Knight Rises - Algo Crushed Firm Has Secured Line Of Financing WSJ Reports

Tyler Durden's picture

Since closing last night, the stock of Knight Capital has moved by nearly 100%, touching on under $2 in the after hours session, and now trading well over $3. The catalyst: a report by the WSJ that the firm has obtained a line of credit. Is this surprising? Not at all, and in fact is standard operating procedure by any firm which is buying hours of life in exchange for usurious lending costs. The lender is most likely a firm which will be a key participant in the forthcoming 363 asset sale, who has obtained a supersecured lien on all the firm's assets, and is also priming all of the other creditors of Knight. The question is whether the lender will be happy with what they find as a result of this 24 hour life line. If not - they simply pull the line of cash and the firm files. Think of it as an advance glance into Knight's books. And that glance will likely not reveal much. With rumors that even JPM has now ended lines with Knight, the New Jersey market maker is simply a closed box: no trades coming in or out, and only has housekeeping cash outflows on its books to keep its employees employed and systems running. We wish them luck. They will need it. None of this would have happened if, as we hoped 3 years ago, proactive steps had been taken to eliminate the threat of HFT.

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malikai's picture

What really happened to KCG:

The blink of an eye!

LeonardoFibonacci's picture

Couldn't have happened to a better bunch of fucking crooks!  I say GOOD!  They fucked everything that moved and then to save a few $100k, they go hire Techs from India to do their HFT Algo programming.  Fucking funny!!!

spastic_colon's picture

yep BAC probably gave it to them with the conditions you listed

patb's picture

BAC?  No Goldman, so they can cut their throats, raid the customer accounts and have the front running on all the other houses.

LongSoupLine's picture

I wish them NO luck.  Fuck those algo churring crooks.  I hope they all have to eat fucking cat food!


Note: whomever junked me,'re right, "cat food" was being too nice.

Jlmadyson's picture

Who would give them a penny at this point......

Ignatius J Reilly's picture

vultures...  The hangman.... the executioner  Anyone who can rifle through their pockets first once the firm is dead.

Dr. Engali's picture

Better take advantage and sell quick.

Turin Turambar's picture

The only luck I wish them is bad luck.  Good riddance.  Now if only the rest of the HFT bot manipulators could be removed from the market.

Mercury's picture

Most of Knight's employees are hardly masters of the universe or crony capitalists. 

It's unlikely that any municipal employees will ever find themselves driving home as nervous and afraid as these people will be tonight when their employers suddenly find themselves teeing up a bankruptcy.

My sympathies are somewhat tempered however by memories of the complete and total assholes I had to deal with at NITE (in the pre-HFT days) when they dominated many OTC names and ripped eyeballs out with impunity and glee.


Ignatius J Reilly's picture

I believe "just following orders" has now long since been eradicated a valid, plausible, and forgivable excuse.

Mercury's picture

We all can't have saintly employers who declare that they "do no evil".

Bananamerican's picture

"Most of Knight's employees are hardly masters of the universe or crony capitalists"

..and yet they work(ed) there....

Most of the demons shoveling coals in hell are actually "pretty good guys once you get to know 'em" too, i'm sure.

patb's picture

give it some time,  lots of california cities left to file bankruptcy.  Obama is doing a great Hoover impersonation.

Benjamin Glutton's picture

The very notion that algo driven computer trading firms receive a credit rating above CCC, when they are a mere 1/2 hour away from bankruptcy at any given moment, is laughable at best.

Jlmadyson's picture

Corruption much like 2008 ratings in that regard.

Hype Alert's picture

Why?  What could possibly go wrong?

adr's picture

I kind of figured I should have thrown $50k into Knight stock. The death spasms are always good for 300% gains before the end. Look at Kodak. You just have to be smart enough to sell for a gain and not wait too long.


Nadaclue's picture

I did that with a trucking company about 10 yrs ago which was in serious sheep dip. Lotto ticket style and unconfirmed news that they were being bought out. This was on a Thursday after the bell, rode it up on Fri scooped half my profits and let it ride.

The company BK'd Sunday night and I lost $. I still do that but never hold over a weekend, especially with Knight. Ah the days of young, dumb and full of shiite.

Wisdom comes from experiencing mistakes first hand I guess.

Wannabee's picture

Up arrow for your last sentence. Well said.

LoneStarHog's picture

Screw All These Damn Blanchard Advertisements For The INTELLIGENT Investor!!!

The INTELLIGENT investor knows that the advertisement which reads, "Who Do You Invest In Gold For?" is so damn illiterate and must be a product of the public education system.

Change the damn copy to, "For Whom Do You Invest In Gold?"


slewie the pi-rat's picture

nobody in his right mind would buy a pencil from those ignorant fuks

the ads look like something from a dentist's office for some nanny freaks with paper assholes

slewie the pi-rat's picture

p.s. :>  good moarning, comarade BiCheZ!

mrfreeman's picture

What I don't understand is how do these algos work?  Is each one written specifically for each company by themselves or are they using a standard one written by someone else?  Because if so, the same problem could affect somebody else couldn't it?  Whatever fault caused this could happen again.  I'm amazed that something like this doesn't happen all the time. 

YuropeanImbecille's picture

The big guys have their own, and the idiots use "off the shelf" bullshit.

To understand the power of algos search on altavista or bing for something, and then search for the same thing on google. Google algos and DM techniques are much stronger and accurate.



There are different type of 'bots' or expert systems as the technical term goes.

here is a "HFT explained"


LawsofPhysics's picture

Sell the news, and rather quickly.  What a great pop in the energy sector.  That's it.  Selling, going to enjoy a long weekend.  You guys play nice now.  Later.

spastic_colon's picture

if anyone is short this market the remainder of the year your're going to get buttf%#ked, the PTB has made sure

oogs66's picture

algos or hft's or whatever they are need to be contained...

fourchan's picture

the algo worked perfectly after all.


whoopsing's picture

What was that word yesterday ? Millipenny's ?

FrozenOut's picture

That brings to mind images of Miss Moneypenny and Pussy Galore. Oh, to be 11!

Hype Alert's picture

Who cares?  HFTs are great!  It's only muppets getting scammed anyway. The elite view is if they are in a market they don't understand and aren't co-located, they deserve to be skinned alive.

Have we hit 1400 yet?

MonsterZero's picture

No mention of their other reverse mortgage business unit? Hmmmm

Urban Financial Group, acquired by Knight in 2010, is a leading originator of reverse mortgages, which allow elderly homeowners to cash out the equity in their homes while living there.

"Knight's loss related to an equity trading technology issue Aug. 1 did not impact Urban Financial's capital base," Knight spokeswoman Kara Fitzsimmons said.

Urban Financial averaged about $140 million in originations per month in the second quarter, Knight executives said during a July conference call. It also ranked fourth in combined wholesale and retail originations during the first half of 2012.

During the second quarter, Urban Financial issued $427 million in bonds backed by reverse mortgages, or 20 percent of industry issuance, the company said on the call.

FrozenOut's picture

Why have these thieves been allowed to propagate falsehoods like "cash out your equity." You are not doing that, you are taking on secured debt. There is no "equity" involved.

GMadScientist's picture

I see Warren seizing on this like a deceptively old vampire springing into the fray.

Atlantis Consigliore's picture


As long as the Penson Seg Funds accounts are segregated and file chapt 11 and are whole; 

just 24 hours to long over a weekend?  what can go wrong on Monday?

the regulators are in the offices working very hard LOL

Not another MF Global another time ? cant be allowed

Getting Old Sucks's picture

"no trades coming in or out, and only has housekeeping cash outflows on its books to keep its employees employed and systems running."

Are accounts frozen or did they give clients their money back?

ThisIsBob's picture

Fuckem.  Die in a fire Knight, and the rest of them too.  Techno-bandits chiseling .001 off of every trade because they have figured out a way to exploit a weakness (latency) in the system.  The bloody exchanges won't fix it, indeed, they facilitate it, because otherwise they wouldn't have any customers.

Jlmadyson's picture

One day line of credit?

Can this get anymore lame.....

freedogger's picture

I have a new unfunded account with They do their Canadian money transfers entirely through Penson Financial Services Canada inc. Connecting the dots leads to Knight from what I can tell. 

Methinks it be wise to not transfer money to the account till its sorted. Any thoughts? Fee free to blast away. Just to emphasize, this is a small account again, my other larger account was recently lost in a boating accident...