Knight Capital LLC Gets Last Minute Funding Through Convertible Securities

Monday, August 06, 2012 07:22
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Knight Capital LLC Gets Last Minute Funding Through Convertible Securities

Tags: investing | markets | NYSE

Knight Capital Group, Inc., has been saved. A group of investors has agreed to inject $400 million in 2% convertible securities after the firm records the $440 million loss it incurred from an electronic trading glitch last Wednesday, August 1.

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The convertible securities will potentially equal about 267 million shares upon conversion. Knight already has 90 million shares outstanding. The firm was hoping to be able to cancel many of the trades causing the loss but SEC head Mary Schapiro nixed that hope decidedly.
 
So the firm was forced to unload the stock it had inadvertently bought. Goldman Sachs bought the entire lot at a discount.
 
Investors may never have heard of Knight but the firm handles $20 billion shares per day, mostly from retail firms, on the New York Stock Exchange (NYSE). Although the firm had obtained a line of credit on Friday, many of the firms for whom it handled orders continued to steer business away from Knight.
 
If only one of the firms whose name investors did know had continued to route trades through Knight, the vote of confidence would likely have kept Knight afloat. But it is the duty of the NYSE to maintain orderly flow and there was too much risk in continuing that flow through Knight until its capitalization became more solid.

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