If anyone needs further proof of the impact of a trading glitch, look no further than Knight Capital. In the 16 months since it suffered one of the most devastating technology malfunctions in the history of Wall Street, the once-respected Jersey City broker has been split up, sold and seen its top talent spread to the wind.
Wall Street has not seen such an exodus of top talent since the collapse of Bear Stearns and Lehman Brothers in 2008. Unlike in those spectacular flameouts, the CEO of Knight Capital fell on his sword. On July 3, the day after Knight Capital was purchased in a $1.8 billion deal by high-speed trading firm Getco, Knight CEO and chairman Tom Joyce sent an e-mail to staffers.
He wrote, I take great pride in the fact that legacy Knight is operating so well as it moves into KCG Holdings. And I am gratified that the values at the core of Knights DNA-client service, integrity and maintaining the highest standard of business ethics-will continue to be core values of KCG going forward.
Knight Capital was known for its IT, but the day after a server went haywire and sent out excessive orders on Aug. 1, 2012, the losses and obligations swelled to more than $600 million. Knight Capital was effectively no more. To add insult to injury, the broker was forced to pay a $12 million settlement for its trading malfunction. Knights internal reviews were inadequate, its annual CEO certification for 2012 was defective, and its written description of its risk management controls was insufficient, said the SEC.
In good news, several high-profile Knight Capital executives, traders and salespeople have found greener pastures-so much so that Traders Magazines On the Move section could effectively be called Knight Moves. Heres a sample of where Knights talent has wound up:
Cantor Fitzgerald & Co. hired six ex-Knighters: a team of three market makers in exchange-traded funds-Reginald Browne, Eric Lichtenstein and Darren Taube-as well as Matthew Scorsune, Brad Kotler and Aaron Kehoe.
Former Knight sales trader Tom Fasulo joined institutional brokerage International Correspondent Trading in Jersey City, N.J., as a sales trader. Mike Lloyd, a seven-year Knight veteran, joined Janney Montgomery Scotts equities group in New York as a sales trader.
Macquarie Group, the Australian financial services firm, scooped up former Knight head of sales Brandon Krieg as head of electronic execution in the U.S. He will oversee Macquaries relationship-building efforts with U.S. and European clients, as well as the firms capabilities in electronic trading. Kenneth Cutroneo joined Prime Executions in trading sales after working in electronic trading sales at Knight Capital.
While many have left Knight, there are new faces inside KCG Holdings, the newly formed amalgam of Knight Capital and Getco. Charles Susi joined in mid-August from UBS and will head product development for the firms client execution services group. Susi reports to Greg Tusar, who joined KCG from Goldman Sachs, as co-head of global execution service and platforms. Tusar will work alongside Albert Maasland, who is co-head of global execution services at KCG.
Knight may have been burned by the dragon, but its talent live to fight another day.
— Phil Albinus
