Getco to buy Knight Capital for $1.8B
Knight Capital had been searching for a rescuer ever since it released a faulty piece of software into the market system, costing it $440 million in less than an hour.
Getco and Virtu both emerged as front runners, with influential DMM Getco apparently emerging as the winner. The companies have just confirmed that Getco, the high-frequency trading market maker pioneer, will buy the ailing Knight for $1.8 billion, $1.4 billion for the company and $400 million in debt assumption.
Knight Capital was prized for its internalization engine that consummates many trades for retail-oriented brokerages. That has been a juicy revenue stream, as internalizing firms can realize nice spreads while at the same time offering price improvement, albeit in sub-penny increments. But is there a chance of buyer's remorse setting in. One big risk factor remains the regulatory environment for dark pools and especially internalizing firms.
Some critics of the current market structure, which I discuss often over on FierceFinanceIT, contend that internalization leads to undue fragmentation and at some point starts to harm price discovery. There are several regulatory changes that negatively impact the business. One painful development for internalizers might be a trade-at change that would limit their ability to realize wide spreads. I expect market structure to continue to be a big issue at the regulatory level, with dark pools and internalization as key issues.
- here's the article from FOX Business