Knight Capital Group Inc.

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Knight Capital Group
KCG Logo.png
Founded 1995
Headquarters Jersey City, NJ
Key People Former CEO and Chairman Thomas M. Joyce
Products Asset management and brokerage

Knight Capital Group was a firm offering market-making and trade execution to broker-dealers and institutional investors. It was acquired by GETCO in the summer of 2013 after a technology problem caused Knight to lose $440 million in one day. The merged entity was re-named KCG Holdings Inc. [1]

Early History[edit]

Knight Capital Group was launched in 1995 as Knight/Trimark Group as a trade execution provider serving global national and regional broker-dealers, online brokers, funds, trusts and endowments.[2] The firm began trading on the NASDAQ exchange in 1998, changed its name two years later to Knight Trading Group and then again to Knight Capital Group in 2005.[3] Its global markets (trade execution) division, Knight Securities, has headquarters in Jersey City, NJ and offices in 11 other U.S. cities plus London and Singapore, while its asset management (Deephaven) division is headquartered in Minnetonka, MN with offices in Hong Kong and London.

On Dec. 8, 2009, Knight Capital Group announced that Knight Equity Markets, L.P. would become a Competitive Market Maker (CMM) on ISE’s options exchange effective in the first quarter of 2010. Knight purchased ten CMM trading rights from TD Options, LLC that cover every options class listed on that exchange.[4]

On May 12, 2010, Knight Capital Group announced the pending transfer of its listing of common stock to the New York Stock Exchange (NYSE), as well as the cross-listing of its common stock on the Professional Segment of the Paris market of NYSE Euronext. Knight's common stock began trading on NYSE Euronext in the U.S. and Paris under ticker symbol "KCG" on May 25, 2010.[5]

In May of 2012, Knight Capital acquired the futures division of Penson Financial Services, a subsidiary of Penson Worldwide, Inc., and renamed it KCG Futures. Through this acquisition, Knight also assumed Penson's seats and memberships at exchanges including: CBOT, KCBOT, NYSE Euronext and Eurex.[6]

The "Knightmare"[edit]

On Aug. 1, 2012, Knight Capital's market-making unit suffered a technology problem that affected the routing of trades on around 150 stocks on the New York Stock Exchange.[7] The following day, Aug. 2, 2012, Knight acknowledged that it expected the previous day's algorithmic glitches to cost $440 million, and that the firm was "seeking ways to strengthen its capital base."[8] Over the course of two days, Knight Capital's stock lost over 66 percent of its value. Knight blamed software installed on its system for errors entering millions of trades in less than an hour as the market opened the next day. The errant trades were routed to the New York Stock Exchange, which started operating a new trading platform designed to attract trades from individual investors.[9]

On Aug. 3, 2012, shares of Knight Capital Group Inc. soared 65 percent in afternoon trading after TD Ameritrade Holding Corp. said it would resume routing client trades to Knight in a sign that customer confidence in the Jersey City-based market-making firm was returning.[10]

Knight was nearing bankruptcy when on Aug. 6, 2012, it received an injection of $400 million from Jefferies, Blackstone, GETCO, Stephens, Stifel Financial and TD Ameritrade through an issue of preferred shares - securities that pay out a set income - bailing out the firm financially.[11]

Knight Capital's board met in the final months of 2012 to assess takeover offers from Getco LLC and Virtu Financial LLC.[12]

In December 2012 the company agreed to be acquired by Getco LLC. In January 2013, the Wall Street Journal reported that Knight planned to sell its bond-trading and reverse-mortgage units, which are part of a division that has struggled to make a profit. The sale would refocus Knight on its core business of buying and selling stocks. The company let go about 40 employees, mostly from its institutional sales and trading division, from a staff of about 1,500. [13]

Products and Services[edit]

KCG's Global Markets trade-execution business segment, its best performer, operated as six main subsidiaries: