Aug

2

 Why is Knight Capital down so much in price, down 1/3 to 6.95?

Rocky Humbert replies: 

I was traveling for the past two days and missed this Nite saga.

BUT:

1. For all you folks who love to 'diss the HFT folks (because they have a license to mint money), here is a company that managed to lose $440 million (see this morning's press release) in about 15 minutes. That's 2.6 YEARS of pre-tax income in the blink of an eye. What the not-so-great hft folks are realizing is that the business has become crowded and seems now to resemble the old brokerage business: One leveraged client going belly-up can put you out of business. (Here, one software bug can put you out of business. And at least with a deadbeat customer, you can beat them up in the alley, so to speak.)

2. One is appreciative of the Chair's humility in using the phrase "famous last word." On a quantitative note, I wonder whether severe gap down moves IN INDIVIDUAL STOCKS have any predictive ability — for either continuation or a bounce (in a multi-day/multi-week timeframe.) Over the years, I've stopped buying falling knives of this sort as I concluded that the person hitting my bid probably knew more than me. But I've never tested this carefully, nor would I know how to test without introducing biases. (The S&P Index is very different of course…)


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