THE DARK KNIGHT
Yesterday as the world was at peace, another storm started to brew, KNIGHT CAPITAL. I mentioned that I have have a zero tolerance policy for anything irregular. I had decided to split my money between two places, and KNIGHT was one of those two. When a friend called me yesterday and told me what was going on with this company, my first thought and first action was to call and immediately wire transfer all but $500 out of there. I kept the $500 so the account would still be open as an option once the dust settled. Also, closing the account fully would have taken most likely a full day, and I wanted the money in my hands ASAP.
I did get a complete break down of where the seg funds were and that they were in order, and that this was simply an execution error with some of the algorithms they use in the market making activities they conduct. I have no reason to believe that is not true. However, I go back to PFG and the letter they sent out after MF Global, assuring everyone they were solid and had to problems for customers to be concerned about. As a result, I believe absolutely nothing any of these people say.
Furthermore, I checked a little into Knight and saw that although they have a spotless record with the NFA, they have been caught up in a few bad situations due to the market making function of the company. I just don't want to be at a place where the core business has some issues, regardless of whether the seg funds are at risk or not. The problem with the process as we are learning with PFG is that your funds can be tied up for a very long period of time when something happens. In the case of PFG they have set aside $125 Million of seg funds that for some reason is not likely to be distributed to us for a very long time. I just don't want to find myself in that position ever again IF I CAN HELP IT.
I emphasized that because a smart criminal will always find a way to get over on folks. I have no doubt another smart criminal is getting over on regulators in this industry as I type this, if not more than one. Whenever I see any sign of anything, POOF like the road runner. You can see from the stock chart yesterday above, the predictable reaction in the wake of the other two scandals. Even if this is not a scandal, the stock got treated like it was yesterday. This morning the stock is down another 50% most likely on further reaction to this. I just checked and the money is back in my checking account, so the wire transfer happened. One other thing I find interesting is that the Commercials Proxy index went into the sell zone the day before the break. Talk about a beauty of a trade there!
I continue to look to the short side in most places here as per what I have been saying the last few days.