Hotspot's August FX volumes plunge on Knight's near death experience

By:
Russell J. Dinnage
Published on:

Hotspot FX, the multi-dealer platform owned by Knight Capital Group, saw its volumes plunge by 19.2% in August, after its parent company, Knight Capital, came to near collapse after a computer glitch caused losses of $440 million.

The company blamed the glitch and the resulting flash-crash in the wider market on faulty software, and a group of investors – which included TD Ameritrade and Blackstone – eventually reached a $400 million deal to bail out the equities broker and market maker in return for an ownership stake of about 70%. Other investors included, Getco, Stifel and Nicolaus & Co. 

Prior to the bail out, market rumours suggested Knight Capital might seek to sell its Hotspot FX business – which it acquired for $77 million in 2006 – in an effort to shore up its capital base. 

In August, Hotspot FX average daily volumes (ADVs) fell to $21 billion compared with July, when the platform saw ADVs at $25.9 billion.

And while the rest of the FX multi-dealer platform market saw volumes decline last month, none experienced a drop as steep as Hotspot FX’s figures.

FX volume trends compared to their competitors 

 
 Source: Hotspot FX, CME Group, EBS/Icap, Thomson Reuters, FXall

EBS/Icap August FX volumes were down 10% last month compared with July, Thomson Reuters recorded a 12% drop month-on-month, FXall were down by 7% from July and CME FX volumes were down by 9%.

Year-on-year, Hotspot FX’s ADVs declined 33.5% after the platform saw August 2011 ADVs of $31.1 billion.