UPDATE 3-Knight Capital Q3 profit misses St. view; shares fall

* Q3 EPS cont ops $0.32 vs est $0.39

* Says pretax income from global markets falls 34 pct

* Shares fall 18 pct (Adds CEO's comment, conf. call details, analyst's comment, updates share movement)

By Sweta Singh

BANGALORE, Oct 21 (Reuters) - Electronic trading services provider Knight Capital Group Inc's NITE.O quarterly profit fell short of expectations, as its trading income took a hit from lower market volatility and higher regulatory transaction fees, sending its shares down 18 percent.

The shortfall was driven by lower margins in global markets segment and higher brokerage and clearing fees from a larger number of low-priced trades/shares traded, analyst Daniel Harris of Goldman Sachs wrote in a note to clients.

Third-quarter net income was $29.2 million, or 31 cents a share, compared with $36.3 million, or 40 cents a share, in the year-ago period. Income from continuing operations was 32 cents per share.

Analysts expected the company to earn 39 cents a share, according to Thomson Reuters I/B/E/S.

"We also saw some of our competition attempt to reassert itself...the end result was that payment for workflow increased," CEO Thomas Joyce said on a post-earnings call with analysts.

S&P Equity also cut its rating on the stock to "hold" from "buy" following the results.

Knight Capital's pretax income from global markets -- its larger segment -- fell 34 percent to $58.5 million.

For the third quarter, total revenue from continuing operations increased 25 percent to $299.9 million.

The company recorded a pretax cost of $1.9 million on discontinued operations, related to the wind-down of its asset management segment.

On the call with analysts, Chief executive Thomas Joyce said the company is seeing renewed competition in the market making space, where it competes with Citadel Investment Group and a unit of Citigroup Inc (C.N) among others. Knight Capital, the largest trader of U.S. shares by volume, recorded a 2 percent fall in shares traded in the U.S. equities markets.

The company, which is targeting per-share earnings of $3 by 2012, expects to see growth in the institutional equity business.

Commenting on potential regulatory reforms, the CEO said "we feel very good about what the outcome is likely to be with the regulatory oversight that is coming our way."

The CBOE Volatility Index .VIX, Wall Street's favorite barometer of investor sentiment, closed at 20.90 on Tuesday, its lowest level since early September 2008.

Shares of the Washington Boulevard, Jersey City-based company were down 15 percent at $18.42 in afternoon trade on Nasdaq. The stock has gained nearly 40 percent in value since the beginning of this year. (Additional reporting by Archana Shankar in Bangalore; Editing by Ratul Ray Chaudhuri)