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Glitch Slams Knight Trading Shares

Technology: Erroneous sell orders for the firm's stock are sent as software is upgraded. Nasdaq cancels the trades.

June 04, 2002|From Bloomberg News and Reuters

NEW YORK — Knight Trading Group Inc., a key U.S. stock dealer, on Monday said a software glitch caused its computers to dump almost 1 million of its own shares--trades the Nasdaq market later canceled at Knight's request.

The sell orders sent Knight's shares plunging more than 50% in before-the-bell trading. The stock, which fell as low as $3, later recouped most of the loss, ending at $5.92, off 43 cents, or 7%, for the day.

The breakdown occurred as technicians upgraded internal software throughout the firm, said Chief Executive Thomas Joyce.

A trading workstation that hadn't been updated sent out "phantom orders" to sell Knight stock below the market price, he said.

"Two or three things you could never imagine came together," said Joyce, 47, who joined the company Thursday and began work Friday. "The stars misaligned."

The firm successfully appealed to Nasdaq regulators that the 1,000 trades should be canceled. "It's our contention they are erroneous," Joyce said. "There was never a real order."

He said the glitch did not affect Knight's trading activities for its clients.

Most of the phantom orders were sent to Island ECN, an electronic trading system that matches buyers and sellers.

Nasdaq halted trading in the stock about three-quarters of an hour before the 9:30 a.m. EDT opening bell, pending news. Trading resumed at midday.

Traders earlier attributed the stock's drop to speculation about a possible federal investigation of the Jersey City, N.J.-based brokerage, whose founder and previous CEO, Kenneth Pasternak, resigned in December.

Pasternak quit three weeks before Knight was fined more than $1.5 million for a series of violations, including failing to honor trades at prices it publicly posted. It was the largest-ever penalty imposed by the National Assn. of Securities Dealers for the violations involved.

Knight was ordered to pay a $700,000 fine to the NASD and $800,000, plus interest, to its clients.

The firm, the largest market-maker in Nasdaq stocks, has been struggling with plunging trading volume amid the stock market's 2-year-old slide. It cut 8% of its staff in March.

Knight had no permanent leader until last week when stock trading veteran Joyce was named chief executive, replacing interim CEO Anthony Sanfilippo.

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