NEW YORK Knight Capital Group has been in talks with several parties on a financing deal that would help stave off bankruptcy after a technical glitch saddled it with $440 million in losses, two sources with knowledge of the discussions said on Sunday.
An announcement on a deal, with parties that include Knight trading partners, is expected on Sunday or early Monday as Knight needs to assure customers about the viability of the company before markets open, said one of the sources, who sought anonymity as they are not authorized to speak publicly.
Knight has also been in talks with restructuring lawyers as it seeks to keep its options open, according to the source.
While bankruptcy has not been ruled out, increasingly it looks as if financing could bail out the firm, a second source familiar with the situation said.
Knight could stave off disaster if talks with a group of lenders, including trading partners, produce enough cash to cover trades. The equities trading firm lost most of its capital after a software glitch on Wednesday caused it to make thousands of unintended trades on about 140 stocks.
CNBC reported on Sunday that Knight was close to securing a $400 million capital injection from a group of investors that is likely to include Chicago market-maker Getco and Omaha brokerage firm TD Ameritrade.
Citing a person involved in the deal, CNBC said the infusion would come in the form of a sale of convertible securities or bonds that turn into Knight stock at a fixed price.
A spokeswoman for TD Ameritrade said the brokerage had no comment.
It would be in TD Ameritrade's best interests to keep Knight afloat, as the firm, the No. 1 U.S. brokerage by trading volume, has exclusive clearing deals with Knight.
Two months ago, Knight bought Penson's futures business for $5 million. TD Ameritrade exclusively clears its clients' futures and forex trades through that platform. The Omaha, Nebraska-based brokerage's entire bond platform is also with Knight.
"They really are handcuffed to Knight," a source with knowledge of TD Ameritrade's arrangements with Knight said.
Knight said on Thursday it was actively pursuing strategic and financing alternatives.
(Reporting by John McCrank and Carrick Mollenkamp; Editing by Dale Hudson)