After what the Wall Street Journal termed a “Knightmare” on Wall Street, market maker Knight Capital is desperately looking for outside financing to bolster its equity position after reporting $440 million of losses due to trading errors made yesterday. At the time of writing Knight Capital Group shares (NYSE:KCG) are down more than 50% today.
As far as the FX world is concerned, while Knight Capital’s business is mostly U.S. equities-related, the company also owns Hotspot FX, one of the leading Forex ECNs doing about $30 billion per day in FX volumes. Knight acquired Hotspot FX for $77 million in 2006.
Part of the problem Knight is facing is a crisis of confidence — in its ability to properly execute trades, as well as in its ability to survive. And that crisis is likely to spill over to all operating subsidiaries of Knight, including  Hotspot FX. One solution is to do a quick sale of Hotspot FX, which is not really essential to Knight’s main equities business, to raise cash quickly for Knight and to prevent Hotspot FX clients from leaving. With Thomson Reuters having recently paid $625 million to buy Hotspot FX rival FXall, we believe that others in the sector sch as ICAP-EBS and State Street’s Currenex, might take a close look at further consolidating the sector by picking up Hotspot FX.
Stay tuned, should be an interesting few days…
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.