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Categorized | Financial

Power outage stops Knight Capital trading

Posted on October 31, 2012

For the second time in three months, Knight Capital was forced to shut down trading and advise traders to route orders elsewhere after suffering a power outage on Wednesday.

The electronic trading and market-making company said back-up generators powering its headquarters in Jersey City, New Jersey failed just before midday in New York, bringing its business to a halt. The company was relying on back-up power after Hurricane Sandy left large parts of the US east coast without electricity earlier in the week.

    Knight Capital, which accounts for 10 per cent of daily US equity trading volumes, told traders “to seek an alternate destination” for orders. “All computer interfaces with Knight will be shutdown with no new orders, both by phone or electronic, being accepted at this time,” it said in an alert sent out at 11.49am.

    Shares in Knight fell as much as 8.4 per cent soon after.

    The setback comes after the company lost $461m from a trading glitch on August 1. Those losses, which occurred as its systems inadvertently purchased billions of dollars worth of stocks, forced the company to sell more than 70 per cent of its business to a group of investors to avoid bankruptcy.

    “The affected businesses are reported to be market making and sales and trading which account for over 80 per cent of total revenue,” said Christopher Harris, analyst at Wells Fargo. “We estimate that for each day these systems are offline, Knight Capital’s revenue is impacted by slightly less than $4m.”

    Knight Capital said it had resumed trading normally earlier Wednesday morning along with the rest of the US markets, which had been closed for the prior two days due to the storm.

    “We opened trading this morning with generators at our Jersey City headquarters and we had a generator failure late this morning,” Knight Capital said.

    The company said its institutional equity trading, market-making, HotSpot FX and Knight Match systems had all been affected by the shutdown. Citadel, a rival trading firm, said its systems were operating normally.

    “Other offices are not impacted,” Knight Capital added.

    The company has yet to disclose the results of a third-party study by IBM of its internal product development process following the August glitch. Tom Joyce, chief executive, has defended his leadership of Knight Capital despite the recent setbacks. Mr Joyce’s contract is up for renewal at the end of this year.

    Knight’s shares rose 0.4 per cent to $2.63 in New York.