Monday, August 6, 2012

Knight Capital gets $400mn lifeline

After reporting a massive $440 million loss, Knight Capital Group Inc. (NYSE:KCG) will finally get a finance deal from a group of investors worth $400 million. Within a span of four days, Knight Capital has gone on from being one of the pillars of Wall Street to a business desperately looking for a lifeline for long term survival.

It all started with a 45-minute software glitch on 1st August that created confusion among dozens of stocks as unintended orders were forwarded to NYSE that increased the values of some of those stocks by more than 100% and eventually left Knight Capital with $440mn trading loss.


Costumer confidence nearly vanished and the company’s shares dropped from $10.33 last Tuesday to $2.58. Such circumstances forced Knight’s CEO Thomas Joyce to appear in public for the first time. "You cannot keep people from doing stupid things," said Mr. Joyce while talking to Bloomberg, “That is what happens when you have a culture of risk."

Due to the deal, the firm will be able to open its doors on Monday and will continue serving its premier clients that include TD Ameritrade, Vanguard and Fidelity Investments. The deal is expected to be signed early Monday. According to Reuters, it will come at a “steep cost” to the shareholders.

Some of Knight’s clients, such as TD Ameritrade Holding Corp. (NYSE:AMTD) came in support of the firm. "They've been a good and trusted partner," TD spokeswoman Beth Evegan said. TD Ameritrade  is the top U.S. brokerage firm in terms of volume and deals exclusively with Knight Capital. Citing an insider source, Reuters has reported that TD is practically “handcuffed to Knight”.

On the other hand E-Trade Financial and Vanguard have said that they were currently monitoring the situation and did not comment further.

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Relevant Links

Knight Battles for Survival [The Wall Street Journal]