November 26, 2012 / 6:51 PM / 5 years ago

Knight shares surge on reports of potential deal offers

NEW YORK (Reuters) - Shares of Knight Capital Group KCG.N were up nearly 16 percent on Monday following reports that rivals might be preparing to bid for part or all of the electronic trading firm.

Knight has been approached separately by Getco LLC and Virtu Financial LLC about its market-making operation, according to people familiar with the talks, and possibly to buy the firm outright, reports have said.

Shares of Knight were up 15.7 percent at $2.88 around 1 p.m. Eastern Time.

Knight was forced to take on new investors following a software glitch on August 1 that unleashed a flood of orders to the New York Stock Exchange, resulting in a massive position Knight had to unload at a loss, nearly bankrupting the firm.

But the firm, which uses computer models to match buy and sell orders in stocks and options, executing around 10 percent of U.S. volume, is well capitalized and would only pursue a deal if it created value for its shareholders and clients, Knight’s chief executive said in an internal memo on Saturday.

Getco was one of the firms involved in the $400 million rescue of Knight in August, led by Jefferies Group JEF.N. Others included Blackstone Group LP (BX.N), Stephens Inc, and financial services companies TD Ameritrade Holding Corp AMTD.N and Stifel Financial (SF.N).

    As part of the deal, Getco investor General Atlantic, as well as Blackstone and TD Ameritrade, were given seats on Knight’s board.

    Aside from being a top U.S. market maker, Knight runs bond and foreign exchange trading platforms and owns a reverse mortgage lender. It also holds a stake of about 20 percent in Direct Edge, the No. 4 U.S. cash equities exchange.

    Reporting By John McCrank; editing by Andrew Hay

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