Struggling Knight Capital Group Inc's future remained in flux on Friday, with major clients saying they would resume trading with the company, while potential buyers were still combing through the company's books with an eye toward a deal.
Customers including TD Ameritrade and Scottrade, said they would return business to Knight, the nation's largest retail market maker of U.S. stocks. Still, the firm's trading volumes remained below usual levels on Friday.
At least one private equity firm had signed a non-disclosure agreement, a signal that it was looking at Knight's books for a potential acquisition or investment. Other private equity firms said they would be looking at Knight, which lost $440 million - most of its capital - after a software glitch flooded the stock market with errant trades on Wednesday.
There were unconfirmed reports that Knight had secured a credit line to keep it operating.
Knight's shares closed up 57 percent to $4.05 on Friday, still well below their $10.33 closing price on Tuesday, the day before the trading debacle occurred.
Several major customers, including retail brokerages TD Ameritrade and Scottrade, said they had resumed routing trades to Knight, which in 2011 was the largest U.S. retail market maker. "After considerable review and discussion, we are resuming our order routing relationship with Knight," TD Ameritrade said in a statement.
Other firms, however, including mutual fund giants Vanguard Group and Fidelity Investments, were still staying away from Knight, and the trading snafus have revived questions about the integrity of the equity markets.
"The apparent trading error by Knight Capital Group on Wednesday reflects the type of event that can raise concerns for investors about our nation's equity markets - markets that I believe are the most resilient, efficient and robust in the world," U.S. Securities and Exchange Commission Chairman Mary Schapiro said in a statement.
Knight's share of daily market-making volume was still a fraction of its normal activity on Friday.
Market makers buy and sell shares for clients and provide liquidity to the equity market by stepping in to buy and sell to insure orderly, smooth activity.
For example, through Tuesday of this year, Knight accounted for 20 percent of the market making activity in shares of Apple, one of the most actively traded stocks on a daily basis. By midday Friday, Knight was the market maker for just 2 percent of the share volume, according to data from Thomson Reuters Autex, although market makers may not be reporting all trade data.
"A lot of buyside firms have got us on hold for now," said one Knight trader, who did not give his name because he is not authorized to speak to the press.
A source at TA Associates, a private equity firm based in Boston, said the company had signed a non-disclosure agreement.
One private equity investor said he suspects that eventually Knight will get broken up. "Knight has many more businesses than just the equity market making business. Some are good and some are not," he said. "I'm not sure who would want them all."
Separately, The Wall Street Journal reported the company told brokers it had obtained a line of credit, but the company would not confirm that report. Sources at other firms said that they'd heard that news only from reporters.
The line of credit could address concerns that have surfaced as to whether Knight Capital has adequate capital to maintain its trading.
In a letter to clients, Knight Futures Division confirmed that customer's funds for commodity futures trading accounts "are segregated and kept separate from the funds of Knight" required by regulators.
The firm's recently acquired futures brokerage was being watched after scandals at MF Global and Peregrine Financial Group shook investor confidence in the futures industry's ability to safeguard customer accounts.
ATMOSPHERE AT KNIGHT 'QUIET'
Knight's problems started when a software glitch flooded the New York Stock Exchange with unintended orders for dozens of stocks, boosting some shares by more than 100 percent and leaving the company with losses that now imperil its business.
Securities regulators are looking into the matter closely. The SEC, in concert with other regulatory authorities, is investigating what happened. The Financial Industry Regulatory Authority, the industry self-regulator, also has examiners on-site at Knight's headquarters in Jersey City, New Jersey.
For a market already suspicious that the system might be fundamentally broken after 2010's "Flash Crash" and the botched Facebook IPO in May, the troubles at Knight have only added fuel to the fire.
Outside Knight Capital's Jersey City offices, security warned reporters not to harass employees coming in and out. Police officers were also present, and reporters were told to stay off the company's property.
One staffer, toting a set of golf clubs despite the catastrophe unfolding around him, said, "I don't want to care," when asked how things were going.
Another called the atmosphere at work "quiet, very quiet."
One trader said staff had received no announcements from management as yet but described the atmosphere as "definitely better than yesterday," with people trying to carry on as usual.
But he noted the company's future remained in doubt.
"I thought by this morning we might have heard something. I think a lot of this stuff might get done over the weekend, maybe Monday the latest," he said.
(Additonal reporting by Jed Horowitz, Jessica Toonkel Rodrigo Campos, Angela Moon, John McCrank, Hilary Russ and Suzanne Barlyn in New York, Ann Saphir in Chicago and Sarah Lynch in Washington; Writing by David Gaffen and Ben Berkowitz in New York; Editing by Edward Tobin, Lisa Von Ahn, Steve Orlofsky and Leslie Adler)