First MFG; then PFG; and next KCG? A little over two months ago Knight Capital, the well-respected brokerage house, purchased a 'floundering' futures brokerage - Penson Financial Services. The de minimus $5mm that Knight paid on May 31st for the firms meant (implicitly) that the $411mm of customer funds became 'useful'. With various firms pulling lines and the math underlying Egan-Jones downgrade, it is natural that an investor would be anxious to ensure that all their hard-earned deposited segregated accounts are, well, still segregated. Have no fear though, as Bloomberg reports [4], CME, which regulates Knight's futures business, is "monitoring the situation". An advocacy lawyer for MFG/PFG clients noted: "Those at Penson should be a little worried;" and so while KCG "actively pursues its strategic financing alternatives to strengthen its capital base" - read D.I.P. plans - one can't help but wonder whether all that shiny customer cashola is burning a hole in their capital-deficient pockets. It would seem at $2.27 per share, a few others are wondering that also.
P.S. While the rogue algo that took Knight down to Chinatown may have been switched off, it appears its ever-ready competitors forgot to turn theirs off - as NANEX provides [5] (once again) clear evidence of the wondrous market-making/eating algos feasting on the carcas of freshly damaged capital to the tune of 1000s of trades per millisecond occurring...
[6]