Oh, you are going to love this.
That whole Knight Capital fiasco last Wednesday, when a software glitch caused them to flood the market with thousands of unintended orders, it ain't exactly what you think it is.
Sure, they tripped over themselves in the dark pool where they were trying to compete.
But somewhat interestingly (okay, a LOT interestingly), the competitor that drove them to "upgrade" their trading software, which malfunctioned and caused them to actually bid-up share prices erroneously and then buy them at inflated prices, was none other than, wait for it...
The New York Stock Exchange.
That's not the whole story, or even the good part. Oh, it gets better. A lot better
Knight claimed a $440 million trading loss on Wednesday resulted from their computer glitches and sunk the company (at least for now; I'll get to that).
Well, according to Nasdaq (this was on its site: nasdaq.com), it wasn't a trading loss at all. Knight paid Goldman Sachs a $440 million fee (commission?) to take the errant shares Knight had bought on Wednesday morning off its hands.
Now, I don't know what Goldman did with those shares, but my guess is they held most of them and sold them on Friday when the market soared a few hundred points. Of course, that's not a "prop" trade. Knight is a customer of Goldman's (it is now...).
But who cares?
Goldman Sachs ripped a customer for a $440 million fee, virtually bankrupting it in the process, flipped the shares it bought from Knight to "help" them (and first of all, probably overly hedged itself... as in enough to be net short... the large stake it holds in Knight's convertible preferred) for a tidy profit, and then probably shorted the stock (before "helping" them, and themselves to their little fee) before the stock collapsed, then probably gave it its "lifeline" (that's a guess, and I'm being sarcastic, but it's possible). And maybe we'll find out where that lifeline Knight got on Friday really came from) before buying a ton of Knight's shares back on Friday before hearing (of course... before) that several big firms were looking at buying Knight.
What's my point in the above LONG sentence? Who cares! That's all business as usual at the Golden Vampire Sachs.
That's after-the-fact stuff.
What's more interesting is why all this happened in the first place.
Here's what you probably don't know...
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