Knight Capital trading glitch costs it $440M

Knight Capital Group Inc. was fighting for its survival Thursday after a trading glitch that had roiled markets wiped out $440 million of the firm's capital, forcing it to seek new funding as its shares plunged more than 70 percent in two days.

Some of the company's biggest customers, including TD Ameritrade, and Fidelity Investments were not routing orders through Knight. Smaller customers also were taking business elsewhere.

Knight, one of the largest U.S. market makers, said it is "actively pursuing its strategic and financing alternatives," raising the possibility Knight could be sold or even face bankruptcy.

The troubles at Knight have spooked investors about a potential failure for the firm, which in 2011 was the No. 1 market marker in retail U.S. equity shares traded in NYSE and Nasdaq stocks.

"They have about 48 hours to shore up confidence," said James Koutoulas, lead lawyer for Commodity Customer Coalition, an advocacy group.

The incident and subsequent collapse in the company's stock has cast more doubt on the inner workings of financial markets increasingly driven by electronic trading that regulators and firms are struggling to control. They include the troubled Facebook IPO in May, the failed IPO of exchange venue BATS Global Markets in March and the Flash Crash in May 2010.

Knight is in talks with Silver Lake Partners-backed trading firm Virtu Financial Llc about a possible deal, The Wall Street Journal reported. Fox Business Network reported Knight has approached JPMorgan Chase & Co. for financing.

Wednesday's software breakdown roiled the prices of some 140 stocks listed on the New York Stock Exchange, undermining fragile investor confidence in the stability of U.S. stock markets. -- Reuters