Since the problem occurred, Knight's stock has fallen to $2.58 from $10.33 on Tuesday. Knight takes orders from brokers such as TD Ameritrade and routes them to the exchanges where shares are traded. By late Thursday, TD said it had temporarily stopped routing orders through Knight, and media outlets were reporting that several others had done the same.
Knight Capital Group said the problem was triggered when it installed new trading software, which resulted in the company's sending numerous erroneous orders in 140 stocks listed on the New York Stock Exchange. The orders were behind some sudden swings in stock prices and surging trading volume just after the market opened on Wednesday.
Wizzard Software, for example, shot above $14 after closing the night before at $3.50. Abercrombie & Fitch jumped 9 percent within minutes, hitting $36.75 after closing the night before at $33.80. Harley-Davidson suddenly fell 12 percent, to $37.84 from $43.23.
The New York Stock Exchange said Wednesday morning that it was examining unusual trades in about 140 stocks. Later in the day, it canceled trades of six smaller stocks that had wide swings, including Wizzard. Knight said Thursday that the software had been removed and that clients were not harmed.
For investors, it was the latest breakdown in the increasingly complicated electronic systems that run stock trading. The trading issues have become so problematic and frequent that many experts believe they have shaken investors' faith in markets, especially after the deep losses they suffered during the financial crisis and the recession that followed. Many small investors have been fleeing the stock market.
"It's speaking to the lack of trust that retail investors have with Wall Street," said Dave Abate, senior wealth adviser at Strategic Wealth Partners in Seven Hills, Ohio. "Firms are getting punished whenever there is any hint of an error or a situation where the little guy is possibly being taken advantage of. I think there's just zero tolerance for that."