KCG down due to rumor of algo gone wild

If Knight does about $20 billion / day, and makes $400 million in a good year .. then, if I’ve done the arithmetic right, that’s about a 0.77 bps margin.

From pretty much any angle, that kind of sucks.

Bring back the teenie.
 
Quote from newwurldmn:

Only in finance can a firm with a footprint of Knight go from boom to bust in a few days without there being fraud.
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There's no evidence whatsoever, anywhere, in any form, that I had anything to do... with... that magnificent piece of work.:p
 
Quote from Rationalize:

If Knight does about $20 billion / day, and makes $400 million in a good year .. then, if I’ve done the arithmetic right, that’s about a 0.77 bps margin.

From pretty much any angle, that kind of sucks.

Bring back the teenie.
More...

You used to work on an institutional desk. You know that's not the right way to look at things. Put it this way: they make 400MM in a good year on a Billion dollars of equity and they don't even have any real debt. This is a way better business than any derivatives desk where the assets and liabilities are huge and there is a reliance on theoretical marks.

In finance this is the cleanest acquisition out there. The only skeleton will be if their algos are permanently messed up and there's no evidence to suggest that.

I think BAC buys this for 1Bn+. Current shareholders gets 500MM.
 
Quote from newwurldmn:

You used to work on an institutional desk. You know that's not the right way to look at things. Put it this way: they make 400MM in a good year on a Billion dollars of equity and they don't even have any real debt. This is a way better business than any derivatives desk where the assets and liabilities are huge and there is a reliance on theoretical marks.

In finance this is the cleanest acquisition out there. The only skeleton will be if their algos are permanently messed up and there's no evidence to suggest that.

I think BAC buys this for 1Bn+. Current shareholders gets 500MM.
More...
Fair point - but the view I'm meaning to put here is the asymmetry of it all, good day vs bad day.

If they lost 400 million on say, 20 billion of 1 day flow, that's only about a -200bps stuff up (approx numbers).

The trouble is that a regular day is only about +1bps gained.

So the upside / downside really sucks, because the margins in this game have become so thin.

It's do a bazillion dollars of flow, to make a couple of bucks.

Fuck up just a tiny little bit, and you've blown months of P/L, or maybe the whole firm.

Bring back the teenie, create some artificial friction, then things can relax a little.

And besides, this game is a lot more fun when all you need is a phone, and some slick spreadsheets.
 
Got 2 emails from Knight yesterday so as to sooth my fears about segregated funds in my futures accounts. Nothing to worry about, per the head honcho.

This is great. After the Penson scare, now the new guys fuck up. My broker must be gnashing their teeth having one crisis after another.
 
Quote from Rationalize:

Fair point - but the view I'm meaning to put here is the asymmetry of it all, good day vs bad day.

If they lost 400 million on say, 20 billion of 1 day flow, that's only about a -200bps stuff up (approx numbers).

The trouble is that a regular day is only about +1bps gained.

So the upside / downside really sucks, because the margins in this game have become so thin.

It's do a bazillion dollars of flow, to make a couple of bucks.

Fuck up just a tiny little bit, and you've blown months of P/L, or maybe the whole firm.

Bring back the teenie, create some artificial friction, then things can relax a little.

And besides, this game is a lot more fun when all you need is a phone, and some slick spreadsheets.
More...

Yeah. But they've been doing this for like 15 years and this is the first catastrophe. They are still ahead. Market making has always about selling teenies. Still a viable business model in my opinion.
 
Quote from high99:

Got 2 emails from Knight yesterday so as to sooth my fears about segregated funds in my futures accounts. Nothing to worry about, per the head honcho.

This is great. After the Penson scare, now the new guys fuck up. My broker must be gnashing their teeth having one crisis after another.
More...


I can't tell you how disappointed that made me - was looking forward to dealing with a 'new' firm in futures.

Your future accounts will probably be bought by RJO O Brien, which is disappointing. But your funds are safe.


EDIT: I remember meeting recently with an MD of KCG, and he was telling me how they're tying up all this capital for the futures division.
If you check the CFTC website you can see their capital requirement was $20mm, but they had $100mm committed.

Would've been a good FCM. Very much a shame.

Is RJO a good firm? It' a safe firm, in other words I don't think they'll steal anybody's money. I don't like the firm because the have a high percentage of *ssholes who work there. They inherited some clowns from MF / Lind, and the nepotism is alarming.
 
Quote from Chicago_CTA:

I can't tell you how disappointed that made me - was looking forward to dealing with a 'new' firm in futures.

Your future accounts will probably be bought by RJO O Brien, which is disappointing. But your funds are safe.
More...

Is RJO good? I just opened a futures account with them.
 
Quote from newwurldmn:

Is RJO good? I just opened a futures account with them.
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I traded out of their office in ~1996. Very tight on risk, smart ppl at the top. Not cheap, however.
 
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