FBN's Charlie Gasparino has reported that, according to his sources, a trading bug over at Knight Capital caused a $5bn trade that was programmed to take place over 5 weeks to be executed in just 20 minutes.
As Knight Capital CE Thomas Joyce told Bloomberg Thursday, '(It's) all hands on deck', confirming that the firm is in close contact with creditors, clients and counterparties as it tries to weather trading errors that cost it $440m.
One senior Knight Capital executive told Gasparino: 'It's a warzone here. Bullets are flying. I'm just trying to survive'.
Joyce also said that the the problems were triggered by 'a large bug' in software as the company, one of the largest U.S. market makers, prepared to trade with a New York Stock Exchange program catering to individual investors. The bad software code is gone now, Joyce said.
In the meantime, Reuters reports that Knight Capital fought for survival on Thursday after the $440m trading loss wiped out much of its capital, forcing the firm to seek new funding as its shares plunged as much as 80% in two days.
Many of the company's biggest customers, including TD Ameritrade, the No. 1 U.S. retail brokerage by trading volume, and fund giants Vanguard and Fidelity Investments, stopped routing orders through Knight. One of the biggest fears is that the company will collapse, landing trading clients and creditors with losses.
'They have about 48 hours to shore up confidence', said James Koutoulas, head of an advocacy group for former customers of failed brokerages MF Global and Peregrine Financial, Thursday.
And Bloomberg reports that Knight is working with Goldman Sachs and Sandler O’Neill & Partners LP as advisers in the rescue talks, said one of the people, who spoke on condition of anonymity because the discussions are private. The company is under pressure to strike a deal within days, the people said.
Knight fought to preserve its business as concern grew about its solvency. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if it failed to get financing.
'You can see how that one black swan event can literally take this company out', Tim Hartzell, chief investment officer at Houston, Texas-based Sequent Asset Management, said in a phone interview. 'Maybe this is the new chapter for program trading and algorithm trading. We’ll have to go back and re-evaluate'.
Source: FOX Business Video