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Knight Capital shares sink after $440M loss

NEW YORK (MarketWatch) -- A software glitch can wreak a lot of damage. Just ask Knight Capital Group Inc.

Shares of the Jersey City, N.J.-based firm tumbled for a second session on Thursday after it disclosed that exiting erroneous trades caused by a technology snafu has cost it $440 million. Knight (KCG) shares sank 63% to close at $2.58. They had fallen nearly 33% the previous day.

Knight said Thursday it's looking at options to strengthen its capital.

"Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million," the firm said in a statement. "Although the company's capital base has been severely impacted, the company's broker/dealer subsidiaries are in full compliance with their net capital requirements."

At the start of trading on Wednesday, Knight -- one of the few designated market makers at the New York Stock Exchange -- experienced a technology issue due to the installation of trading software. As a result, Knight sent numerous wrong orders in NYSE-listed securities into the market, causing big swings in the shares of some companies.

Knight Chief Executive Thomas Joyce told Bloomberg Television that the company was in close contact with creditors, clients and counterparties.

The Wall Street Journal, citing unnamed sources, reported that Knight is in talks with Virtu Financial LLC about a potential merger or capital infusion. The Journal also said Knight has approached other potential partners, including J.P. Morgan Chase & Co., from which it reportedly sought funding.

The broader financial sector also posted losses, with the Financial Select Sector SPDR Fund(XLF) , which tracks financial stocks in the S&P 500 index (SPX) , closing down 0.8%.

The S&P 500 also fell 0.8% after investors were disappointed that European Central Bank President Mario Draghi didn't take any immediate steps to resolve the euro-zone debt crisis. Draghi had pledged last week to do whatever it takes to save the euro.

Shares of Genworth Financial Inc. (GNW) fell 8%, extending losses from the previous session when the firm's chief executive said that spinning off its troubled mortgage-insurance unit may not be viable.

Other notable losers in the financial sector included E-E*TRADE Financial Corp. (ETFC) , down 5.4%; Morgan Stanley(MS) , down 3.6%; and Goldman Sachs Group Inc. (GS) , down 2.3%.

Shares of American International Group Inc. (AIG) finished unchanged ahead of the company's second-quarter earnings report, which is due after the market close on Thursday.

All financial components of the Dow Jones Industrial Average (DJIA) posted declines. Travelers Cos. (TRV) slipped 0.8%, J.P. Morgan (JPM) fell 2.3%, American Express Co. (AXP) dropped 0.6% and Bank of America Corp. (BAC) declined 0.6%.