Knight Capital explores options after $440 million trade-error loss

Knight Capital Group said losses from Wednesday's trading breakdown are $440 million, almost quadruple its 2011 net income and more than some analysts had estimated, and the firm is exploring strategic and financial alternatives.

Its stock has lost 66% in two days. The $440 million loss compares with net income of $115.2 million in 2011 on revenue of $1.4 billion, data compiled by Bloomberg show.

Knight said it will continue its trading and market-making Thursday. Wednesday's issue was related to the installation of trading software and resulted in the company sending “numerous erroneous orders,” the firm said Thursday.

Shares of Knight, one of the largest U.S. market makers, plunged 33% in record volume Wednesday as investors speculated on how much the breakdown that sent stocks swinging as much as 151% will cost the company.

Analysts at J.P. Morgan Chase estimated Wednesday that Knight's loss would be as much as $170 million, while Raymond James & Associates said the amount could be “hundreds of millions.”

“Although the company's capital base has been severely impacted, the company's broker/dealer subsidiaries are in full compliance with their net capital requirements,” Knight said Thursday. “The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.”

Knight's market-making unit executed a daily average of $19.5 billion worth of equities in June with volume of 3.1 billion shares, according to its website.

As stock swings mounted Wednesday, the company told some clients of its market-making business that a “technical issue” was affecting its systems and advised them to route orders elsewhere, according to e-mails from spokeswoman Kara Fitzsimmons Wednesday. The issue was confined to that unit and its other operations were unaffected, she said.

The errors were caused by a malfunction in a trading algorithm, according to a person at Knight who asked to remain anonymous because the matter hasn't been publicized.