Saturday, August 4, 2012

All Eyes On Knight Capital Group Inc. (NYSE:KCG) Now After Recent Turmoil

As Knight Capital Group Inc.(NYSE:KCG) heads into a weekend that could be make or break for it in terms of getting crucial financial aid, it has emerged that it was Goldman Sachs Group, Inc.(NYSE:GS ) that helped the trading firm sell off the errant purchases made from its system on Wednesday.

"It was Goldman Sachs that helped Knight Trading Group to unwind its inadvertent purchase of 148 stocks on Wednesday, CNBC reported citing unidentified sources.

"... and the bank charged the smaller brokerage $440 million for the transaction - an agreement that has left Knight (KCG) scrambling for extra cash."

Should Investors Buy KGC Now? Get Trend Analysis

The snag in Knight's trading software when the markets opened on Wednesday, punched in bizarre trades in about 150 stocks at prices which varied wildly.

"Knight was reluctant to sell off those positions on the open market, sources told CNBC.

"So the firm's executives waited until after stocks finished their official trading day at 4 p.m. to try to find a partner who would buy them out."

Goldman Sachs then stepped in and agreed to purchase Knight's unwanted positions as part of one huge block sale, late on Wednesday, the report said.

But the illiquid nature of some of the stocks and the urgency with which Knight wanted to sell the positions left the bank with plenty of negotiating power, it said.

As of June 30, Knight had about $365 million in cash, according to a securities filing - raising important questions about whether the brokerage firm could generate the additional money by early next week.

How Should Investors React To The Firm’s Recent Turmoil, Get Free Report

The U.S. Securities Exchange Commission is investigating the matter.

There are indications that Knight may well look for a strategic buyer as a means to raise cash not only for its operations but also to sustain itself for the long term.

Some private equity firms have said that they would be looking at Knight but they would have to assess potential legal actions from investors and clients, Reuters reported.

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