Knight in for $400 million lifeline after trading debacle
Knight Capital Group looks set to enter into a $400m (£256m) financing deal with a group of investors, allowing the trading firm to open its doors today after a crippling $440 million loss. But it will come at a steep cost to shareholders, sources familiar with the situation said.
Such a deal would help Knight continue to operate and avoid further disruption and uncertainty for its brokerage clients, which include firms such as TD Ameritrade, Vanguard and Fidelity Investments. An announcement on the deal is expected by early today.
Knight’s shareholders have had to pay a steep price to keep the firm afloat following 45 minutes of software-induced mayhem last Wednesday that led to the loss and a massive decline in customer confidence. Shares worth $10.33 last Tuesday night may now be worth just $1.50, an 85 per cent drop.
The capital lifeline is coming from investors that include private equity firm Blackstone Group, Chicago market-maker Getco – in which private equity firm General Atlantic is a shareholder – as well as financial services firms TD Ameritrade, Stifel Nicolas, Jefferies Group and Stephens, according to the sources.
The investment is expected to be made through convertible preferred stock, which will have a conversion price of $1.50 per share and carry a coupon of 2 per cent, the sources said.
Officials at Knight, Blackstone, TD Ameritrade, Jefferies, Stifel and General Atlantic declined to comment. Officials at Getco and Stephens were not immediately available for comment. CNBC earlier reported the news of the deal.
Knight’s problems started early on Wednesday when a software glitch flooded the New York Stock Exchange with unintended orders for dozens of stocks, boosting some shares by more than 100 per cent and leaving