[ by Howard Haykin ]

Knight Capital Group had big planned to become a clearing powerhouse.  That was before August 1, 2012, the day CEO Tom Joyce made the biggest miscalculation of his career.  Joyce pushed out a new trade order program that morning to disrupt of take attention away from a new "Retail Liquidity Program" that would debut that day on the NYSE.  Not a bad strategy, except the program had not undergone all of its pre-implementation tests.  The IT folk didn't have the opportunity to conduct a complete series of tests on the program and additional vetting steps were not carried out.  

The clearing house dream is dead, and the firm, which is in the process of being bought by GETCO, recently shuttered its correspondent clearing division and laid off a few dozen of its employees.  Steve Sadoff, the head of the clearing operation, was among the casualties.  Tom Joyce was kind enough to express his thanks to Mr. Safoff, noting he had "performed tremendous work in leading Knight's technology and operations and we thank him for his service."   The decision to discontinue Knight's correspondent clearing services came at the same time that Knight has opted to consolidate its electronic equities sales teams, Joyce said.

Estimates of that Would Be Technology Project.   Knight officials estimated the immediate benefits of the self-clearing would be $20 million a year.  However, they went to self-clearing for the same reason other brokerages were considering it: It would give them greater control over trades. A Knight spokesman said it will continue to self-clear.

But beyond self-clearing, Knight had ambitious goals. With so much volume and an extensive wholesaling network, it hired dozens of new employees and was building new systems, expecting to tap the huge potential of clearing trades for others.  Back in 2010, one analyst predicted that Knight's new business of clearing for others would "do very well." Then there were others who said it would have trouble taking away business from the powerhouses of the institutional clearing world.   Whatever.  Perhaps Getco will start up the program again - though it wouldn't happen anytime soon.  After all, they approved Mr. Sadoff's termination and those of his staff.    [ Traders Magazine Online, 3/8/13 ]