Knight Capital Gets $400M Rescue Deal

Deal will let firm stay alive after $440M loss
By Rob Quinn,  Newser Staff
Posted Aug 6, 2012 2:34 AM CDT
Updated Aug 6, 2012 2:53 AM CDT

(Newser) – Knight Capital desperately needed somebody in shining armor to come to its rescue after it lost $440 million in 45 minutes last week, and a lifeline has arrived—but at a very heavy cost to shareholders. A group of financial services and private equity firms has agreed to a $400 million rescue package that values the firm, which was trading at $10.33 early last week, at just $1.50 per share, sources tell Reuters. The deal leaves the consortium owning up to 75% of Knight.

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The firm's trading nightmare was caused by a glitch in its new trading software. The change in ownership will not affect the investigation into both Knight and the high-speed trading which made the loss possible, notes the New York Times. Knight was responsible for more than a tenth of all trading in American stocks in the first half of the year, and the speed of its near-demise has shocked Wall Street. It remains to be seen whether its clients, who rapidly deserted the firm last week, can be persuaded to return. (Read more Knight Capital stories.)

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