Knight Capital Trades Higher on M&A Rumors

Knight Capital, parent of ECN venue Hotspot FX is trading higher by 7.5% this morning to $2.70 on weekend rumors that the firm is in play. According to reports from the Wall Street Journal and Bloomberg, suitors are eyeing either a purchase of Knight’s equity market making unit or the entire company. Rumored buyers include Market Makers Getco, a participant of Knight Capital’s $400 million financing in August after a trading glitch send the firm nearly to Bankruptcy , and Virtu Financial. At the time, shares of the company fell to a low of $2.24 from above $10 a share. However, even after being rescued, due to the heavily dilutive financing that Knight received, shares have continued to trade below $3.00.

The current bidding isn’t that surprising, given the ownership control that Knight Capital investors lost during the company’s financing. With Getco already owning 15% of Knight, the suspense now is what it would take for a rival market maker to enter a winning bid. Also, it remains to be seen if a buyer concentrated in the equity market would look to sell off the Hotspot FX unit, integrate it within an existing business or keep it as a standalone group. At the time of the August glitch, Hotspot was viewed as a strong asset and was rumored to be on the block to be sold to save the rest of Knight Capital. However, since then, the ECN has lost market share during the drop in trading activity over the second half of 2012.