The closely held high frequency trading company, Getco LLC declared that its profits declined in 2012 because of drop in stock market trading volume. Apart from that, volatility also evaporated as it started negotiation with the Knight Capital Group over a possible acquisition. The net income of Getco went down by 82% to $24.6 million in the 9 months’ time period ending 30th September, 2012. For the same time period in 2011, net income was at $134.8 million. The revenue declined by 41% and is at $425.3 million. Incidentally, in last December, Getco and Knight agreed to an acquisition deal of the latter; the same was worth $1.4 billion. Knight Capital Group, in August, lost over $450 million because computers generated a flood of erroneous orders.
An analyst of the Evercore Partners Inc., Christopher Allen stated that as the economic activities are pretty much on the lower side and so as the volatility and volume, the scenario is just not working for Getco at this very moment. Christopher added that if someone takes a look at the trading revenues in detail, it will be pretty clear that those have been challenged.
Primary business of Getco involves marking markets on the equity exchanges and other venues with help some high speed and automated programs. From the market making sector, the revenues went down by 44% in the first 9 months of 2012. Incidentally, this represents 94% of the total revenues for the company.
The annual revenues for Getco in 2009, 2010 and 2011 have been $956.8 million, $866.9 million and $915.5 million respectively. Incidentally, the average daily trading volume for the stocks which are listed in the US stock exchange has dropped every year since 2009. In 2012, it dropped by 18% to a low of 6.42 billion shares. The same was 9.77 billion in 2009 and so far, in 2013, it is at 6.36 billion.
A joint filing was released today by Getco and Knight and it stated that the two companies have created an integration planning framework. It stated that both the companies acknowledge the importance of factors such as mitigating the operational risk and perfectly integrating all the required risk controls.
In the last 12 months, the Chicago Board Options Exchange Volatility Index, which is also known as VIX, plummeted by 33%, as it reached 5-month low in last January.