Knight Capital Group (NYSE: KCG) has recovered much of the ETF trading volume it briefly lost in the wake of a trading glitch that wreaked havoc in markets earlier this month, according to reports.
“While the stock market quaked when Knight Capital Group let loose a torrent of errant trades last Wednesday, the smaller world of exchange traded funds only quivered. And the fallout was less, too — Knight was only knocked off its perch as top ETF trader for a total of four trading days,” WSJ.com’s Market Beat reports.
Spreads widened in some smaller, thinly-traded ETFs for which Knight is the lead market maker after the debacle. Knight is the among the Wall Street firms called authorized participants which are responsible for making markets in ETFs and providing liquidity. [ETFs Endure Knight Glitch Better than 2010 Flash Crash]
“As confidence in the firm fell after Knight’s botched trades, liquidity dried up in some thinly traded ETFs. But in the midst of the drama, Knight held on to its official role as a lead market maker for those securities,” Market Beat reports. [Knight Debacle Raises Concern Over ETF Trading, Liquidity]
Some competitors such as Goldman Sachs stepped in to fill the void but Knight has recovered most of the ETF share volume, according to the article.
On Aug. 1, trading in some individual stocks went haywire after a software malfunction resulted in Knight sending erroneous orders. Knight absorbed a loss of $440 million and subsequently announced $400 million of financing from a group of investors.
John Hyland, the chief investment officer at United States Commodity Funds, told Institutional Investor it looks like not many ETF investors or traders were hurt much by the event. “This seems to be really about Knight shooting their foot off,” he said.
“I’m sure all market makers are trying to take advantage of this. If you’ve got a wounded competitor, you’re going to be taking market share when you can,” Timothy Strauts, an ETF analyst with Morningstar, told WSJ.com’s MarketBeat. [Five Lessons for ETF Investors After the Knight Meltdown]
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