Knight (KCG) Slumps as Major Trading Partner Questions Risk Profile
Tweet
Share
E-mail
Get Alerts KCG Hot Sheet
Join SI Premium – FREE
Knight Capital (NYSE: KCG) shares are lower Friday following reports that one of its largest clinets might be looking to reduce -- or worse, stop -- doing business with the now-beleaguered trading firm.
According to the WSJ, JPMorgan (NYSE: JPM) could be looking to reduce is exposure to riskier firms in its quest to facilitate brokerage services for buyers and sellers.
One of the key points here is that JPMorgan refused to take thousands of Knight-owned securities in the recent early-August mishap which cost knight hundreds of millions in fees and bad press.
Plans JPMorgan might undertake include dialing-back services to some clients and stopping service to others. The WSJ cites sources familiar with the matter in saying that Knight wasn't on the list JPMorgan was considering dumping. But, that doesn't mean it might shift risk away.
For example, on August 2nd, the day after Knight had its trading glitch, Knight asked JPMorgan to arrange financing with the Royal Bank of Canada. JPMorgan would have been a "tri-party" in the deal, having to hold collateral that Knight pledged for the loan. Knight originally sent over 1,000 securities it planned to use for collateral to JPMorgan's Depository Trust & Clearing Corp. JPMorgan sent back some, saying they were "unreadable" and to not send more. About 15 minutes later, Knight sent another 6,000 more securities, of which many were rejected by JPMorgan.
In total, JPMorgan rejected about 4,000 of 7,000 securities Knight attempted to transfer as collateral on August 2nd.
Clearly, this left a bad taste in Knight's mouth, with executives phoning JPMorgan and accusing the bank of "dragging its feet." Knight ended up taking back the securities, cancelling the financing deal with RBC in the process.
It's not clear what JPMorgan's next steps will be, but given the recent history between the two, investors might want to keep an eye an any further salvo that might unravel previously strong ties.
Shares of Knight are down about 0.7 percent in morning trading.
According to the WSJ, JPMorgan (NYSE: JPM) could be looking to reduce is exposure to riskier firms in its quest to facilitate brokerage services for buyers and sellers.
One of the key points here is that JPMorgan refused to take thousands of Knight-owned securities in the recent early-August mishap which cost knight hundreds of millions in fees and bad press.
Plans JPMorgan might undertake include dialing-back services to some clients and stopping service to others. The WSJ cites sources familiar with the matter in saying that Knight wasn't on the list JPMorgan was considering dumping. But, that doesn't mean it might shift risk away.
For example, on August 2nd, the day after Knight had its trading glitch, Knight asked JPMorgan to arrange financing with the Royal Bank of Canada. JPMorgan would have been a "tri-party" in the deal, having to hold collateral that Knight pledged for the loan. Knight originally sent over 1,000 securities it planned to use for collateral to JPMorgan's Depository Trust & Clearing Corp. JPMorgan sent back some, saying they were "unreadable" and to not send more. About 15 minutes later, Knight sent another 6,000 more securities, of which many were rejected by JPMorgan.
In total, JPMorgan rejected about 4,000 of 7,000 securities Knight attempted to transfer as collateral on August 2nd.
Clearly, this left a bad taste in Knight's mouth, with executives phoning JPMorgan and accusing the bank of "dragging its feet." Knight ended up taking back the securities, cancelling the financing deal with RBC in the process.
It's not clear what JPMorgan's next steps will be, but given the recent history between the two, investors might want to keep an eye an any further salvo that might unravel previously strong ties.
Shares of Knight are down about 0.7 percent in morning trading.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Winnebago Industries refinances credit facility, extends maturity to 2031
- enVVeno Medical (NVNO) files $100M mixed shelf
- loanDepot receives NYSE non-compliance notice over stock price
Create E-mail Alert Related Categories
Corporate News, Trader TalkRelated Entities
JPMorganSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
