(Adds details and background beginning in fifth paragraph.)
By Jenny Strasburg and Anupreeta Das
Knight Capital Group Inc. (KCG) is in discussions with trading firm
Virtu Financial LLC about a potential merger or infusion of capital
that would make the two firms partners following computer-trading
glitches that are expected to cost Knight more than $400 million,
according to people familiar with the matter.
Like Knight, New York-based Virtu is a big player in high-speed
trading and also a so-called "designated market maker" on the New York
Stock Exchange, meaning it stands in to buy and sell NYSE-listed
stocks at quoted prices.
Virtu is backed by private-equity firm Silver Lake Partners, which
also is involved in the talks with Knight, the people said. The
discussions are in early stages, and no deal is guaranteed. It is
unclear what role, if any, Silver Lake would play, one of the people
said.
Representatives of Virtu and Silver Lake declined to comment. A Knight
spokeswoman didn't immediately respond to a request for comment.
Knight also is pursuing discussions with other potential partners,
according to people familiar with the matter. Knight has sought
funding from J.P. Morgan Chase & Co., according to a person familiar
with the matter, but the status of any discussions remained unclear.
Fox Business previously reported the overture.
On Thursday morning, as Knight announced its potential loss, it also
said it was looking at strategic alternatives including possible
sources of capital. Knight shares are down around 62%, most recently
to $3.03, since the glitch Wednesday morning roiled nearly 150 stocks
and led to canceled trades in six. The company's current market
capitalization, about $303 million, is now less than the loss it
expects to take.
Virtu was started in 2008 by Vincent Viola, former chairman of the New
York Mercantile Exchange and a graduate of the U.S. Military Academy
at West Point.
The company has grown from a proprietary-trading firm investing its
own capital to become one of the biggest electronic-trading firms,
expanding in the U.S. and abroad. Last year, Virtu bought the
market-making unit of Cohen Capital Group LLC, making it a prominent
counterparty in trading of shares listed on NYSE MKT, formerly known
as Amex, and expanding its clout in trading of NYSE-listed stocks more
broadly.
The company also trades currencies, futures and fixed-income products.
Contrasted with relative newcomer Virtu, Knight has been in business
since the 1990s. Both have a wide web of connections with
broker-dealers tied to their market-making businesses, and in Knight's
case, its so-called "dark pools," which anonymously match trades
between buyers and sellers.
-Matthias Rieker contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Anupreeta Das
at anupreeta.das@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 02, 2012 13:36 ET (17:36 GMT)
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