The Knight Capital Group Inc. (NYSE:KCG) posted a net loss of $389.9 million for the third quarter, mainly due to a software error that flooded the stock market with trades one day in August, causing dozens of stocks to fluctuate wildly.
The company announced Wednesday that the software glitch cost $461.1 million in financial losses, or $2.46 per share, plus 76 cents per share for the related impairment charge. Due to the software glitch on Aug. 1, dozens of stocks started rising and falling sharply for no apparent reason. Knight Capital Group Inc. (NYSE:KCG) routes its orders through various exchanges, including New York Stock Exchange, while its clients include big brokers like TD Ameritrade Holding Corp. (NYSE:AMTD) and E-Trade. After acknowledging the glitch, company’s stock lost three-fourths of its value in two days. Following the software error, Knight Capital Group Inc. (NYSE:KCG) had to cede control of its operations on the New York Stock Exchange, and obtain a financial rescue from Wall Street peers.
Apart from this, company also took a charge of $143 million to reflect its weaker brand and competitive position after the episode. The company reported a loss of $6.30 per share for the period ending Sept. 30 against a net income of $26.9 million, or 29 cents per share, a year ago. Knight’s market making division posted net negative revenues of $341.2 million. The company’s operating expenses (excluding the $143 million write-down) for the quarter were down 5 percent, with lower than expected spending in employee compensation, professional fees, and “other” expenses.
However, excluding the software glitch related financial losses and other one-time items, Knight Capital Group Inc. (NYSE:KCG) said it earned a penny per share. On the adjusted profit, Chairman and CEO Tom Joyce said ‘‘I believe the recovery to date speaks to the strength of our offering, the dedication of Knight Capital Group Inc. (NYSE:KCG)’s client teams and deep client relationships we enjoy’’.
Following the trading losses, the company received a life saving capital infusion of $400 million from an investor group that included Jefferies Group, Inc. (NYSE:JEF), The Blackstone Group L.P. (NYSE:BX), Getco, Stephens, Stifel Nicolaus, and TD Ameritrade Holding Corp. (NYSE:AMTD), in return, investors received stock that can be converted into a controlling stake of 73 percent in Knight. the company also added three directors to its board, increasing its size to 10 members.