WSJ: Knight May Sell ETF Market-Making Unit

By
November 26, 2012
Share:

The Wall Street Journal says Knight may sell its ETF market-making unit, and the company's stock spikes 18.5 percent.

 

Knight Capital Group, the largest ETF market maker, is in talks with two separate high-frequency trading firms to sell its profitable market-making unit, though it’s possible no transaction will take place and it will continue operating as it does currently.

Virtu Financial LLC and Getco LLC will submit proposals to Knight’s directors as soon as this week, according to a report in the Wall Street Journal that cited unidentified sources familiar with the discussions. Other potential bidders for the market-making unit or other parts of Knight’s business could approach the board, the Journal report said.

A Knight official declined to respond to the report, telling IndexUniverse is an emailed response: "The company does not comment on rumor and speculation."

Just the same, the Journal report fueled a nearly 19 percent jump in the Knight Capital (NYSE: KCG). Its shares were trading at $2.95, up 46 cents from Friday's close.

The market-making unit, the most profitable of Knight’s businesses, has a leading position in the world of exchange-traded funds. ETFs have become a pocket of the trading world that now routinely makes up a third of volume by dollar value and 40 percent or more when markets turn volatile, according to a study conducted by IndexUniverse.

The prospect of a sale of the market-making unit would follow by about four months a trading fiasco on Aug. 1 caused by a software problem that wiped out its profits. The software problem caused a multitude of trade to execute automatically in minutes, instead of days or even weeks, market sources told IndexUniverse at the time.

The Journal noted that the firm had pretax profits of $663.8 million from 2009 to 2011, but that it posted a $400.9 million loss in the first nine months of the year because of the trading glitch.

The firm received a $400 million capital infusion in the wake of the crisis by selling convertible preferred stock.

The Jersey City, N.J.-based firm posted a third-quarter loss of almost $390 million.

 

ETF.COM CHANNELS

Interested in China? Use our China ETFs Channel, library, and ETF screener.

Interested in oil? Use our oil ETFs channel, library and ETF screener!

ETF DAILY DATA

The oil and gas ETF saw net inflows of $135 million on Wednesday, April 27.

The top five issuers all saw net inflows into their exchange-traded products on Wednesday, April 27.

ETF.COM ANALYST BLOGS

By Drew Voros

With the broad equity ideas all taken, issuers look for thinner slices of exposure.

By David Lichtblau

How funds wash away capital gains through create/redeem process.

By Dave Nadig

End investors are the big winners; brokers—not so much.

By Dave Nadig

ETF industry petitions the SEC for market microstructure changes.

ETF INDUSTRY PERSPECTIVE

By Adam Patti

After a record-setting year in 2015, investors wonder what 2016 will hold.

By Sprott Asset Management

New fund’s underlying index targets equities sentiment on social media.

By Kristi Kuechler

Avoid taking unrewarded—or unintended—risks.