Knight Capital trading error highlights IR challenges

Knight Capital Group's trading debacle, following on the heels of Facebook's botched IPO, has brought issues with computer-driven trading to the forefront for IR executives, with some pointing to the need for better education on the technical aspects of the trading system.

Knight Capital Group's trading debacle, following on the heels of Facebook's botched IPO, has brought issues with computer-driven trading to the forefront for IR executives, with some pointing to the need for better education on the technical aspects of the trading system.

The brokerage firm lost $440 million – nearly four times the company's profit last year – after a software glitch triggered a flood of errant trades last Wednesday. Knight is now in talks to sell its futures brokerage unit, and clients including Vanguard Group, E-Trade, and TD Ameritrade have pulled their business. The firm was the largest US retail market maker in 2011.

While trading glitches are nothing new, IR executives typically haven't been heavily involved in the technical aspects of trading and IPO filings, said Ashley De Simone, MD at ICR. But such high-profile trading errors as Knight Capital's bring those issues more into the conversation, highlighting the need for greater awareness and education among IR execs, she said.

“They should understand where to go to educate themselves about these kinds of problems. They've got to be able to speak this language,” she added.

While Knight Capital's future remains uncertain, other financial services companies can look to the firm's CEO Thomas Joyce as an example of quick crisis response, said Scott Sunshine, partner at financial communications agency Water & Wall Group.

“He was open and honest. He contacted investors and trading partners as soon as the issue came to light,” Sunshine added.

Keith Mabee, vice chairman at Dix & Eaton, said future trading glitches are inevitable, but financial services companies can respond to them by being transparent and sharing facts as they become available.

“Technology can overwhelm the human element, but companies should go public with those problems,” he said. “When the Goldman Sachs and JP Morgans have issues, you know others are going to have issues too.”

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