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Knight Capital says it has $400M financing deal

NEW YORK (AP) — Knight Capital says investors have agreed to supply it with $400 million in financing, which would help the trading firm stay in business after last week's disastrous software glitch that shook stock trading and jeopardized its future.

The company said in a regulatory filing on Monday that the unnamed investors agreed to buy $400 million of preferred stock that will be converted into about 267 million of its shares.

Knight Capital currently has about 98.2 million outstanding shares, according to FactSet. This means that the investors will have majority control of the business.

Knight Capital Group Inc., based in Jersey City, N.J., expects the transaction to be completed later in the day. A representative for the company could not be immediately reached for comment.

A CNBC report on Sunday said that those supplying the financing included the brokerage firm TD Ameritrade Holding Corp., private-equity firms General Atlantic and Blackstone, and brokerage and investment bank Stifel Nicolas.

Knight Capital takes orders from big brokers like TD Ameritrade and E-Trade. It then routes them to the exchanges where stocks are traded, like the New York Stock Exchange.

Also on Monday, the New York Stock Exchange and NYSE MKT temporarily gave custodial responsibility for some securities to Getco LLC's designated market maker division that had been under Knight Capital America's designated market maker unit. The action covers 524 NYSE securities and 156 NYSE MKT securities.

NYSE Euronext, which runs NYSE and NYSE MKT, said that exchange rules allows securities to be temporarily reallocated whenever the exchange feels such a move would be in the public interest. The company said it will work with and monitor Knight Capital's financing plans before returning responsibilities back to their designated market maker division.

Designated market makers can quote a buy and sell price on stocks and supply continuous liquidity throughout the trading day. They are viewed as particularly important during the open and close of trading, as well as during times when there is a lot of volatility in the market.

Knight Capital has been fighting for survival since Wednesday, when a problem with a newly installed piece of software wound up funneling erroneous orders for some 140 stocks to the market for the first 45 minutes of trading. That caused shares of some stocks to swing wildly.

Those 45 minutes have been devastating for Knight, which has scrambled to reassure clients and investors that it's got things under control. The head of the Securities and Exchange Commission on Friday publicly called the incident "unacceptable."

Knight was left on the hook for some $440 million to cover the mistaken trades, or nearly four times what it earned last year. That expense, it said, "severely impacted" its capital base, and the company said it might be forced to sell itself.

Knight's blunder revives a thorny debate in the financial system about the merits of high-speed trading, where lightning-fast mathematical models trade stocks in milliseconds and, as recent mistakes indicates, strain the system that is supposed to handle them.

The foul-up was the latest in a string of high-profile technical problems that have left some investors convinced they can't trust the financial markets. The biggest was the "flash crash" in May 2010, when a computer problem caused the Dow Jones industrial average to drop nearly 600 points in five minutes. The most recent was Facebook's debut on the Nasdaq stock exchange in May, when technical problems at Nasdaq kept some investors from knowing if their trades had gone through