Big Firms Not Routing Orders to Knight Capital

Date : 08/03/2012 @ 12:40PM
Source : Dow Jones News
Stock : E*Trade Financial Corp. (MM) (ETFC)
Quote : 34.55  -0.31 (-0.89%) @ 8:00PM

Big Firms Not Routing Orders to Knight Capital

KCG Holdings, Inc. (NYSE:KCG)
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By Brett Philbin and Liz Moyer

-- Firms continue to send orders elsewhere

-- Knight obtained line of credit and asked customers to send trades their way

-- Cleaning up after trading glitch cost it $440 million

Financial services giants Vanguard Group Inc. and Fidelity Investments are not routing customer orders to Knight Capital Group (KCG), joining online brokers TD Ameritrade Holding Corp. (AMTD) and E*Trade Financial Corp. on Friday even as Knight obtained a line of credit and asked financial institutions to resume trading with it.

A spokesman for Vanguard confirmed the firm isn't trading with Knight. It also didn't send orders to the firm on Thursday, one day after a trading glitch at Knight roiled markets and caused the firm to lose $440 million.

As of June, Vanguard routed 26% of its customer orders in NYSE Euronext-listed securities to Knight, according to a regulatory filing.

Fidelity is also not routing customer orders to Knight on Friday, according to a person familiar with the matter. It sent 33% of orders to Knight as of the end of June.

Shares of Knight Capital climbed 24% to $3.20 Friday after the Wall Street Journal, citing people familiar with the matter, reported the firm received a line of credit that will allow it to operate for the day.

Representatives of Knight have called trading-desk executives, encouraging them to route orders to the firm as usual, these people said.

Knight has been exploring ways to shore up its capital position, including outside financing or potential deals, after the technology glitch Wednesday raised questions about the reliability of highly automated equity trading.

TD Ameritrade, along with several banks and brokerages, has been sending customer orders elsewhere since Knight's trading breakdown. A TD Ameritrade spokeswoman said the Omaha, Neb., online brokerage is testing systems to ensure the routing process runs properly and is "evaluating the situation."

An E*Trade spokesman confirmed the brokerage is not routing orders to Knight on Friday.

TD Ameritrade routed approximately 4% of its total customer orders to Knight Capital as of June 30, while E*Trade sent 14% of its NYSE-listed trades through Knight, according to regulatory filings.

Write to Brett Philbin at brett.philbin@dowjones.com

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