Knight Capital

FOX Business Network’s Senior Correspondent Charlie Gasparino reports that Knight Capital’s “specialist” unit at the New York Stock Exchange “lost $800,000 on a single specialist trade” the day before the big tech glitch that lost the firm $400 million. The “loss could wipe out most, if not all of Knight specialist’s unit profits.”

Excerpts from the report are below:

On Knight Capital Group Inc. (NYSE:KCG)’s specialist unit losing $800,000 on ENSCO PLC (NYSE:ESV):

“A day before the firm’s massive computerized trading error, a Knight trader on the floor of the New York Stock Exchange flubbed an order for the stock Ensco PLC (NYSE:ESV), that cost Knight nearly $1 million, people with knowledge of the matter say.”

On the significance of the loss:

“The NYSE loss was nowhere near the $440 million algorithm glitch that has crushed shares and forced Knight Capital Group Inc. (NYSE:KCG) to find new investors. But, people close to the firm say it’s still significant: It may wipe out the year’s profits of Knight’s NYSE “specialist” unit and, given the firm’s post-error financial condition, could imperil its NYSE Euronext (NYSE:NYX) trading division, one of the few remaining on the floor of the Big Board. One of the problems with even such a relatively small loss is that it is still nearly half of Knight’s “value at risk” or VAR, a measurement of how much the firm expects to lose in any given trading day.”

On the NYSE trading estimated loss:

“Knight tells analysts that, given its risk controls, it doesn’t expect to lose more than $2.2 million, making the NYSE trading loss almost half its VAR, and raising additional questions about the firm’s risk controls. A spokeswoman for Knight would not deny the NYSE Euronext (NYSE:NYX) loss, but said that for now, the firm has no plans to close its specialist unit.”

On possible layoffs following the NYSE loss:

“One problem for the traders is that one of Knight’s new investors, Getco, also a trading firm, has its own unit, meaning the two teams could be consolidated at some point. Knight has about 20 people on the NYSE Euronext (NYSE:NYX) floor.

One additional reason to combine the units would be Knight’s lack of profitability. Even before the NYSE loss, Knight’s unit was profitable, but pulled just $1 million and $2 million a year, according to people with knowledge of the matter. A Knight spokeswoman did not deny those numbers.”