Knight Capital offered lifeline after software glitch losses

A consortium of four firms are preparing to inject £256 million into Knight Capital in an attempt to reverse the damage caused by a software glitch that saw one of Wall Street’s largest trading firms lose approximately £281 million.

The convertible share placement agreement, which would give the firms control of the broker, involves Blackstone Equity, Getco, which has private equity group General Atlantic as a minority owner, Ameritrade and Stifel.

According to the Financial Times, the firms will buy £256 million of convertible shares with a fixed coupon of two percent with the right to buy shares in Knight at $1.50, which is well below its £$4.05 closing price on Friday.

Knight revealed last week that on the 1 August it experienced a problem with the installation of its trading software, which resulted in it sending numerous erroneous orders in NYSE-listed securities into the market.

It has since said that the “software has been removed from the company’s systems”.

Knight said in a statement: “Clients were not negatively affected by the erroneous orders, and the software issue was limited to the routing of certain listed stocks to NYSE.

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“The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.”

This news follows ongoing problems at Nasdaq, which saw the exchange suffer a technical glitch during the much-anticipated Facbeook IPO.

The problems stemmed from a problem with Nasdaq’s IPO Cross – a pre-IPO auction process that the exchange put in place in 2006 that allows traders to place orders and agree on an IPO price before the stock is officially launched – which couldn’t handle the trading demand.

This led to a number of brokerages losing hundreds of millions of dollars. It has since been revealed that UB lost £227 million during the IPO and intends to sue Nasdaq for the full amount.

Read Computerworld UK’s interview with the CIO of CME Globex, Kevin Kometer, about the challenges of upgrading an electronic trading platform to Linux.