Knight Survives While Shareholders Pay (Update 1)
Knight Capital in June renewed a $200 million credit line with a group of banks led by U.S. Bancorp (USB) subsidiary U.S. Bank, NA, that also included bank subsidiaries of Bank of America (BAC) , Bank of Montreal (BMO) , and JPMorgan Chase (JPM) .
Among the covenants of the credit agreement was a requirement that Knight maintain certain levels of capital for its broker-dealer subsidiaries, which the company might have been unable to meet, following the three-day settlement of its erroneous trades, without securing additional capital from outside.
On Wednesday, as Knight attempted to work its way through the erroneous trading positions caused by the software glitch, SEC Chairman Mary Schapiro rejected Knight Capital CEO Thomas Joyce's request to allow the firm to cancel many of the trades, which left it holding "at least $4.5 billion worth of securities it hadn't planned to buy," according to a Wall Street Journal report. The Journal also reported that Goldman Sachs (GS) stepped in to buy the unwanted securities from Knight to escape the erroneous trading positions and announce the $440 million loss.
The New York Stock Exchange announced earlier on Monday that it had "temporarily assigned custodial responsibility for approximately 524 New York Stock Exchange (NYSE) and 156 NYSE MKT listed securities" from Knight Capital Group to Getco, and that the temporarily re-assigned market-making responsibilities would be returned to Knight "in a timely manner," upon Knight's "completion and approval of a recapitalization plan."
-- Written by Philip van Doorn in Jupiter, Fla.
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