Knight Capital problem 'could happen to anyone'
By Barry B. Burr | August 3, 2012 2:26 pm
“It would be better if it was a disreputable firm. What's disconcerting is you have a firm that was a responsible and well-capitalized company, but because of a technological hitch, it exploded,” Mr. Atwood said in an interview.
Knight Capital was in a pool of transition managers used by the Illinois State Board of Investment until last year, when Knight Capital left the business.
Knight Capital's $440 million loss from the trading glitch has renewed a call to impose a transaction tax on investment trades as a way to reduce their frequency and market shocks from problems. Rep. Peter DeFazio, D-Ore., introduced such a tax in a bill, the Wall Street Trading and Speculators Tax Act, on Nov. 2. The bill is pending in the House Ways and Means Committee.
Mr. Atwood said in an e-mail, “The concern I would have about a transaction tax is the extent to which it would add to the trading costs incurred by investors.“
Lawrence E. Harris, professor of finance and business economics at the Marshall School of Business, University of Southern California, said he doubts such a tax would prevent similar computer glitches or serve investors in the market.
“It's unclear how a tax would affect an event like Knight,” Mr. Harris said. “It was a software problem.”
“A transaction tax is a very poor idea because it is a tax on liquidity” in the market, Mr. Harris said. “What we need is liquidity. We don't want to tax it. The electronic high-frequency traders are making liquidity cheaper and the use of algorithms by buy-side traders has made finding liquidity easier and safer.”
Kara Fitzsimmons, Knight Capital spokeswoman, couldn't be reached for comment.
Jen Gilbreath, spokeswoman for Mr. DeFazio, said he was traveling and unavailable for comment.