Winnipeg Free Press - PRINT EDITION

Knight sees a little light -- some clients staying loyal

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AFTER a grisly two days, Knight Capital got a few breaks, relatively speakingy.

The battered trading firm, whose software glitch briefly sent stock trading into chaos Wednesday, reportedly got a new line of credit, which was crucial after the company drained its resources to pay for Wednesday's debacle.

The stock, which had shed three-quarters of its value over the previous two days, jumped 57 per cent. And many of Knight's clients, rather than heading for the door, instead closed ranks around the company.

Not all Knight's customers will be so easy to please. It almost certainly needs to come up with more funding sources and could still end up being forced to sell itself to survive. On Friday, the head of the U.S. Securities and Exchange Commission publicly called the incident "unacceptable."

Knight Capital Group, based in Jersey City, N.J., is a trading firm that takes orders from big brokers such as TD Ameritrade and E-Trade. It then routes them to the exchanges where stocks are traded, such as the New York Stock Exchange.

The company has been taking a beating since Wednesday, when a problem with a newly installed piece of software wound up funnelling erroneous orders for some 140 stocks to the market for the first 45 minutes of trading. That caused shares of some stocks to swing wildly.

Those 45 minutes have been devastating for Knight, which has scrambled to reassure clients and investors it's got things under control.

Knight said Thursday it would have to spend $440 million -- nearly four times what it earned last year -- to cover the mistaken trades. That expense, it said, had "severely impacted" its capital base, and the company said it was looking at "strategic" alternatives, business-speak for saying it might sell itself. The Wall Street Journal reported Friday that Knight received a credit line from an unnamed party that would allow it to remain open for the day. Knight didn't return a message seeking confirmation.

The stock, which had plunged from $10.33 to $2.58 over Wednesday and Thursday, is still far from being made whole. It shot up $1.47 to $4.05 Friday.

Client reaction so far has been more muted than outraged. Knight has said none of its clients was hurt and the faulty software has been removed. Knight says it notified clients immediately after it noticed the problem and had them stop routing trades through its systems Wednesday.

E-Trade and Vanguard were still not trading through Knight by Friday, but said they will continue to assess the situation. A spokesman for Vanguard, which works with Knight through its brokerage arm, called Knight "a longtime and valued partner."

TD Ameritrade, which Thursday had been performing test runs before placing orders with Knight, announced that it would resume normal trading.

-- The Associated Press

Republished from the Winnipeg Free Press print edition August 4, 2012 B7

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