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Citigroup Is Said to Join Firms Refraining From Knight Trading

Citigroup Is Said to Join Firms Refraining From Knight Trading
Fidelity Investments’ National Financial Services LLC unit used Knight for 38 percent of its market orders, and Bank of America’s Merrill Lynch relied on the firm for 13 percent of its orders. The figure was 41 percent at Scottrade, 10 percent at Citigroup and 9 percent at Omaha, Nebraska-based TD Ameritrade. Photographer: Stephen Hilger/Bloomberg

Aug. 3 (Bloomberg) -- Citigroup Inc., TD Ameritrade Holding Corp. and Scottrade Inc. suspended routing transactions through Knight Capital Group Inc. as the market maker recovers from software errors that caused a $440 million loss.

Citigroup limited its trades following a request from Knight, said a person with direct knowledge of the matter who requested anonymity because the firms’ dealings are private. Scott Helfman, a Citigroup spokesman, and Knight’s Kara Fitzsimmons declined to comment.

Knight, one of the largest U.S. market makers, said it suffered $440 million in losses as the breakdown prompted erroneous orders and sent stocks swinging when markets opened Aug. 1. The Jersey City, New Jersey-based company removed the faulty software, and clients resumed their dealings by the end of that day after Knight initially told them to go elsewhere, according to Chief Executive Officer Thomas Joyce.

“We’ve got to make sure that we work with our counterparties, our clients, to get the answers they want,” Joyce said yesterday in an interview on Bloomberg Television. “So we have work to do and we’re doing it right now.”

Knight handled stock orders for some of the largest retail brokerage firms, including units at Wells Fargo & Co., Fidelity Investments and Bank of America Corp., according to reports the firms prepared under Securities and Exchange Commission rules.

Wells Fargo’s First Clearing LLC unit, which processes trades for the bank’s retail brokerage, used Knight to handle 24 percent of its market-price orders for New York Stock Exchange-listed stocks during the second quarter, according to a report on the San Francisco-based company’s website.

Other Vendors

Fidelity Investments’ National Financial Services LLC unit used Knight for 38 percent of its market orders, and Bank of America’s Merrill Lynch relied on the firm for 13 percent of its orders. The figure was 41 percent at Scottrade, 10 percent at Citigroup and 9 percent at Omaha, Nebraska-based TD Ameritrade.

TD Ameritrade hasn’t resumed routing to Knight, said Kim Hillyer, a spokeswoman for the brokerage.

“We have a number of different partners so it was quite easy for us to move on with other vendors,” she said.

Vanguard Group Inc. also is steering brokerage orders through other vendors, John Woerth, a spokesman for the Valley Forge, Pennsylvania-based firm, said in an e-mailed statement.

It couldn’t be determined what specific types of trades New York-based Citigroup is withholding from Knight.

Scottrade, the discount online brokerage, isn’t using Knight “at this point in time,” said Whitney Ellis, a spokeswoman for the St. Louis-based firm.

Morgan Stanley, the sixth-biggest U.S. bank, resumed normal trading activity with Knight on Aug. 1 and hasn’t halted since, a person familiar with the matter said.

Knight Capital wasn’t listed among venues that received a “significant percentage” of Morgan Stanley’s orders for NYSE-listed securities in the second quarter, according to a filing.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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