NEW YORK — The Nasdaq Stock Market and the Cincinnati Stock Exchange both say they are canceling many trades in Knight Trading Group Inc. stock that were executed at erratic prices Monday morning.

        The action applies to trades that occurred between 8:23 a.m. and 8:48 a.m., when Knight stock was halted, the Cincinnati Stock Exchange said. Separately, Nasdaq issued a similar statement, pinning the time for canceled trades from 8:23:00 a.m. to 8:48:44 a.m.

        Trades that took place after this period will stand, a Nasdaq spokesman said.

        The aberrant activity was caused by a software glitch at Knight, the company has said. The glitch generated a large amount of sell orders for Knight's own stock, Knight said, causing trades to occur at prices significantly below Knight's $6.35 Friday close.

        Cincinnati's involvement stems from the fact that the largest electronic stock-trading network on Nasdaq, Island ECN Inc., reports most of its Nasdaq activity through the Cincinnati Stock Exchange.

        A spokesman for Island, Andrew Goldman, said that “a very large percentage” of the action in Knight shares early Monday morning took place on Island.

        When Island became aware of the problem with Knight trades, it “worked immediately” with Nasdaq and the Cincinnati Stock Exchange “to address this issue,” Goldman said.

        The episode surrounding the erratic trading in Knight shares was a baptism by fire of sorts for Thomas Joyce, who was named Knight's new president and chief executive just last Thursday.

        Among the other challenges he faces are firming up the stock and options trading company's business, where profits have suffered amid unfavorable market conditions and the move to trade stocks in one-cent increments. Knight is the largest stock dealer on Nasdaq.

        In an interview, Joyce said Knight had recently found a glitch in its software and began correcting it last week. Knight's technicians were fixing the problem ”(trading) workstation by workstation,” Joyce said, “and unfortunately, the one workstation that created this problem they had not quite gotten to yet.”

        The problem should be fixed “by the end of today,” Joyce said. The CEO chalked up the erratic trades to “very bad luck. Unfortunately, the stars lined up in a very foul fashion this morning.”

        The absence of news from the company created speculation on Wall Street, likely made worse by the fact that Knight stock has been the target of rumors in the past, sometimes has causing it to trade actively.

        Amid all this, investors had to wait until shortly before 11 a.m., when the company issued a statement revealing the software glitch, before hearing from Knight on the matter. Knight took time in answering press calls regarding the unusual trading Monday.

        It turns out that the company's spokeswoman was out at a conference in the West Coast, although she said she was made aware of the situation and eventually returned calls. Knight executives were all at the company's Jersey City, N.J., headquarters and working on the problem, Joyce said.

        In its statement, Knight said there were “no corporate developments at the company to warrant the unusual trading.” The company said that its strategy is sound and its balance sheet is strong.

        The situation was all the more unusual because it was a case of a trading snafu involving a trading firm's own stock. Knight said that it doesn't make a market in its own stock, but that the glitch erroneously generated a large number of sell limit orders for Knight shares, sending them to various market venues. A limit order is an order that is executed at no worse than a set price.

        If a company is a market maker, Joyce said, “clearly, you can't trade principally in your own stock, and this was a principal order in your stock. Obviously, if the thing was working right it never would have happened.”

        Shares of Knight Trading closed Monday at $5.92, down 43 cents, or 6.8 percent, on the Nasdaq.

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