 19,000 different U.S. stocks. In May 2012, they traded more than $21 billion worth of stocks every day. They also helped trade options in the U.S. and stocks in Europe.
Over the years, Knight Capital faced some challenges. In 2002, they paid $1.5 million to settle issues about not following trading rules. In 2004, they paid $79 million to customers they had overcharged. The company was also accused of something called "spoofing." This is when traders place fake orders to trick others into buying or selling. They then cancel the fake orders quickly.
Where Knight Capital Had Offices
Knight Capital's main office was in Jersey City, New Jersey. They also had many other offices. These were in different parts of the U.S., as well as in the UK, Germany, Switzerland, China, and Singapore.
Company Parts and Businesses
Knight Capital Group had different parts that focused on various financial areas. These included stocks, bonds, currencies, and other goods. Some of its main business groups were Knight Capital Americas, L.P., and Knight Capital Europe Limited. The company also owned Hotspot FX Holdings, Inc., which dealt with currency trading.
In 2009, Knight Capital stopped its asset management business. This is the part of a company that manages money for others.
The 2012 Trading Problem
On August 1, 2012, Knight Capital had a very serious computer problem. This caused a huge disruption in the stock market and a massive loss for the company.
How the Problem Happened
The issue started because a technician forgot to update one of the company's computer servers. Knight Capital used eight servers for its automated trading system. A new computer code was supposed to be copied to all eight servers. This new code changed how a certain "flag" (a special computer signal) was used.
However, the new code was not copied to one server. So, when trading orders came in with this "flag," the old, faulty code on that server was activated. This old code was called 'Power Peg'. The 'Power Peg' function was supposed to stop sending orders once enough stock was bought or sold. But the part of the code that reported when orders were finished was broken. This meant the server kept sending out orders endlessly, thinking it hadn't completed the task.
Impact on the Stock Market
When this faulty server started trading, it 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.
In just about 45 minutes, Knight Capital's broken system sent millions of trading orders. This resulted in 4 million actual trades involving over 397 million shares across 154 different stocks.
The Financial Loss
Because of this computer glitch, Knight Capital lost $440 million before taxes. This huge loss caused the company's stock price to drop by more than 70% very quickly. The company's trading activity was described as a "technology breakdown."
To stay in business, Knight Capital had to raise about $400 million from several investors. Jefferies, another financial company, led this effort and invested $125 million. This made Jefferies Knight's biggest shareholder. The money came in the form of "convertible securities." These are like bonds that can be turned into ownership shares in the company later.
The incident was very embarrassing for Knight CEO Thomas Joyce. On the day the news broke, Knight's stock fell 33%. By the next day, 75% of the company's value was gone.
See also
- Dark pool
- Market maker
