The cat is out of the bag - Brokers TD Ameritrade Holding Corp.(NYSE:AMTD) and E TRADE Financial Corporation(NASDAQ:ETFC) are not steering customer orders to Knight Capital Group Inc.(NYSE:KCG) anymore. Vanguard Group and Fidelity Investments, two of the leading financial giants have also followed suit. This astonishing news came on Friday just after Knight managed to get hold of a line of credit and issued a request to financial institutions to begin trading again.
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This outcome is perhaps, to be blamed after the trading anomaly that occurred on Thursday at Knight, when the firm incurred a loss of about 440 million. Vanguard has stopped sending orders to Knight – this was confirmed by a spokesperson of the former. A regulatory filing states that Vanguard had routed 26% of its orders in NYSE Euronext-listed securities to Knight in June. Fidelity had directed a larger volume of orders to Knight, which came up to 33%, at the end of June. Along with E*Trade, Fidelity has also confirmed that they have stopped sending orders to Knight.
The shares of Knight rose 56% to 4.20 dollars on Friday, recovering after falling 75% in the past two trading sessions. This phenomenon occurred after the Wall Street Journal clearly mentioned that people involved with the matter have declared that the firm has taken a line of credit, which will help them to keep afloat and trade as usual for that day. Knight has been testing the waters in order to improve its capital position, by opting for outside financing or lucrative deals, after the technology glitch that occurred. This problem has raised a lot of questions about the credibility of the firm.
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A spokesperson from TD Ameritrade has stated that they are assessing the systems so that the routing process is not disrupted in any way and can run smoothly. According to the company, a thorough examination of the situation is to be done. The brokerage firm has routed around 4% of its orders to Knight in June, while E*Trade had steered about 14% of its NYSE-listed trades. We can only wait and watch if Knight will be able to salvage itself.