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* Revenue down 39.8 percent
* Says low volume and volatility levels led to more risk
* Firm lost market share in the United States, Europe
* Sees potential in interest rate swaps market
* Automated trading firm in process of buying Knight Capital
April 15 (Reuters) - Profit at Getco Holding Co, the high-speed automated trading firm that is buying rival Knight Capital Group Inc for $1.4 billion, plunged 90 percent in 2012 as volumes and volatility declined, according to a regulatory filing released on Monday.
Closely held Getco, which plans to go public through the Knight deal, earned $16.2 million in 2012, down from $162.7 million in 2011, and well off its 2008 profit of $430 million.
Revenue at the Chicago-based company was down 39.8 percent in 2012, to $551.5 million.
The results highlight the pressure on trading firms from a long list of factors, from increased competition and regulatory oversight, to the tepid global economic recovery, low interest rates, and the continued crisis in European debt markets.
Just under 69 percent of Getco's trading revenue came from equities in 2012, with 21 percent derived from fixed income and nearly 11 percent from commodities and foreign exchange.
Average daily volume for U.S. cash equities was down 18 percent in 2012 from the year earlier, Getco said. Average volatility across the products Getco traded hit a five-year low.
As a market maker - a firm that buys and sells securities, providing liquidity to the market by maintaining continuous buy and sell quotes - the bulk of Getco's profit comes from the difference in the prices at which it buys and sells securities.
"Although the impact is difficult to quantify, the recent sustained levels of low volume and volatility have exposed Getco and other market making firms to greater risk with lower profit potential," the company said in the filing.
The difference between the bid price and ask price is normally greatest during times of increasing market volatility. But since volatility has been so low, Getco said it has begun to develop strategies that would involve it holding positions for longer periods of time.
Getco also said it continued to lose market share in 2012 to both U.S. and European competitors. Its share of U.S. cash equity trades fell to 5 percent from 9 percent, its share of U.S. equity futures fell to 4 percent from 8 percent, and its share of U.S. fixed income cash treasuries dropped to 8 percent from 18 percent.
In Europe, Getco's share of cash equities fell to 3 percent from 7 percent, while its share of equity futures tumbled to 13 percent from 20 percent.
The deal with Knight is expected to close in the first half of 2013.
Getco said long-term trends are favorable. It said regulatory-driven de-risking of large banks is expected to open up fixed-income markets to more competition. It also said the improved transparency and access driven by implementation of the Dodd-Frank Act would open up markets such as interest rate swaps to new participants, like Getco.