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UPDATE 2-Knight CEO Joyce says has full support as firm in flux
* Joyce said has had little time to ponder Knight's future composition
* Investor says now is a good time to reevaluate certain Knight units
* Investigation of what went wrong at Knight under way
* Knights shares end 24 percent lower
By John McCrank
NEW YORK, Aug 6 (Reuters) - Knight Capital Group Chief Executive Thomas Joyce managed to rescue his firm from oblivion over the weekend, but even with a $400 million cash injection from independent investors to cover a near-fatal trading loss, he has a big job ahead of him.
Joyce, known in the industry as "TJ," said it's "business as usual" for the Jersey City, New Jersey-based market-making firm.
Knight had been in survival mode since a software glitch on Wednesday sent out thousands of unintended trades, distorting the market and leading to a $440 million loss at the firm. Joyce said he has had little time to think about the future.
"Right now we kind of like our footprint and we will continue to execute on the strategy we had before the error took place," he said in an interview with Reuters on Monday. The possibility of downsizing has not yet been considered, he added.
Joyce said he and his management team have the full confidence of the new investors.
But the investors that just took a 70 percent stake of the firm for the rock-bottom price of $1.50 a share -- Blackstone Group LP, rival market maker Getco, and financial services companies TD Ameritrade Holding Corp, Stifel Nicolaus, Jefferies Group Inc and Stephens Inc -- may demand change.
"A good management team will take an event like this as an opportunity to reevaluate certain lines of a business and I think they'll do that," said Curt Bradbury, chief operating officer of Stephens. "We have a lot of confidence in Tom Joyce and his team."
He said the core trading business at Knight was key, and would not comment on other units.
Getco CEO Daniel Coleman said while Knight is a rival -- both provide retail market-making services by buying and selling shares for clients, and provide liquidity to equity markets by stepping in to buy and sell stocks -- it is a valuable firm that compliments Getco in many ways.
"We thought it was a pretty good bet that by providing liquidity, we could preserve that value and perhaps increase it," he said of Getco's investment.
Further, the investment keeps the door open between the two firms for future strategic collaboration, though Coleman said its role was chiefly as an independent investor at this point.
WHAT WENT WRONG
Knight also operates a reverse mortgage lending business, a foreign exchange platform, and a futures division, but all of the focus has been on the electronic trading group.
Joyce said the errant trades actually had nothing to do with that group, or the algorithmic trading methods they employ, but rather with the firm's technology group or its network.
He said he couldn't say who was ultimately responsible for the glitch, or why it took half an hour to stop the flow of errant trades, but that the company is conducting an investigation into the matter and changes would be made once it was complete. He said there was no clear timeline on when that would be.
"It's more important that we do it right rather than that we do it fast," he said.
For Coleman, doing it right means fixing the way things are done at Knight, not the computers the firm uses to trade high volumes of stock at fractions of seconds.
"I just want to differentiate between some science fiction notion of a machine gone crazy, and a problem that ultimately could have been caught and resolved probably more quickly than it was," he said.
Bradbury also questioned the speed with which Knight reacted, not the speed its computers were trading at. The issues of why the software failed, of what failsafe should have been in place, and what its traders did before and after they recognized there was a problem, are going to need to be addressed, he said.
Joyce said securing the emergency funding was the best option available. Other options were an outright sale of the firm, bankruptcy, or liquidation.
Joyce also said he does not believe any market rules were broken in the trading mishap.
Knight has been the largest U.S. provider of retail market-making in New York Stock Exchange and Nasdaq-listed stocks, buying and selling shares for clients. As a market maker it also provides liquidity to equity markets by stepping in to buy and sell stocks, using its own capital to ensure orderly activity.
Knight shares ended down 24.2 percent at $3.07 on Monday. Last Tuesday the shares closed at $10.33.
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