TD Ameritrade Resumes Trading With Knight Hours Before Credit Line Expires; $440 MM Cash Outflow Looms

Tyler Durden's picture

Knight's credit line expires in 90 minutes. All day it has been a dark box, with virtually no trades coming in or leaving. The company is scrambling, so what happens: some much needed good news finally hits the tape following a TD Ameritrade announcement it has resumed trading with KCG. Will others piggyback as the credit lifeline that is keeping Knight alive expires at the end of the day, and the liquidity runs out, or will firms who explicitly are Knight's competitors in a market which has ever less volume leave it out to hang in hopes of picking up its business on the cheap. A 90 minute difference between life and death for a firm in desperate need of many more such press releases.

From TD Ameritrade:

TD Ameritrade Holding Corporation (NYSE: AMTD) today announced that it will resume routing client trades to Knight Capital Group (“Knight”) (NYSE:KCG).

 

“After considerable review and discussion, we are resuming our order routing relationship with Knight,” said Fred Tomczyk, president and chief executive officer at TD Ameritrade. “Our priority has always been the interests of our clients, their trades and their assets. Knight is one of many order routing destinations for us and has long been a good and trusted partner.”

In the meantime, Knight has until Wednesday to put in place a permanent credit facility or it will literally have zero cash to pay Goldman who according to CNBC's Kate Kelly is the firm that unwound Knight's losing trades:

Under trade-settlement regulations, the Knight-Goldman block transaction must settle three business days after the initial agreement, which means the seller must come up with the $440 million in cash by late Wednesday. As of June 30, Knight had about $365 million in cash, according to a securities filing - raising important questions about whether the brokerage firm could generate the additional money by early next week.

Elsewhere the running joke that is the SEC has finally, three days after the fiasco took place, decided to finally say something. So confidence inspiring people can hardly contain themselves from being subpennied to death by Knight's own HFT algos.

"The apparent trading error by Knight Capital Group on Wednesday reflects the type of event that can raise concerns for investors about our nation's equity markets...While Wednesday's event was unacceptable, I would note that several of the measures we instituted followed the Flash Crash helped to limit its impact...We will continue to review what happened and determine if any, additional measures are needed. That process has already begun. In particular, I have asked the staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems. And I have directed the staff to convene a roundtable in the common weeks to discuss further steps that can be taken to address these critical issues."

Finally a word of caution from Gasparino: