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Knight Capital Sells Brokerage Unit

Zacks Equity Research

Knight Capital Group, Inc. (KCG) is nearing a deal to sell its credit-brokerage division to Stifel Financial Corp. (SF). Through this deal, the company will sell its U.S. and Europe-based investment-grade, high-yield, asset-backed and mortgage-backed debt brokers.

The deal could be announced publicly as soon as Feb 25, 2013. Bank of America Corporation (BAC) acted as advisor to Knight Capital on the sale.  

Earlier, in Dec 2012, The Global Electronic Trading Company or Getco LLC agreed to acquire the troubled automated trading firm for $1.4 billion. The cash-and-stock deal is expected to close in the first half of this year.

N.J.-based Knight Capital is a financial services company, executing buy and sell orders in stocks and options through Computer models. They account for roughly 10% of the U.S. equity trading volume. Chicago-based Getco is one of the biggest high-frequency trading firms.

Knight Capital – considered as one of the most advanced trading platforms – lost nearly $461.1 million owing to a software malfunction in August this year. The malfunction sent umpteen numbers of accidental orders to the market over a 45-minute period, leaving the company in a precarious financial position

Consequently, Knight Capital had to seek rescue financing to the tune of $400 million. A group of investors, including Getco LLC, Jefferies Group, TD Ameritrade Holding Corporation (AMTD), Stifel and Stephens Inc., provided the finance in exchange of over 70% stake in the company.

We believe the deal between Knight Capital and Stifel will result in a more powerful trading platform. This will help the market participants to avail better facilities and make trading much simpler.

Currently, Knight Capital carries a Zacks Rank #2 (Buy).

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