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Rating:Knight's Taking Bids on Its Market-Making Unit Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, November 26, 2012

Knight's Taking Bids on Its Market-Making Unit

News summary by MFWire's editors

The second-biggest ETF market maker may be changing hands.

On Friday, the Wall Street Journal's Jenny Strasburg broke the story that Knight Capital Group, which handles about 10 percent of all U.S. stock trades and is among the largest ETF market makers, is trying to sell its market-making business. A trading glitch this summer nearly brought the firm down and forced it to take a $400-million industry bailout, as it recorded a third-quarter loss of $389 million.

Read MFWire's living timeline for the full, ongoing story on the Knight disaster and rescue.

The WSJ identified Knight's two suitors as the high-frequency trading firms Getco LLC, of Chicago, and Virtu Financial LLC of New York. Getco is one of the six firms that bailed Knight out in August, and a Bloomberg story said that Getco would own just under 16 percent of Knight if all its preferred stock holders converted their shares.

After the WSJ broke the story, other publications swarmed. Reuters got an internal memo from Knight CEO Tom Joyce in which he tries to play down the deal talk.

"Given our recapitalization, rapid client re-engagement and rebound in trade volumes, there is no need for Knight to pursue a partnership, transaction or any other undertaking," the memo said. "We would only move forward with such an initiative if it makes strategic sense for our shareholders and our business."

Then Bloomberg talked with an anonymous though evidently well-informed "person" who said that Knight will be receiving acquisition bids starting this week. The story also said that Knight would likely be split up if its market-making business were sold.

ďIf they sold the market-making business, it would make sense to sell simultaneously the other assets to them or somebody else," the Bloomberg piece quotes an analyst as saying. "They donít have a company once they sell that business. Itís the mainstay.Ē

The WSJ report bears that claim out. Knight's market-making business had over $700 million in revenue last year, while the rest of the company lost $69 million pre-tax, according to the Journal. But the report says that "Knight's investors are willing to be patient because the firm's business remains generally strong despite the trading mess."

Links to all the stories: Wall Street Journal, Bloomberg, Reuters, Associated Press

Edited by: Chris Cumming


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