By Simon Miller
Troubled market maker Knight Capital has announced $400m (£255.7m) in equity financing after it lost $440m from a software glitch which wiped out much of its capital.
Wall Street firms including Jefferies Group, which conceived and structured the investment, as well as Blackstone, GETCO, Stephens, Stifel Financial and TD Ameritrade will take part in the financing which sees Knight issuing two percent preferred shares that may be converted into common stock at $1.50 per share.
The owners of the preferred shares may convert all or a portion of the preferred shares into Knight class A common stock and the company has committed to expand its board of directors by adding three new members.
"We are grateful for the support of these leading Wall Street firms that came together to invest in Knight," said Tom Joyce, chairman and chief executive officer, Knight Capital. "The array of participants in this capital infusion underscores Knight's critical role in the capital markets. With our financial position strengthened and liquidity restored, we will continue to provide clients with trading in a broad range of securities, high-quality execution and outstanding client service."
Last Wednesday, a trading software fault saw bogus, rapid-fire trades onto the market for 45 minutes leaving Knight Capital with big losses on numerous stocks that were bought at inflated prices.
As a result, many of the company's biggest customers including retail brokerage TD Ameritrade and fund managers Vanguard and Fidelity Investments, stopped routing orders through Knight.
With the loss of capital and shares dropping 80%, the company secured a credit line on Friday as it sorted out a rescue package.
"Knight's financial position and capital base have been restored to a level that more than offsets the loss incurred last week. We thank our clients, employees and partners for their steadfastness during a brief yet difficult period and we are getting back to business as usual," added Joyce.
As previously announced, the software that led to the 1 August 2012 trading issue was removed from the company's systems. The company continues to review the matter.
The advisors to Knight on the transaction were Sandler O'Neill + Partners, L.P. and Wachtell, Lipton, Rosen & Katz.