Knight Capital posts 3Q loss on software glitch

JERSEY CITY, N.J. -- Knight Capital Group Inc. reported a large loss in its third quarter because of the fallout from a disastrous software glitch.

But the company managed to post a small profit excluding the losses from the software glitch, and the company's stock rose almost 11 percent in premarket trading.

The glitch in Knight Capital's trading software, which occurred in August, flooded the market with erroneous trades. It forced the trading firm to cede control of its operations in exchange for a financial rescue by Wall Street firms.

Knight Capital takes orders from big brokers like TD Ameritrade and E-Trade. It then routes them to the exchanges where stocks are traded, like the New York Stock Exchange.

The Jersey City, N.J., company reported a loss attributable to common shareholders of $764.3 million, or $6.30 per share, for the period ended Sept. 30. That compares with net income of $26.9 million, or 29 cents per share, a year ago.

Knight Capital said Wednesday that the loss from the software glitch was more than $400 million.

Excluding $2.46 per share related to the software glitch and other items, earnings came to a penny per share.

Analysts forecast 2 cents per share, according to a FactSet survey.

Chairman and CEO Tom Joyce said that the company was gratified that it managed a small profit on an adjusted basis.

"I believe the recovery to date speaks to the strength of our offering, the dedication of Knight's client teams and deep client relationships we enjoy," he said.

The company's stock gained 28 cents, or 11 percent, to $2.86 per share before the market opened.

Net trading revenue was negative because of the software glitch. Knight Capital's market making segment was the most heavily impacted by the glitch, reporting net negative revenues of $341.2 million.

In August Knight Capital received $400 million from an investor group led by Jefferies Group, as well as Blackstone, Getco, Stephens, Stifel Nicolaus and TD Ameritrade. In exchange, the group received stock that can be converted to a 73 percent stake in Knight, which means Knight essentially handed over control to the investor group. Knight also added three directors to its board, increasing its size to 10 members.