Knight Capital Group given $400-M lifeline

Nathan Andrada – Fourth Estate Cooperative Contributor

New York, NY, United States (4E) – Knight Capital Group got a $ 400mn infusion from Wall Street investors after a frantic rush by the brokerage firm to raise much needed capital following a massive computer glitch last week.

Knight Capital performs huge volumes of trades at the New York Stock Exchange (NYSE) and a company their size makes sure that there is a market for shares whenever investors decide to buy or sell. Last Wednesday, a software error led its system to make erroneous trades resulting to a $ 440mn loss for the company.

According to a company filing on Monday, the companies that invested on the embattled brokerage are Blackstone Group LP, electronic trading firm Getco LLC, brokerage companies TD Ameritrade Holding Corp. and Stifel Nicolaus & Co., and investment banks Jefferies Group Inc. and Stephens Inc. The new investors will now own 73 per cent of Knight Capital as soon as the 2 per cent preferred stock will become common shares.

The new investors bought preferred shares that when converted will be around 267 million common stocks. Convertible preferred securities are bond-like equity that can be converted to common shares on a future date and at a specified price. The buyers have the right to buy Knight’s common stocks at a price of $ 1.50 per share.

The deal may result to the dilution of Knight Capital’s common shareholders by as much as 60 per cent, but it will recapitalize the company in time for the opening of the new trading week. Knight’s stock price ended at $ 4 after the closing bell on Friday, which is markedly down from its $ 12 price just two weeks ago.

The company, founded in 1995, processes about 10 per cent of the entire stock trades in the U.S. Last week, CLSA Credit Agricole Securities stated that the company could go into bankruptcy if they failed to look for white knight investors.

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