The stock market is made up of many types of investors — institutional investors, retail investors, speculative investors, and mutual funds. The market has gotten so complex that it requires market makers to help provide liquidity. Knight Capital is one such firm, and is a favorite topic for many SiriusXM (NASDAQ:SIRI) investors.
Knight garners attention of SIRI investors because many believe that the market maker sends off signal trades that dictate the desired price target of any given trading day. Whether you subscribe to that theory or not is not really relevant to the discussion, but certainly there will be some investors that will celebrate the troubles at Knight. Whether you like them or not, Knight does provide liquidity in the market, and liquidity is more necessary than ever.
It has been revealed that Knight is in a financial bind due to a $440 million loss. Knight’s problems began to take shape Wednesday as the technology sector took hits virtually across the board. As a result of the massive loss, the company is actively pursuing its strategic and financing alternatives to strengthen its capital base. The firm is still in compliance with capital requirements, but is likely on much shakier ground than it was previously.
The company handles billions, but needs to be able to back it up in some form. A broker-dealer can make loans or pay dividends to its parent company and affiliates without regulatory approval as long as the transaction does not affect its excess net capital by 30 percent or more. With a $440 million loss, the capabilities of Knight are impacted.
Knight remains open for business.