Getco Evaluating its Investment in Knight
November 16, 2012
Getco LLC will consider transactions with Knight Capital Group Inc. such as buying or selling shares of the market-making firm that dodged bankruptcy in August.
Getco said it may evaluate its investment in Knight, according to an amended 13D filed yesterday with the Securities and Exchange Commission. Chicago-based Getco owns convertible securities representing a 23.8 percent of Knight’s outstanding common stock after helping rescue the company following its $457 million trading error. The new language is similar to passages in filings by Blackstone Group Inc. and Stephens Inc., two other Knight investors that helped save the firm three months ago.
“They may be contemplating or signaling to the market that they may be more open to acquisition-type transactions,” William J. Tuttle, a Washington-based lawyer who focuses on corporate and securities matters at Dechert LLP, said in a phone interview. “This language is still very flexible but it sends a slightly stronger statement to the market.”
Knight shares rallied 6.6 percent to $2.52 as of 2:03 p.m. in New York, poised for the biggest advance in almost two months. Getco’s stake represents 23.8 percent of the 181.9 million shares of common stock outstanding on Nov. 5, according to the filing. It would own 15.6 percent of Knight’s 364.7 million shares of common stock if all the preferred stock holders converted their shares, the filing said.
Getco and Knight are market-making firms whose rise paralleled the explosion in electronic and individual trading since the 1990s. Control of the Jersey City, New Jersey-based company was transferred from public shareholders to six Wall Street firms including Getco in August after they provided cash to preserve its solvency.
Jefferies Investment
Getco didn’t mention evaluating its Knight holdings or the possibility of buying or selling shares in its filing on Aug. 6.
“As a matter of policy, Knight does not comment on shareholder activities including filings,” Kara Fitzsimmons, a spokeswoman, said in an e-mail. Sophie Sohn, a spokeswoman for Getco, declined to comment.
Getco, the automated trading firm founded in 1999, was one of six investors that acquired stakes when they bought $400 million of convertible stock. Others included Jefferies Group Inc., the investment bank that agreed last week to be taken over by its largest owner, Leucadia National Corp., for $2.8 billion.
Knight’s capital was depleted after it bombarded U.S. equity exchanges with erroneous orders on Aug. 1 in the wake of improperly installed software that malfunctioned, according to Chief Executive Officer Thomas Joyce. The trading caused volume to surge and prices to swing in dozens of securities listed on the New York Stock Exchange and NYSE Arca.
Market Makers
Getco and Knight are automated market makers. While Getco operates across asset classes mainly on exchanges and similar platforms around the world, Knight is also a wholesale market maker that services retail brokers including Fidelity Investments and TD Ameritrade Holding Corp. by executing buy and sell orders for individuals.
Knight has expanded its operations beyond equities and market making to areas such as foreign currency and fixed-income trading. It owns the Hotspot FX and BondPoint platforms, provides research and asset management and got into the reverse mortgage business in 2010. Knight had more than 1,400 employees at the end of last year, it said in a filing.
