Knight accepts Nasdaq’s $62-million Facebook payback plan

NEW YORK, Thu Aug 30, 2012 – After initially criticizing Nasdaq OMX Group for its response to Facebook’s botched initial public offering, trading firm Knight Capital Group Inc said it accepted the exchange’s latest plan to pay back brokers a portion of their losses.

Knight’s support comes after Nasdaq increased the payback fund to $62 million in cash from an earlier $40 million made up mostly of trading rebates, the market-making firm said in a letter to the U.S. Securities and Exchange Commission, dated Aug. 29.

Knight, which facilitates trades for other firms, had called Nasdaq’s earlier plan “inadequate,” and said it was considering legal action over the May 18 IPO.

“Although we would have preferred that the accommodation pool cover all losses sustained by Nasdaq members, we do support Nasdaq’s proposal to increase the accommodation pool from $40 million to $62 million,” Knight said in the letter obtained by Reuters.

Knight and other retail market-making firms and brokers together lost more than $500 million in the IPO.

Some firms, like UBS AG, which disclosed it lost more than $350 million, and Citigroup’s Automated Trading Desk, which is said to have lost up to $35 million, have rejected the plan, saying Nasdaq should be responsible for all of the losses, because it acted in a for-profit manner in the IPO.

Knight Capital says it will receive $400 million rescue

JERSEY CITY, N.J., Mon Aug 6, 2012 – A group of investors will rescue embattled market maker Knight Capital Group Inc. in a $400 million deal that keeps the company in business, Knight said on Monday, but comes at a huge cost to investors.

The New York Stock Exchange said it will temporarily transfer Knight’s market-making responsibilities on more than 500 stocks – and related Knight employees – to Chicago-based Getco, until the recapitalization is complete. The exchange said both companies cooperated with the transfer.

The rescuing companies will buy convertible preferred stock with a 2 percent dividend to save Knight, which was brought to its knees last week by a software glitch that caused errant trading in dozens of stocks. The deal is expected to close later Monday morning.

The preferred shares are convertible into about 267 million shares of common stock, Knight said in a U.S. Securities and Exchange Commission filing, implying the investors would get a stake of a little more than 70 percent in the company.

The filing did not name the investors. On Sunday, sources familiar with the talks identified private equity firm Blackstone Group LP, Getco and financial services companies TD Ameritrade Holding Corp., Stifel Nicolas, Jefferies Group Inc and Stephens Inc. as the prospective buyers.

J.P. Morgan analyst Kenneth Worthington, in a client note after the initial reports on the rescue Sunday night, said the deal presaged Knight’s eventual breakup.

“We don’t expect investors to value Knight as an ongoing entity given its technology glitch generated a pre-tax loss equal to (about) 30 percent of shareholders equity and nearly wiped out the company in just 30-45 minutes of trading,” he said.

Shares fell 30 percent to $2.85 in heavy premarket trading after closing at $4.05 on Friday. Less than three weeks ago Knight traded for m

Knight trading loss shows cracks in equity markets

NEW YORK,  Aug 3, 2012 – The software glitch that cost Knight Capital Group $440 million in just 45 minutes reveals the deep fault lines in stock markets that are increasingly dominated by sophisticated high-speed trading systems. But Wall Street firms and regulators have few easy solutions for such problems.

Automated trading can handle massive volumes of transactions in milliseconds, something human traders could never do. But the benefits come at a cost: stock markets have become a jumble of exchanges, market makers, high-frequency traders, and investors using different systems that can interact in unexpected ways.

The May 2010 ‘Flash Crash’, in which U.S. stocks inexplicably sank in a matter of minutes, illustrated how technological problems can cascade. These sorts of problems may be more likely given that many market participants are under pressure to cut costs – including technology spending – as trading margins narrow and regulation costs increase.

Since April, a series of embarrassing and costly technology issues have rocked markets and shaken the confidence of investors.

BATS Global Markets, an exchange, was unable to complete its own initial public offering because of a technical problem. Nasdaq botched the market debut of Facebook due to technical glitches, costing it tens of millions of dollars, while UBS AG lost more than $350 million in trading Facebook shares and is blaming Nasdaq.

“The structure just may be too complicated to work,” said Larry Tabb, founder of Tabb Group, a consulting firm that focuses on capital markets.