Business, Economics and Jobs

Knight Capital reaches a $400M deal


A trader applauds while working on the floor of the New York Stock Exchange on Feb. 21, 2012, when the Dow Jones Industrial Average broke through the 13,000 barrier.


John Moore

Knight Capital announced a $400 million deal with investors on Monday which will keep the teetering company in business, but it comes at a huge cost to investors.

After suffering a major loss from a trading glitch last week, the company struck a deal with a group of investors. According to CNBC a software glitch flooded the NSE with unintended orders for dozens of stocks, boosting some shares by more than 100 percent, and leaving the company with the trading loss.

Reuters reported that the New York Stock Exchange will temporarily transfer Knight's market-making responsibility on more than 500 stocks and related Knight employees to Getco, until the recapitalization is complete.

A SEC filing on Monday morning confirmed the the company will sell $400 million of 2 percent convertible preferred stock that investors can then convert into about 267 million shares (at $1.50 a piece), Forbes reported.

CNN reported that Knight Capital's stock dropped more than 30 percent in premarket trading on news of the deal. And the bad news keeps coming- even if Knight has been saved for now, the company can still face litigation from shareholders who have seen the value of their holdings circle the drain.