Beleaguered Knight Capital Gets a $400 Million Financing Lifeline


NEW YORK -- Knight Capital says investors have agreed to supply it with $400 million in financing, which would help the trading firm stay in business after last week's disastrous software glitch that shook stock trading across the market, cost the firm $440 million, and jeopardized its future.

The company said in a regulatory filing on Monday that the unnamed investors agreed to buy $400 million of preferred stock that will be converted into about 267 million of its shares.

Knight Capital Group, based in Jersey City, N.J., expects the transaction to be completed later in the day. A representative for the company could not be immediately reached for comment.

A CNBC report on Sunday said that those supplying the financing included the brokerage firm TD Ameritrade Holding Corp., private-equity firms General Atlantic and Blackstone, and brokerage and investment bank Stifel Nicolas.

While the company was said to be working on putting together the deal throughout the weekend in order to assure investors before Monday's market open, it may still need to do some convincing. Shares of Knight Capital slid $1.23, or 30.4 percent, to $2.82 in premarket trading.

The company takes orders from big brokers like TD Ameritrade and E-Trade. It then routes them to the exchanges where stocks are traded, like the New York Stock Exchange.

Knight Capital has been fighting for survival since Wednesday, when a problem with a newly installed piece of software wound up funneling erroneous orders for some 140 stocks to the market for the first 45 minutes of trading. That caused shares of some stocks to swing wildly.

Those 45 minutes have been devastating for Knight, which has scrambled to reassure clients and investors that it's got things under control. The head of the Securities and Exchange Commission on Friday publicly called the incident "unacceptable."

Knight was left on the hook for some $440 million to cover the mistaken trades, or nearly four times what it earned last year. That expense, it said, "severely impacted" its capital base, and the company said it might be forced to sell itself.

Knight's blunder revives a thorny debate in the financial system about the merits of high-speed trading, where lightning-fast mathematical models trade stocks in milliseconds and, as recent mistakes indicates, strain the system that is supposed to handle them.

The foul-up was the latest in a string of high-profile technical problems that have left some investors convinced they can't trust the financial markets. The biggest was the "flash crash" in May 2010, when a computer problem caused the Dow Jones industrial average to drop nearly 600 points in five minutes. The most recent prior to Knight Capital's was Facebook's debut on the Nasdaq stock exchange in May, when technical problems at Nasdaq kept some investors from knowing if their trades had gone through.

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Ann

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August 09 2012 at 6:03 AM Report abuse rate up rate down Reply
Ann

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August 09 2012 at 5:57 AM Report abuse rate up rate down Reply
Ann

Many younger women are looking to date older guys, mainly because older guys are relatively more successful in career and understand better how to treat their women.

August 09 2012 at 5:46 AM Report abuse rate up rate down Reply
wspceo1

A few years ago I was replacing an important trading system at this firm. As part of the deal they asked if we could shore up their old system so that it wouldnt fail during the new system implementation. Once we shored it up they then came back said said very smugly that they didnt need the new system now, Ha ha!

Once in a while God lets me have a last laugh.

August 06 2012 at 7:24 PM Report abuse rate up rate down Reply
1 reply to wspceo1's comment
jpark377

I'm not one of these religious nuts, but I do like Karma! I hope your company had a decent contract that at least had Knight pony-up for the improvements to their old system. When I saw the headline, I just figured it was more Obama crony-capitalism (ala Solyndra).

August 06 2012 at 8:57 PM Report abuse rate up rate down Reply
hillpeabody

Let 'em fail.

August 06 2012 at 3:14 PM Report abuse rate up rate down Reply
1 reply to hillpeabody's comment
jkennedy806

I agree, where's my bailout -- isn't it amazing that the investors will bail out themselves, but the homeowners got no bailout and it;s the taxpayers that originally saved their sorry bankrupt arses

August 06 2012 at 3:24 PM Report abuse +1 rate up rate down Reply
ragtopdaz

The Government always has a bailout in the works, or a handout ready for some group of takers.
Here is one:
The Student Loan Forgiveness Act would make student loan repayment both simple and fair by capping federal student loan interest rates, converting private student loan debt into federal loan programs, and allowing forgiveness of federal student debt of those graduates who have paid at least 10 percent of their discretionary income for 10 years.

Here is another:
Several Republican senators voiced concern Monday over what they say is a weakening of citizenship standards when it comes to determining whether immigrants are over-relying on government aid like food stamps.

The ranking members of the Senate Budget, Judiciary, Finance, and Agriculture committees sent a letter to Secretary of State Hillary Clinton and DHS Secretary Janet Napolitano questioning promotional materials produced by USDA and distributed at Mexican consular offices designed to encourage food stamp use.

The senators say the materials state that a reliance on Supplemental Nutrition Assistance Program benefits, commonly known as food stamps, will not be taken into account when considering the merits of a visa application or status adjustment.

That isn't sitting well with Republicans, who note in the letter, "It has long been a sound principle of immigration law that those who seek citizenship in this country ought to be financially self-sufficient. We were thus shocked to discover that both the State Department and DHS exclude reliance on almost all governmental welfare programs when evaluating whether an alien is likely to become a public charge."

Sen. Jeff Sessions, R-Ala., the ranking member on the Senate Budget Committee has been a frequent critic of the U.S./Mexico partnership. He charges that it is possible for illegal immigrants to receive benefits by claiming legal status. He says that a screening program to prevent illegal aliens from accessing benefits is currently optional and not widely utilized.

The senators are seeking an explanation for the policy change and want to know how many visa recipients later became public charges.

The USDA has stressed that illegal immigrants, though, are not eligible for the program, and has defended its partnership with Mexico as a way to inform Mexican immigrants about the program "to help reduce hunger in America." The partnership was established in 2004.

And in the grand giveaway programs our morons come up with, its the 50% of us who pay taxes pay for them..

August 06 2012 at 2:07 PM Report abuse rate up rate down Reply
jimandmars

I cannot understand why anyone would invest in the stock market when it is being controlled by fast computer
trades. The people doing the trading with the fast computers don't know how to control them putting the market
at risk every minute. The watch dogs controlling the "controllers" are even farther in the dark. A minimum time
limit for hold should be placed on all stocks. The only bad thing about this is the regulators don't know enough
to implement something like that. Would leave too many loop holes in regulation. I wish I hadn't invested.

August 06 2012 at 12:06 PM Report abuse +1 rate up rate down Reply
ctheleroys

Bail out??? How about the bail out for the regular citizen who has been finically crippled by the big banks illegal dealings?? Where is our bail out? Big business should be allowed to fail ...just like the rest of us!

August 06 2012 at 11:33 AM Report abuse +1 rate up rate down Reply
1 reply to ctheleroys's comment
j.doobie

Obumma is going to give you food stamps, there;s your bail out.

August 06 2012 at 11:40 AM Report abuse rate up rate down Reply
kolblh

That's why the market reacts, up it goes, until Europe collapses and our economey takes a dive. It's not in millions anymore, can you say the word billions? heading for trillions like our national debt.

August 06 2012 at 11:28 AM Report abuse rate up rate down Reply
pozboys

Just another case of those who lost millions, going to go on, to make billions!! Nothing newsworthy here!! What's funny, is that a multi billion dollar company, would be the victim of a computer program, that they paid, probably, peanuts for!!!LOL

August 06 2012 at 9:53 AM Report abuse -2 rate up rate down Reply