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posted: 11/25/2012 7:27 AM

Knight CEO said to see business as usual amid unit sale report

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Thomas Joyce, moving to reassure Knight Capital Group Inc. employees after a report that it might get offers for its biggest unit, told them capital levels are strong and no deal will be done unless it makes sense for the company, according to a person briefed on the matter.

Joyce, Knight's chief executive officer, said in an e-mail to workers that included talking points for clients that he expects business as usual with no need for additional cash and that the company is operating at full capacity, according to the person, who requested anonymity because the communication was private. The Wall Street Journal reported earlier that Getco LLC and Virtu Financial LLC may bid for Knight's market-making unit. It cited unidentified people familiar with the matter.

"Getco and Virtu would definitely be interested in the market-making business and the retail order flow," Richard Repetto, a New York-based analyst at Sandler O'Neill & Partners LP, said in a phone interview. "If they sold the market-making business, it would make sense to sell simultaneously the other assets to them or somebody else. They don't have a company once they sell that business. It's the mainstay."

Joyce, 57, declined to comment on the memo in an e-mail to Bloomberg News. Sophie Sohn, a spokeswoman for Getco, and Chris Concannon, executive vice president at Virtu, also declined to comment.

Market making

Knight's market-making unit executes about 10 percent of U.S. share volume. The company has grown over the last decade from mainly handling orders from individuals sent by brokers to a financial services company with institutional clients, electronic trading services and businesses in fixed income and currencies.

It owns the Hotspot FX and BondPoint platforms, provides research and asset management and got into the reverse mortgage business in 2010. Knight had more than 1,400 employees at the end of last year, it said in a filing.

Knight, in Jersey City, New Jersey, dodged bankruptcy in August when six financial firms, including Getco, provided cash to restore the company's capital after it lost $457 million in a trading malfunction. The investors, which received three board seats as part of the transaction, control Knight through preferred stock convertible into more than 70 percent of the common shares.

Getco said in a filing this month that it will consider transactions including buying or selling Knight shares. Knight doesn't need a deal and would only entertain transactions that made sense for the company and its business units, according to Joyce's e-mail. His contract expires at the end of the year.

Cash holdings

Knight said it had $420.8 million in cash and equivalents as of Sept. 30, according to its earnings report released last month. The company posted a third-quarter net loss of $6.30 a share, the widest since at least 2001.

Virtu, Getco and Knight are automated market makers. While Getco and Virtu operate across asset classes mainly on exchanges and similar platforms around the world, Knight is also a wholesale market maker that services retail brokers including Fidelity Investments and TD Ameritrade Holding Corp. by executing buy and sell orders for individuals.

Getco, the automated trading firm founded in 1999, was one of six investors that acquired stakes when investors bought $400 million of convertible stock to rescue Knight from bankruptcy. Others included Blackstone Group LP, brokerages Stifel Nicolaus & Co. and Ameritrade and investment banks Stephens Inc. and Jefferies Group Inc. Virtu, based in New York, does not have an existing stake in the company.

Knight's capital was depleted after it bombarded U.S. equity exchanges with erroneous orders on Aug. 1 in the wake of improperly installed software that malfunctioned. The trading caused volume to surge and prices to swing in dozens of securities listed on the New York Stock Exchange and NYSE Arca.

Knight shares, which closed at $10.33 the day before the trading error, ended trading last week at $2.49.

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