For Knight Capital Group, what a difference a day makes. Knight regained its perch in the trading world today and finished as the No. 2 broker in equities, executing 163.61 million shares—just one day after receiving a cash lifeline of $400 million from brokerage firms.
Many wondered if the market maker would even survive a $440 million trading loss it suffered from an algorithm gone awry on the New York Stock Exchange last Wednesday. Up until yesterday, its future was still in question, but a handful of brokerage firms—including customers such as TD Ameritrade and Stifel Nicolaus & Co.—came to the firm’s rescue with the cash infusion and kept Knight in business. Other investors included Getco, Blackstone Group, Stephens Inc. and Jefferies Group.
According to Bloomberg Broker Rankings, which receives its execution data from the brokers, who self-report, Knight accounted for 8.17 percent of the market on Tuesday. It was second only to UBS, which traded 193 million shares, representing 9.65 percent of the equity market.
That is a huge rebound from yesterday, the day of the financial rescue. On Monday, Knight was No. 11 in the Bloomberg ranking and executed 86.68 million shares, representing 3.29 percent of the market.
On July 31, the day before the trading glitch in Knight’s software, the firm held the No. 2 spot in the Bloomberg Broker Rankings. That day, Knight traded 346 million shares and was 10.23 percent of the market. It was second to BofA Merrill Lynch, which captured 12.63 percent of the market and traded 427.66 million shares.
A spokesman for Knight Capital confirmed that business has returned, but declined to comment further. The return of business may have been aided by a letter that Knight sent to clients from chief executive Tom Joyce. The letter reiterated the firm’s commitment to its clients and that the cash infusion had put the company back on firm financial footing.
Traders Magazine spoke to several industry sources who said they were surprised how quickly Knight’s business rebounded. One buyside trader said he likes to access Knight’s dark pool through the firm’s algos. The benefit, he said, is the ability to trade against retail order flow—so-called dumb money. Still, he planned to take a wait-and-see approach before executing at his previous levels.
Another industry source said that Knight was "integral to the marketplace" because it trades in so many different capacities—from market maker to agency broker and in various asset classes. "If you look at advertised trades," the source said in reference to its institutional business, "they’re top three in just about every name."
Chris Willox, head trader at Fenimore Asset Management, which runs $1.5 billion in equities, does not trade with Knight. But he expressed relief, as well as surprise, that volume snapped back as quickly as it did. "It’s great for Knight," Willox said. "For the employees, I can imagine what they had to go through."
