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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2 Comments so far

  1. Samuel Wilson on August 2, 2012 7:31 pm

    I believe that counter parties have begun to pull credit from Knight. At least one prime broker has already pulled assets and credit lines. I believe the capital reduction, coupled with credit line hits, may mean the company is out of regulatory compliance. I’m sure they will try to sell themselves as soon as possible.

  2. Stan on August 3, 2012 9:24 pm

    Its not stocks that have predictive ability, its people.

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