Bloomberg on The Knight Debacle: What Really Went Down

While an agreement between several Wall Street players and Knight Capital Group seems to have saved the company from going under this week, there is a lot more to the story, writes Bloomberg News in a play-by-play of the company’s near-demise.

Starting with an unprecedented position brought on by a software glitch introduced into Knight’s trading platform last week, traders quickly traded out of the position as best they could while awaiting a cumulative loss of roughly $400 million.

On the surface, sleepless executives came to terms over the course of a week that leaves Knight solvent, albeit pieced together with the help of several separate investors. How the deal really went down, however, had much more to do with the company’s history and a rivalry that had been in place between Knight and its key competitor for many years and counting.


Bloomberg News reports:

As time was running out, Knight Capital (KCG) Group Inc. Chairman and Chief Executive Officer Thomas Joyce had three choices left—accept a $500 million bailout from his biggest competitor, take an offer from a group of clients and others that would dilute owners, or go bankrupt.

The 57-year-old former Harvard University football star chose the second, ceding most of the company to investors led by Jefferies Group Inc. (JEF) The $400 million rescue staved off insolvency as well as Ken Griffin, the billionaire founder of rival Citadel LLC whose overtures to Knight were never able to penetrate the distrust between the two firms, people with direct knowledge of the matter said.

“It’s no secret that in the wholesale market-making space, firms are extremely competitive with one another,” said Christopher Nagy, president of broker consultant KOR Trading LLC in Omaha, Nebraska, who said he had no first-hand knowledge of the talks. “It’s no different between Ken and Tom…..”

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Written by Elizabeth Ecker

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  • What is the intrinsic value of Urban to Knight?  With growing contingent (default) liabilities it is hard to say if it has any fair market value.   

    So what is the intention of the new buyers:  Keep Knight in tact, break it up, or sell off some or all of its most valuable pieces?

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