Knight Capital, the American broker which lost $440 million (£283 million) after its software caused a “flash crash”, is said to be on the brink of securing survival by raising $400 million from investors.
Reports suggest that Knight — fighting to stay afloat since a computer glitch pumped orders through stock exchanges last Wednesday — is raising the funds from a pool of investors including private equity firm Blackstone, and rival trading firm Getco.
Knight is raising the funds by issuing convertible bonds representing a stake of up to 75% in the company, according to Bloomberg. David Whitcomb, founder of Citigroup-owned rival Automated Trading Desk, said: “It is not too surprising that among the sources of financing for Knight are some of their customers. Their customers want to keep a diverse set of market markers going to maintain competition.”
Knight managed to limp towards the weekend with short-term funding before a more permanent solution could be thrashed out. The dramatic glitch saw 148 stock prices fluctuate wildly due to a software bug, sending its shares plunging more than 75% last week.
The firm is responsible for trading at least 10% of all US share orders, triggering calls in Congress for an examination into whether the explosion of algorithmic trading machines in recent years risks damaging the integrity of the US stock market.
Securities and Exchange Commission chairman Mary Schapiro called the Knight mishap “unacceptable” and has promised regulation to avoid a repeat.
