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Knight's CEO Admits Software Bug Was Cause of Market Mayhem

Knight Capital's CEO Tom Joyce told Bloomberg TV that the electronic broker had a problem interacting with the NYSE's new Retail Liquidity Provider program which went live yesterday, which was the subject of speculation on the street.

Knight Capital's CEO Tom Joyce has confirmed that "a very large software bug" was the source of yesterday's market fiasco, according to an exclusive interview with Bloomberg TV on its Market Masters program this morning.

Joyce spoke with reporters on Bloomberg TV’s “Market Makers” this morning about yesterday’s trading errors and losses stemming from the breakdown, saying that the company has “all hands on deck,” according to a summary of the interview that Bloomberg sent out. Joyce said, “We understand what the issues are. We’re staying in close contact with our clients and counterparties.”

Until this point, Knight Capital had not stated the reason for the glitch except to say it was "technical issue" on its listed market making desk that affected the routing of stocks to the New York Stock Exchange.

Joyce also confirmed the problem was interacting with the NYSE's new Retail Liquidity Program(RLP) that started yesterday morning, which had been the subject of speculation on Wall Street. The RLP program is meant to provide retail investors with better prices. Knight reportedly was opposed to the new RLP program because it would compete with its ability to attract retail order flow to its electronic market making business.

“We put in a new bit of software the night before because we were getting ready to trade the NYSE’s RLP program. This has nothing to do with the stock exchange. It had to do with our readiness to trade it," Joyce told Bloomberg TV in an exclusive interview. Joyce continued: "Unfortunately, the software had a fairly major bug in it. It sent into the market a ton of orders, all erroneous, so we ended up with a large error position which we had to sort through the balance of the day. It was a software bug, except it happened to be a very large software bug, as soon as we realized what we had we got it out of the code and it is gone now. The code has been restored. We feel very confident in the current operating environment we’ve reestablished.” In response to questions as to why it took the firm so long to fix the problem and shut the "program trade" down, Joyce suggested the firm had not acted in a slow manner and said that no investors were harmed. “We were talking to our clients right away and got they got out of the way, which is great because nobody else except for us was wounded by this activity. So, we don't think we actually acted in a slow fashion at all because our primary focus was on us alerting our clients and keeping them out of harm's way," Joyce told Bloomberg TV.

On CNBC Bob Pisani also commented on the Joyce interview that took place on another network.. When asked about next steps, according to Pisani, Joyce said the industry needs to do a better job with testing their software.

With its stock down 40 percent in early trading this morning, Knight has lost approximately $440 million and is said to be searching for more capital and strategic partners. What asked if the firm is searching for capital, Joyce responded, "They're still in business," as reported by CNBC's Bob Pisani.

Here is the exclusive interview with Bloomberg TV.

Here is the full video with CNBC's Bob Pisani. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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