Knight Said to Enlist Goldman Sachs to Close Out Errant Trades

Knight Capital Group Inc. (KCG) turned to Goldman Sachs Group Inc. (GS) on Aug. 1 to buy the firm out of trading positions acquired by mistake when a computer program malfunctioned, a person with knowledge of the matter said.

Knight has until the close of business on Aug. 6 to complete the transaction with Goldman Sachs, said the person, who asked for anonymity because the deal hasn’t been made public. David Wells, a spokesman for New York-based Goldman Sachs, said he couldn’t comment. Kara Fitzsimmons, a spokeswoman for Knight, didn’t immediately return a call seeking comment.

Knight said yesterday it had “traded out of its entire erroneous trade position, which has resulted in a realized pre- tax loss of approximately $440 million” and severely hurt its capital. The Jersey City, New Jersey-based firm has opened its books to potential investors or buyers, according to two people with knowledge of the matter.

Goldman Sachs, the fifth-biggest U.S. bank, made the most revenue from equities trading of any Wall Street bank in the first half of 2012, according to company reports. Goldman Sachs is also the biggest owner of Knight’s $375 million of 3.5 percent convertible bonds, according to data compiled by Bloomberg. Those notes are trading about 80 percent of face value, according to prices reported by Trace.

To contact the reporter on this story: Stephanie Ruhle in New York at sruhle2@bloomberg.net Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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Aug. 3 (Bloomberg) -- Shawn Matthews, chief executive officer of Cantor Fitzgerald LP's broker-dealer unit, discusses the firm's hiring plans and strategy, and the outlook for Knight Capital Group Inc. Matthews speaks with Stephanie Ruhle on Bloomberg Television's "Market Makers." (Source: Bloomberg)