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by hft_throwaway
4430 days ago
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That's very true in this case. The issue here was that Knight isn't just trading for its own account. They're a broker where they likely have some SLA-ish agreement with clients, or face repetitional risk at the very least. As a registered market-maker they're obligated to quote two-way prices. Shutting down costs them money and exposes them to regulatory risk. |
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"In 2012 Knight was the largest trader in US equities with market share of around 17% on each the NYSE and NASDAQ. Knight’s Electronic Trading Group (ETG) managed an average daily trading volume of more than 3.3 billion trades daily, trading over 21 billion dollars…daily."
This was for others, per the preceding sentence.
"Knight only has $365 million in cash and equivalents. In 45-minutes Knight went from being the largest trader in US equities and a major market maker in the NYSE and NASDAQ to bankrupt. They had 48-hours to raise the capital necessary to cover their losses (which they managed to do with a $400 million investment from around a half-dozen investors). Knight Capital Group was eventually acquired by Getco LLC (December 2012) and the merged company is now called KCG Holdings."
Per https://news.ycombinator.com/item?id=7652573 afterwords "they were getting round 10% of their normal order volume"
Losing 90% of their business "overnight" tends to be fatal.
Per a link from the article the above links to, "An equities trader explained that Knight was the "last place" he would go to execute a trade. Others expressed befuddlement and the firm's inability to rectify the trading error for a full 45 minutes."
Now all that was immediately after the screwup, but it's hard to imagine it getting better without a perception that the people managing their operations were replaced with people worthy of trust.