Knight closes in on $400m rescue deal

Last week a bungled trading software update affected its algorithms and sent prices in more than 140 stocks haywire, costing the market maker $440 million and bringing it to the edge of bankruptcy.

The immediate danger now appears to have passed thanks to a $400 million financing deal put together by Blackstone Group, Getco, TD Ameritrade, Stifel Nicolas, Jefferies and Stephens.

Tom Joyce, CEO, Knight, says: "We are grateful for the support of these leading Wall Street firms that came together to invest in Knight...With our financial position strengthened and liquidity restored, we will continue to provide clients with trading in a broad range of securities, high-quality execution and outstanding client service."

The money will come through convertible preferred stock, which will have a conversion price of $1.50 per share, with the consortium owning 70% to 75% of Knight following the conversion.

The debacle has once again raised questions about automated, high-frequency trading. SEC chairman Mary Schapiro has called the event "unacceptable" and revealed that she has asked 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".

Schapiro says that computers are a fact of life, arguing that regulators and participants just have to "endeavour to reduce the likelihood of technology errors and limit their impact when they occur" - citing the success of circuit breakers introduced following the May 2010 flash crash in limiting the Knight disaster.

Meanwhile, Duncan Niederauer, CEO, Nyse Euronext has spoken out against the trading speed arms race, telling investors in a conference call: "We are all understanding - meaning we, market participants, and most importantly the regulators - are understanding that speed is not always better."