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Executives

Marge Wyrwas – Senior Managing Director Communications Marketing & IR

Tom Joyce – Chairman and CEO

Steve Bisgay – Senior Managing Director and CFO

Analysts

Roger Freeman – Barclays Capital

Rich Repetto – Sandler O'Neill

Ken Worthington – JP Morgan

Niamh Alexander – KBW

Mike Vinciquerra – BMO Capital Markets

Daniel Harris – Goldman Sachs

Chris Allen – Banc of America Securities

Knight Capital Group, Inc. (NITE) Q3 2008 Earnings Call Transcript October 22, 2008 9:00 AM ET

Operator

Good day, everyone and welcome to the Knight's Capital Group third quarter earnings conference call. Today's call is being recorded. Our presenters today will be Chairman and Chief Executive Officer, Tom Joyce, and Chief Financial Officer, Steve Bisgay. As a reminder, we will be conducting a question and answer session following the presentation. And now, to kick off our program, I would like to turn the call over to Marge Wyrwas, Senior Managing Director Communications Marketing and Investor Relations. Please go ahead ma'am.

Marge Wyrwas

Thank you Jessica. Good morning, ladies and gentlemen. I'm Marge Wyrwas. At this point, you should have received copies of this morning's press release. If you didn't receive a copy or if you would like to have your name added to our company’s email and fax list please contact a member of the CMIR team.

I am pleased to welcome you to Knight’s third quarter 2008 conference call and webcast. With me in the room today are Tom Joyce, Chairman and CEO; and Steve Bisgay, Senior Managing Director and CFO, who will make formal remarks. Greg Voetsch, Executive Vice President is also in the room, while Jim Smith, Executive Vice President, is joining us by conference call.

Before we begin, I’ll briefly direct your attention to the precautionary terms regarding forward-looking statements in today’s discussion. Certain statements contained herein and the documents incorporated by reference may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please take a moment to read the Safe Harbor statement contained in today’s press release which is incorporated herein by reference.

In addition, participants should carefully review the risks and uncertainties disclosed in the company’s reports with the U.S. Securities and Exchange Commission including, without limitation, those detailed under the heading “certain factors affecting results of operations” and “risk factors” in the company’s annual report on Form 10-K for the year ended December 31, 2007, and in other reports or documents the company files with or furnishes to the SEC from time-to-time.

This information also should be read in conjunction with the company’s consolidated financial statements and the notes thereto contained in the company’s annual report on Form 10-K for the year ended December 31, 2007, and in other reports or documents the company files with or furnishes to the SEC from time-to-time.

A final note before we start. Knight will host its annual analyst and institutional investor meeting on Monday, November 3rd. The meeting will be webcast live for all interested parties beginning at 10:30AM EST and ending at noon. To access the webcast, go to www.knight.com at least 10 minutes before the start. We hope you all can join us.

And now I would like to turn the call over to Knight’s Chairman and CEO, Tom Joyce. TJ?

Tom Joyce

Thanks Marge. Good morning everybody. The third quarter of 2008 was certainly a period of historic turmoil in the global capital markets and sweeping transformation on Wall Street. The ever increasing scale and duration of the mortgage lead crisis was, or rather is, startling. The efforts to date of the U.S. Treasury and the Federal Reserves officials to contain the crisis have been nothing short of extraordinary. So, it almost goes without saying that the events produced periods of extreme volatility. The VIX index measured volatility averaged 24.4 in July, 20.7 in August, and 30.2 in September with a then inter-day all time high of over 48 on September 29.

At Knight, those conditions led Global Markets to another record performance, in fact, one of the best in our history. We started the quarter with an active July as demonstrated by our volume. In August, we experienced what was a deep low that expanded into the first 2-weeks of September. That quickly changed however as the second half of September witnessed a furious level of activity that resembled the early days of the credit crisis in the month of August in 2007.

During this period, our hybrid market model allowed us to take in more order flow across multiple voice and electronic channels from buy and sell side firms of all categories and sizes. Our reliable and efficient and scalable trading technology with current capacity of close to 20 million trades per day in 99.99% uptime smoothly processed order flow while traders provided clients with market insights.

In Asset Management, Deephaven struggled amidst the sustained poor condition for alternative investment managers. The major market indexes have been in steady decline for the past year since their respective peaks in October 2007 through the end of the third quarter, the Dow Jones Industrial declined 23%, the S&P felled 24%, and the NASDAQ composite index dropped 27%. Additionally, the credit crisis has yet to abate. In index with direct relevance to Deephaven, the HFRI multi-strategy index is down 10.8% through the end of the third quarter of 2008.

So, during the third quarter, the performance of Deephaven continue to suffer along with that of benchmark funds. Assets under management also fell. As with most investment managers, Deephaven has redemption risk as investors reallocate assets into more liquid investments given the current market conditions.

So, let's turn to our financial results. IN the third quarter 2008, Knight recorded $0.40 in earnings per share, which was a 135% higher than the 17% – $0.17 EPS in the third quarter of 2007. It's important to note the results for Q3 of '07 included an $0.08 gain related to Direct Edge. Global Markets contributed $0.58 on pre-tax income of $88.3 million. Asset Management lost $0.05 on a pre-tax loss of $7.7 million and the corporate segment gave back $0.13 on a pre-tax loss of $18.8 million. Total revenues for the third quarter of 2008 were $269.9 million compared to$205 million for the third quarter of 2007.

Pre-tax income for the third quarter was almost $62 million compared to $27.8 million for the third quarter of '07. In consolidated pre-tax margins for the third quarter of 2008 were 23.5%, again, exceeding our goal of 20% and that compares to pre-tax margins of 14% for the third quarter of 2007.

So, turning to Global Markets. During the third quarter, we outperformed thanks to the remarkable effort of our employees who were able to maintain focus and provide clients with superior and customized service.

Revenues for the third quarter 2008 increased 40% over the third quarter of '07 while pre-tax income was up 175%. We recorded pre-tax margins of 33% which marks the fourth consecutive quarter of pre-tax margins greater than 30% in Global Markets.

Through the first three quarters of 2008, average daily U.S. Equity trades are up 69% from the comparable period of '07, average daily dollar volume traded has risen 61% , and average daily shares traded have increased 4%. The continued growth of our equity volumes reflects the successful execution of several concurrent strategic initiatives to enhance the electronic and voice offerings in our Hybrid Market Model, add buy and sell side clients, and increased our share of client order flow.

We've been aggressively deepening liquidity across the entire equity market through broker-dealer electronic market making which provides instantaneous trade execution. Given the execution speed, often in milliseconds, this usually involves committing our own capital to complete a trade on behalf of our client. Among broker-dealers execution quality is both a competitive and regulatory imperative. We consistently lead the industry in providing broker-dealers with industry leading execution quality according to SEC rule 605 mandates governing speed, effective over quoted, price improvement, and add or better. Further, we employ sophisticated algorithms to optimize the execution of each clients over flow. And we also have cash traders, for oversized or difficult to handle orders. All of this is especially important considering we don't have captive order flow.

To build on that base, we developed Knight Link, which provides sell side firms with dark-pool access to our off exchange liquidity. We execute excess free (inaudible) flow instantaneously and our clients save on trading costs in the form of exchange and ECN fees. In turn, we benefit from positive selection and add to our deep in-house liquidity.

Much of the additive order flow generate by Knight Link is NYSC listed shares, which along with other strategic initiatives, has helped balanced out trade volumes among large, mids, small and micro caps. The impact is evidenced in the average daily U.S. Equity dollar volume figure which we release each month and has steadily risen.

During the third quarter 2008, we captured market share from institutional clients due to our focus on superior client service and a disruption amongst many of our competitors. We work with pension funds, mutual funds, hedge funds, and other institutions on an agency basis to source liquidity, maintain anonymity, measure performance through transaction cost analysis, and control overall trading cost.

Under the Hybrid Market Model, we offer an array of access and trading options, spanning electronic and voice that make it easier for institutions to trade with us based on individual firm preferences and specific needs. Our sales traders and cash traders found themselves in high demand, particularly in mid-September as clients turn to us again and again for market insights and assistance in making critical adjustments to their portfolios.

At the same time, our execution management system, Knight Direct, gained market share and turned in a record performance for this quarter. Some clients, depending upon the particular equity security or even the time during the trading day, freely alternated between our sales traders and electronic products like Knight Direct.

Second, at a certain point, institutions were hesitant to trade with some of the bulge [ph] bracket firms. In the span in about a week in September, we went from the fourth or fifth choice in many client lists to the first or second. And we also expanded our mandate. Clients that traditionally utilizes us strictly for small caps were also sending us large cap order flow.

Now, I'm over simplifying events, of course. The point is, during the third quarter, we picked up market share by increasing order flow from existing clients. I believe that as a specialized trade execution firm, with no captive order flow, we're better at demonstrating value in the trading process simply because we have to. Trading as market making is not a side business for us, it is the business.

The recent turmoil gave us yet another opportunity to prove our value in the trade process to clients. For the month of September, Knight ranked number one in shares traded of all NASDAQ securities, according data from our techs, and number two in shares traded of all New York Stock Exchange in annex securities.

As an example of what's been going on here, as recently as October 10th, we handled $7.4 million trades and $42.8 billion in dollar volume traded in a single session. That's an average of 317 trades and $1.4 million in dollar volume traded each second.

Given the speed and unpredictability of the global capital markets, we carefully guard against risk. As a market maker and trading firm, we commit our own capital to facilitate trades which of course carries risks that include absolute and relative price movements, changes in liquidity and price volatility, over which we have almost no control.

To minimize our exposure, we keep value at risk, often called VAR, to a minimum. Generally, around $2 million which is less than half of a typical day's revenue. We employ position management systems that provide real time inventory control. Members of our risk committee review transactions throughout the day as well as dollar and inventory position totals in real time P&O. Management also reviews mark to market valuations in position summaries on a daily basis. In short, we are very focused in controlling our risk profile.

Looking beyond the traditional market making for sell side firms in agency type trading for buy side firms, there are several highlights in the third quarter worth noting. As an extension of our quantitative capabilities, we're continuing to innovate by developing and deploying high velocity algorithmic trading models that analyze non-Knight external street flow and look for price dislocations in individual U.S. Equities. These models added significantly to revenues and profitability in the third quarter.

Now, in fixed income, Knight Libertas turned in a strong quarter. Given the market conditions, volumes were solid in high-yield and high-grade corporate as well as asset-backed and mortgage-backed securities. Staying in fixed income, Knight Bond Point continued to add large new client as a result of a sustained sales campaign targeting our existing broker-dealer clients. We're also close to completing initiatives pertaining to straight through processing and limit order pinging which will enhance operational efficiencies.

Hotspot FX, our institutional volumes on the spot FX ECN, rise along with revenues as competing banks and market makers reduce liquidity provisions due to volatility in the FX market.

Our London office continue to deliver terrific results. Based on the strong foundation that the team has built there, we will now look to add electronic capabilities to our currently large voice business. And finally, in Asia, we are on track to open an institutional sales office in Hong Kong in the first quarter of 2009. We have recently hired a new head of Institution Equity trade in Asia who is in the final stages of assembling a team.

Turning now to Asset Management, the Deephaven fund continue to struggle as uncertainty and fear in the global capital markets produced further declines in market indexes. Blended fund performance for the third quarter 2008 was -10.2%, and that' excluding the performance of the event funds. During the same period, the HFRI multi-strategy index was down 8.7%. Deephaven generated asset management fees of $9.2 million and recorded a pre-tax loss of $7.7 million in the third quarter 2008.

In comparison, Deephaven had negative net asset management fees of $1.2 million and a pre-tax loss of $8.3 million in Q3 of '07. As of October 1st, 2008, assets under management were approximately $2.7 billion. In comparison, AUM as of October 1st, 2007, was about $4.4 billion. The decrease is primarily due to negative fund performance, the closing of the event fund, and redemptions.

The performance of the Deephaven funds during the third quarter 2008 and year-to-date is not in line with historical returns. In particular, the Deephaven multi-strategy fund has been hard hit of late despite efforts to limit exposures, reduce leverage, and increase liquidity. As with most alternative investment managers, Deephaven has significant redemption risks as investors consider reallocating assets into more liquid investments given current market conditions. Deephaven will consider any number of alternatives to protect its investors, whether dealing with portfolio performance, redemptions, and/or possible strategic partnerships or even a sale. Deephaven believes the prudent strategy at the present time is to continue to reduce the funds gross and net exposure in an effort to increase excess cash. A thaw in the credit market as a result of global, governmental interventions should certainly benefit the global capital markets in the month ahead.

Now, I'll turn the call over to Steve Bisgay for more detailed financial review of the first quarter. I'll then return with some closing remarks, after which we will open it up for some Q&A. Steve?

Steve Bisgay

Thank you, TJ. Good morning. Before I review the business segment results, I'd like to briefly recap our overall quarterly performance.

Our earnings were $36.3 million, or $0.40 per diluted share. Pre-tax earnings, including minority interest expense of $1.7 million related to Deephaven, were $61.8 million during the quarter. The main components of our third quarter pre-tax results are $88.3 million of earnings from global markets, which represents $0.58 per diluted share, offset by a loss of $7.7 million from Asset management, which represents a loss of $0.05 per diluted share and a loss of $18.8 million from our corporate segment, which represents a loss of $0.13 per diluted share.

Let's review the results of our business segments starting with Global Markets. Global Markets' revenues were $269 million during the third quarter, up 34% from the second quarter, and up 40% from the third quarter of 2007. Excluding Direct Edge, which was de-consolidated at the end of the third quarter of 2007, Global Markets' revenues were up 64% compared to last year's third quarter. Global Markets had pre-tax earning of $88.3 million during the third quarter, one of our highest totals ever. This compares to pre-tax earning of $64.4 million which we achieved in the second quarter of 2008. When we exclude Direct Edge, Global Markets' pre-tax earnings were up 161%, from $33.9 million in last year's third quarter.

Global Markets' strong performance was driven by a combination of factors, including heightened volatility resulting from the global economic continuing credit crisis, the continuing expansion of our trade execution footprint, increased contributions from high-velocity algorithmic trading models, and the scalability and efficiency of our hybrid model.

Knight's U.S. Equity dollar volume traded in the third quarter was $1.27 trillion dollars, or $27 billion per day, which was up 15% from the second quarter and up 45% from last year's third quarter. Volumes were significantly impacted by a little bit [ph] levels of volatility. During this quarter, we saw the VIX span from approximately form 1948 with a quarterly average of approximately 25. Our performance has benefited from this increased volume and volatility as we continue to develop and enhance our client offering and experience, resulting in greater positive interaction with customer flow. This has resulted in expansion of our overall market and client footprint. In addition, we continue to develop high-velocity algorithmic trading models, which has increasingly contributed to the results of the segment.

The progress that our global market segment has experienced this quarter is directly attributable to our ability to adapt to the changing market dynamics. Our hybrid market model combines the benefits of high-level client service and innovation that has helped redefine our product mix. For example, we have added a new product to our institutional client offering through our acquisition of Libertas in July. At the same time, we have expanded our electronic trade execution footprint as evidenced by growth in volumes from both new and existing clients. We continue to see a shift in our volume mix with a heavier weighting of listed securities. As a result, listed in other high-dollar value stocks continue to increase as a percentage of our total volumes and revenues.

The Global Markets segment continues to benefit from our scalable platform. Pre-tax margins from Global Markets expanded from 33% during the third quarter, up from 32% in the second quarter marking our fourth consecutive quarter in which Global Markets pre-tax margins exceeded 30%. This trend is primarily results of the growth and success of our electronic trade and execution products. In addition, our strong pre-tax margins reflect expansion of our platform and the benefits of operating leverage and scale.

We plan to continue to develop our Hybrid Market Model through innovation and the investment into new geographies. As we discussed previously, we continue to invest within Global Markets to further cultivate our electronic and voice trade execution products and leverage our infrastructure.

As we mentioned in our second quarter conference call, we expected to invest between $5 to $10 million during the second half of 2008 for these types of initiatives. In the third quarter, we invested approximately $5 million, or $0.03 per diluted share, in our international expansion and the development of new products.

Now, let's review the results from our Asset Management segment. Deephaven battled through a challenging third quarter to post a negative blended return of 10% across all assets under management. As a point of reference, Deephaven had a positive blended return of 2.8% during the second quarter and negative blended return of 1.8% during the third quarter of last year. Year-to-date, through the end of the third quarter, Deephaven had a negative blended return of 14.8%, or -11.7% excluding the performance of the event fund which does not generate fees as it is in the process of closing. Deephaven recorded asset management fees of $9.2 million during the third quarter, down from $14.4 million in the second quarter and up from negative net asset management fees of $1.2 million in last year's third quarter.

Asset management fees have two components. The management fees which are determined based on a percentage of assets under management and incentive fees, which are determined as the percentage of the funds returns. Management fees were $8.6 million during the third quarter, down from $9.2 million in the second quarter and down from $11 million in last years third quarter. Average assets under management during the third quarter of 2008 were $2.9 billion, down from $3.4 billion in the second quarter and down from $4.1 billion in last years third quarter. The decrease in assets under management was principally affected by a combination of performance and net redemptions. As of October 1st, 2008, Deephaven's total assets under management were approximately $2.7 billion.

Incentive fees, which vary based on the funds returns, were $700,000 in the third quarter, down from $5.2 million in the second quarter and up from net negative fees of $12.3 million in last year's third quarter. As you may recall, in last year's third quarter, there was a claw [ph] back of incentive fees previously recorded in the first half of 2007 due to the year-to-date results. Please note that, as the majority of Deephaven's funds have negative returns on the year-to-date basis, the segment will not be able to record incentive fees related to these funds until their performance exceeds their respective high watermarks, a time frame which may expand beyond the current year.

In the third quarter of 2008, Asset Management has a pre-tax loss of $7.7 million which included a minority interest expense of $1.7 million. This compares to a pre-tax loss of $7.9 million in the second quarter which included minority interest expense of $1.1 million and a pre-tax loss of $8.3 million in the third quarter of 2007.

As previously announced, in February 2008, the Deephaven managers exercised an option to acquire a 49% interest in Deephaven in exchange for the termination of their employment agreement. Following the exercise of the option, pre-tax earnings are allocated between Knight and the Deephaven managers in a similar manner as under their previous employment agreements, which included minimum annual distributions for the first fiscal year after exercise.

The third quarter's minority interest expense of $1.7 million represents the third quarter's accrual of the one year minimum distribution to the Deephaven managers recorded pursuant to the Deephaven holdings LLC agreement. As previously disclosed, the exercise of the option only affected the financial reporting of the profit sharing page of the Deephaven managers. The amount accrued pursuant to the LLC agreement post exercise of the option is recorded as minority interest expense instead of employee compensation and benefits as it is considered as it is considered distributions to equity owners.

As an additional remainder we report the net returns from our Deephaven corporate investment with our other strategic investments within our corporate segment and not in the results of our Asset Management business segment.

Now let’s discuss our corporate segments which includes the returns from our strategic investments and our corporate overhead expenses. For the third quarter, our corporate segment had a pre-tax loss of $18.8 million compared to a loss of $7.2 million in the second quarter and pre-tax earnings of $3.9 million in last year's third quarter.

The P&L impact of our corporate investment in the Deephaven’s funds was a pre-tax loss of $8.5 million compared to a pre-tax gain of $2 million in the second quarter and a pre-tax loss of $1.3 million in the third quarter of 2007.

The average balance of our corporate investment in the Deephaven’s funds was $69 million during the third quarter, down from $77 million in the second quarter and down from $198 million in the third quarter of 2007. As you may recall, we redeemed $120 million of our Deephaven Investment in the fourth quarter of 2007.

Our blended return on our corporate investments in the Deephaven funds was a loss 11.7%, compared to a positive blended return of approximately 2.7% during the first quarter, and a loss of 0.7% during last years third quarter. Due to the mix of the Deephaven funds in which Knight has invested, the 11.7% loss on our corporate investment in the Deephaven funds in the third quarter was greater than the negative 10% overall blended return of all the assets under management at Deephaven.

Remember that a significant percentage of Knight’s corporate investments is in Deephaven’s Global Multi-Strategy Fund, which represents approximately 60% of Deephaven’s overall assets under management.

Now let’s discuss our overall expense trends on a consolidated basis. Consolidated pre-tax margins of 23% in the third quarter were up slightly from second quarter’s consolidated pre-tax margins of 22%. The increase in pre-tax margins is primarily due to the strong results from our Global Markets segment offset by the performance of our Asset Management segment and return on our corporate investment in the Deephaven funds. Compensation, excluding minority interest expense, was 40% of revenues in the third quarter, up slightly from 38% in the second quarter. Knight's total headcount was 1,020 at the end of the third quarter, compared to 865 at September 30, 2007. The increase was due to the addition of employees related to the acquisition of EdgeTrade in the first quarter and Libertas in the third quarter, as well as growth related to our expansion and new product initiatives.

Given that asset management and corporate revenues have no corresponding transaction related expenses, we look at these expenses on an individual basis as a percentage of total net trading revenues plus commissions. Execution and clearance represented approximately 10% of third quarter net trading revenues and commissions, which an improvement from the 12% in the second quarter and 13% in last year's third quarter when you exclude the effects of Direct Edge. These costs fluctuate as a percentage of revenue due to changes in volume, product mix and operational efficiencies and scale.

Soft dollar expense represented 7% of net trading revenues and commissions in the third quarter of 2008 as compared to 8% in the second quarter, and 10% in last year’s third quarter when you exclude the effects of Direct Edge. For both the second and third quarters of 2008, payment for order flow represented 4% of net trading revenues and commissions as compared to 6% in last year’s third quarter when you exclude the effects of Direct Edge. These costs fluctuate as a percentage of revenue due to changes in volume and profitability. All other expenses were $41.1 million in the third quarter, up from $38.4 million in the second quarter. The increase is attributable to expansion efforts discussed earlier, as well as $2.5 million charge related to intangible asset during the quarter.

Now let’s discuss our balance sheet. Knight’s financial condition remain solid and liquid. As of September 30th, we have $1.9 billion in assets, 59% of which consisted of cash or assets readily convertible into cash principally to securities owned and receivables from brokers and dealers. Additionally, we have approximately $63 million invested in the Deephaven funds. We also employ limited leverage as evidence by our 0.15 debt-to-equity ratio resulting from our $140 million credit facility which we drew down within the last 12 months.

We repurchased 5.8 million shares for $89.7 million during the quarter. Since inception of the repurchase program, we have repurchased 67 million shares for $746 million. We had shareholders equity of $944.6 million as of September 30th, 2008. Using our average diluted shares outstanding for the third quarter of 9.1 million, our book value is approximately $10.49 per diluted share.

Thank you for participating on our conference call. Now, I'd like to turn the call back over to TJ.

Tom Joyce

Thanks, Steve. In the third quarter 2008, Knight achieved exceptional result despite the turmoil in global capital markets. We grew revenues in pre-tax income while exceeding our goal for pre-tax margins. Our employees deserve a huge amount of credit for staying focused in providing clients with superior and customized service. In Global Markets, we recorded one of the best quarters in our history, and again achieved pre-tax margins greater than 30%.

Our equity trade volumes were robust due to heightened volatility, our deep in-house liquidity, the efficiency and scalability of our trading technology, and innovations in new trading algorithms. In Europe, adding electronic capabilities to our large voice presence, filled out the hybrid market model. I expect our approach to sourcing liquidity in fragmented markets will continue to resonate for clients in Europe. The only equities [ph], we're getting meaningful contributions from foreign exchange and especially fixed income.

At the beginning of the fourth quarter 2008, through design and circumstance, we are entering new territory. Knight is fast becoming a prominent part of the newly remade Wall Street. In Asset Management, Deephaven's performance right now is a challenging market conditions – within the challenging market conditions for alternative investment managers. They remain committed to protecting their fund investors and improving performance.

Also during the third quarter, Direct Edge sold the minority ownership interest to the ISC. Upon the close, which we expect will occur in the fourth quarter of 2008, Knight's ownership interest in Direct Edge will be reduced to 19.9%.

And finally, on October 14th, we introduced NetDelta. An electronic settlement platform for credit derivatives market. NetDelta addresses market infrastructure and efficiencies and underlying risks inherent in OTC derivatives by providing buy and sell sides firms with real time solutions for entering, maintaining, and exiting new positions. We are currently beta testing the platform and are in the process of on-boarding clients.

Clearly, the future for Knight Capital Group is very bright. I am extremely excited about the opportunities in front of us. I want to thank you for your time and we'll now open up the line for questions. Jessica?

Question-and-Answer Session

Operator

Yes, sir. (Operator instructions). We'll move first to Roger Freeman with Barclays Capital.

Roger Freeman – Barclays Capital

Hi, good morning.

Tom Joyce

Hi, Roger.

Steve Bisgay

Good morning.

Roger Freeman – Barclays Capital

Hi, TJ. I guess, I'm hoping to just get a little bit better understanding about the role that volatility played in the quarter. When I – when you made your comments that at our conference in, I guess it was in the second week of September, I guess, my take away was that the tick up in volatility and the sort of the slow volumes coming out of August and into the beginning of September were negative, or certainly headwind and it seems like the last two weeks of September were incredibly strong. And as I look at the market performance right, that the SMP actually was down very slightly over that period but barely very volatile had big up and down day. And then we kind of go into October and we have a very sharp fall off in the market and volatility picks up even more. So I guess the question is, one, can you give us any sense for just what maybe, if not the actual weekly dollar revenues were in the last September, maybe the percent of the average over the quarter that you saw there? And then, secondly, can you comment on how that sort of dynamic plays out as we go into October where you had sharply declining market?

Tom Joyce

Sure. I'm not going to comment directly on either one actually, but I'm having volatility in volumes. The volatility, there are several kinds of volatility, right? The VIX index is a nice indicator and it covers a lot of data. It also covers a lot of ill. A volatile market where the market opens flat and goes straight down 380 points, you can imagine that's not a particularly pleasant environment from margin makers because we take in the other side – the broker-dealer business, we're taking the other side of almost every trade. So, if it goes down all day long, that means, we're buying all day long. So you can imagine if you've been doing nothing but buying, and the net results is the market down over 300 points, you probably have a lot of the P&L. So, days like that, or other days, when a huge chunk of the volume is concentrated in two or three names, like Fannie and Freddie, there's a lot of volatility in days like that but there's not a lot of opportunities. So, volatility in general, as we said many times before, volatility and volumes are very good for us in general but you have to look at the nuance to the kind of volatility they have.

Now, intra-day volatility, where it bounces up and down in the course of the day – it goes down 200 and it's up a 100 then it's down a 100 and it's up 300 – by and large those are always good days for us. So, I'm not going to parse the month week-by-week, but you can be certain that the fireworks in the second half of the month provided us with a whole lot more opportunity than the boring couple of weeks in to the concentrated troubles in early part of September.

So, volume and volatility are still the two key measurements for us, but with volume, it's pretty straight forward. Even then, you have different components of volume but with volume, it's more straight forward. Volatility, you have to look a little deeper to find out – to discern whether it would be kind of also do you think would benefit us and, in a point of fact, the second half of September – and yes, early into October – the volatility has been – was and has been beneficial.

Roger Freeman – Barclays Capital

By clearly, do you think about that declining market that changes the dynamic a bit for –

Tom Joyce

I think – trying to stay in the path is that the three variables, if you will, the key three variables are volume, volatility, and directionality. Volume wins every time, volatility is a close second, and directionality is a more distant third. We, of course, would like to have upward returning [ph] markets all the time but, on a short term basis, we're fairly agnostic around which way volumes [ph] go, so unless they bounce in the general direction in which they're heading.

Roger Freeman – Barclays Capital

And then, you're capture rate, trying to focus on that closely but that obviously ticked up nicely this quarter, obviously tied to the volatility. But, you've had this increasing ALP mix over the last few quarters, I think it was 25% last quarter. What did it actually end up being the score? I guessing it's probably down because you actually captured more direct market share from the buy side.

Steve Bisgay

Actually, Roger, dollar volumes in the ALPs was about 25% last quarter is actually up 26% this quarter.

Roger Freeman – Barclays Capital

It was. Okay. So –

Tom Joyce

You're point about the revenue capture is an accurate one. I've been up probably saying because of the new models that we've built, we expected a lower range of revenue capture and frankly I was obviously pleasantly surprised but practically surprised at how much the volatility in the second half – in the latter part of the quarter helped revenue capture. It was a surprise, it was a pleasant surprise, we'd love to see more of it in the future but it will be dependent upon which one of our model is having the most impact on revenue creation.

Roger Freeman – Barclays Capital

obviously gained market share this quarter. Firms like my predecessor. Firms who were out of the market for a couple of weeks. How sustainable do you view that? In other words, your pricing in general is a little bit higher because the customer base you traditionally serviced, you've obviously picked up some of those large cash flow. Are you going to maintain that? In order to do that, to go forward, now that we and others are back in the market? Do you have to give on pricing? How sticky do you think this volume is?

Tom Joyce

Obviously, there's several components to that. On pricing, we didn't see anything going on on pricing. Our commissions, both voice and electronic were pretty stable, and I don't expect there to be any change there. We're – I would argue, we're very competitive on pricing, again, both voice and electronic.

Frankly, the sustainability question is obviously the key question, and I think the sustainable – sustainability question can be applied to both businesses, institutional and broker-dealer. First of all, on the broker-dealer side, the question the business you did not ask me about relative to sustainability, I think, the environment – while it's impossible to predict volumes and I wouldn't begin to. It's like predicting the weather. The fact that there has been wholesale de-leveraging in the equity market is a good thing for us. I would think it's a good thing for any of the algorithmically-focused traders who have stuck it out.

When you have very large firms, your predecessor firm, other bulge bracket firms looking at their trillion dollar balance sheets and having their bosses say, “Get down.”, whether its a bad business or profitable business, they're reducing their balance sheet because of issues and Mr. Paulsons [ph] mandate, etc. So, by de-leveraging, it opens up opportunities to rest of us. Obviously, there are fewer people chasing after the same opportunity which means that those of us who are still chasing after the opportunity have more probability of capturing better opportunities. So, I believe that the de-leveraging will last for a while. I am not crazy, de-leveraging will turn around at one point and re-leveraging will occur and the conditions will change. But given the situation the markets are currently in, I expect that de-leveraging component of our success – de-leveraging that (inaudible) success to stay in place for a while.

As relative to less competition, that in point in fact will stay in place for a while too. I don't really want to throw anybody under the bus but in the mergers that I've been involved with over the years, if you take one group that's making two and somebody else that's making one and you isn’t going to get 3. You're going to get two and a half or two and a quarter. I've never seen it become a perfect merge of market share. They're almost always is a diminishing of market share captured by the new firm. So, for example, if one large firm had about 10% equity share and another firm that they merge with, a larger firm that they merge with, has a 4% share, the chances of the new emerge firm getting 14% market share are, frankly, close to zero. So, we would think that opens up several percentage point of market share that we can fight for. That competitive dynamic should stay around for a while, so for the institutional business, I think it's frankly is sustainable. Can't predict volumes but I think it is sustainable.

And if I could say one last thing while I'm on my sustainability soap box. If I could say one last thing, I would like all of you to look back at the trailing 12 months of our results, you will note that our earnings – our earning story in the trailing 12 months is about $1.60 a share. And if you apply to that what is a historic PE of in the neighborhood of 12 times, well, I will let you do the math. So, I think our record on sustainability is pretty strong at this point.

Roger Freeman – Barclays Capital

Okay. Thanks, TJ.

Tom Joyce

Thanks, Roger.

Operator

We'll go next to Rich Repetto with Sandler O'Neill.

Rich Repetto – Sandler O'Neill

Hi Tom. Great quarter.

Tom Joyce

Thank you, Rich.

Rich Repetto – Sandler O'Neill

I guess, my question is sort of close to the prior questions but, we've been sort of treating [ph], and you went through the volatility month by month and you did mention that it has the good conditions that continued in October. Just as an outsider looking in though, October's even weighing incrementally more volatile than September. So, I guess the question is, is it that much improved like the average VIX in October is like in the mid-50s and we've hit 80. And you were talking about the average in September being 30?

Tom Joyce

Your observation is entirely accurate, obviously. The only thing I can say is, again, the individual days that comprise the overall VIX index often have different profiles. Obviously, some days are better than others, but again, I'm certainly not going to say anything other than what's true and that the environment that continued into October is still a beneficial environment for us.

Rich Repetto – Sandler O'Neill

Yeah, I guess, my point would be that it just incrementally even different than beyond the September too. At least by, an outsider looking in at the VIX.

Tom Joyce

The VIX definitely went up and that created, obviously, more issues but one day, you can just imagine what the trading floor was like when the market was down 770 points one day. So, sometimes, there's too much of a good thing. But having said that, the overall environment is definitely September-esque. If not a hair better.

Rich Repetto – Sandler O'Neill

Understood. Thanks. And then, the next question is on Deephaven. You know, you talked about the risk redemptions and we see where the markets down dramatically in October and I guess, could you comment – are we seeing significant redemptions in October, I guess, is the question.

Tom Joyce

Right. Technically, you probably wouldn't see anything the end of individual – any individual month because it's a 90-day window. So, you tend to see things in the last week of the month, so literally speaking, not a whole lot going on on that front in October. Obviously, that doesn't mean there haven't been things going on in the past and, as you know, we don't get into specifics on redemptions and mostly, actually entirely, because we can't. We just are one of the securities, I know there's 33 or 34 that sort of bar us from giving too much information on the hedge fund. But having said that, we've certainly talked about it in the script. It's obviously an issue industry wide, so it's something that the management team at Deephaven is looking closely at and working on issues – working on resolutions to the various issues they're facing. Other than that, I really can't get into more specific detail.

Rich Repetto – Sandler O'Neill

Okay. And I should have known better on the redemption inner months. The last question, Tom, is – and this is follow on as well, but the big question investors are asking is on sustainability and you talked about it. I just – to get a little bit more clearer, because we're trying to divvy up what's volume volatility related versus structurally related. Could you go through, in your ballpark rough estimate, the upside – say an institutional – was that 70% from structural issues and maybe 30% as well as more on the retail side of the wholesale side as well?

Tom Joyce

With the caveat that you can never predict volumes, I think that the success we experience in picking up market share in September in the institutional side was very much a blend of fewer competitors and our business model. People like what they get here and they were drawn to it. So, I think that that will continue. And maybe going forward, we might get a little more wind in our sails from the somewhat reduced competitive environment. If you think a graniche [ph] is close, to used as one metric, you think graniche [ph] is closed on its $10 billion, roughly $10 billion wallet-size of commissions in the US institutional business, picking up one percentage point would be $100 million of commissions. I'm not saying we're going to pick up one percentage point over the next couple of years but I'm saying that it's available to be picked up. So we get 0.5% picked up or percent pick up, we think it's a meaningful opportunity for us on the institutional side. I hope I answered your question but that's what I was trying to (inaudible).

Rich Repetto – Sandler O'Neill

You did. And maybe one last – I lied – one last thing. This NYC volume in the third quarter, we got that at almost double, up 91%. Is that the NYC listed shares on daily average?

Tom Joyce

Let me just take a look at the numbers.

Rich Repetto – Sandler O'Neill

3Q versus 2Q.

Tom Joyce

Steve is looking at the stuff right now.

Steve Bisgay

It's about – I have it coming in roughly at about 80%.

Rich Repetto – Sandler O'Neill

Okay. My number must be off. But still strong growth. Anyway, congrats on a very strong quarter, Tom.

Tom Joyce

Thank you very much, Rich. And we think the listed stuff will be a trend that will continue. Thanks Rich.

Rich Repetto – Sandler O'Neill

Thanks.

Operator

We'll go next to Ken Worthington with JP Morgan.

Ken Worthington – JP Morgan

Hi. Good morning. I'd like to ask a little bit about cost. So, maybe first on Deephaven and what happens on the cost there? Assets are down, the funds on a blended basis are underwater. Are these things you can adjust on the cost side or maybe on the revenue side to improve chances that '09 is profitable, or is that kind of a lost cause at this point?

Tom Joyce

There's always something you can do. We would be hesitant to give you guidance on what '09 will look like, obviously. But, we are clearly focusing on the cost side because your observation that Deephaven is not living within its means, by how I define that as living within its management fee, is accurate. We collectively need to get that situation resolved. So, we're very focused on it, Ken, and the expense side of the issues up there is something that is being addressed as we speak.

Ken Worthington – JP Morgan

Thank you. And then, for Steve, for the entire company, the expenses, you can just give us a little more explanation on a couple of the lines. Professional, just a sequential change, professional fees down a bunch, DNA up a bunch. Even I can see an equipment [ph] another up a little bit. I know acquisitions probably has some component but can you just walk us through the sequential change so we can get a better sense of is there's any one-time items in there and what's truly a run rate.

Steve Bisgay

Sure. Happy to Ken. As far as taking it from the top, professional fees, they're certainly down quarter-to-quarter. I think that's really very much reflective of a quieter period in terms of the activity from working with the attorneys or outside of assets consultants in terms of what we did this quarter versus what we did last quarter. Last quarter, frankly, was a little bit of more than anomalous period and I think that the historic run rate, as we look back, is more in line with about a $5-$5.5 million run rate. That's what I would expect to be something to look for going forward as well.

In terms of depreciation, amortization, occupancy, you hit it directly on the head. That pertains mostly to our geographic expansion as we're building out. We only have fixed assets went up this quarter, as you probably took note, of about $12 million and of course there's some amortization, depreciation associated with that.

And finally, with the acquisition of Libertas, we did – we do have an intangible asset associated with that which does have an amortization period. So you would expect to see some amortization associated with that.

Ken Worthington – JP Morgan

And then, lastly, other same explanation?

Steve Bisgay

Other – there really – the difference other quarter-to-quarter, it's up a little bit but there's nothing specifically large that identify our call our at this point. I think, generally speaking, I think we're talking about overall growth in our business and expansion.

Ken Worthington – JP Morgan

Okay. Great. And then lastly, TJ, you gave us a little bit of color on Libertas but it seems it's like the best of all worlds for Libertas. Anymore information you can provide, like, did revenue double quarter-over-quarter? Can you even size how big the revenue is at Libertas at this point? Or you can just stick to the prior comments.

Tom Joyce

Unfortunately for you, I'm going to stick to the prior comments. We'll definitely give out more – we promised this for nine months, in our analyst meeting in a couple of weeks we're going to give out a little more detail on acquisitions in toto as opposed to individually. The only thing I'm going to say about Libertas is two things – one is that to beat the budget we expected, that's for sure. They had a good quarter. And secondly, there's nothing to reflect against prior quarters, of course, because they just joined us in July. So, they did a terrific job up there and the environment is right for their business model, we believe going forward.

Ken Worthington – JP Morgan

Thanks. Great, thanks. Worth a shot.

Operator

We'll go next to Niamh Alexander with ABW.

Niamh Alexander – KBW

Thanks, its KBW. Congratulations on the strong quarter. And my questions are mostly relating to sustainability with earnings and are there the revenue because it was so strong, we kind of sense that July and August were much more challenging and I guess, Rich has already addressed October. But, with regards to the retail or the wholesaling part of the business, is there anything you can share with me? Have you seeing kind of outsized [ph] level of – are you any kind of anyway, nervous that weekend investors are finally going to pull back because they've been pretty resilient to this bear market so far?

Tom Joyce

My nerves, I'm always nervous. To be completely honest with you. Historically, when you see high levels of activity, it's followed by quieter period. So I mean I'm not blind to that fact. It's hard to say when they might come again, to predict the volume is up. It's somebody else's game, not mine. That's just to hard to do.

But certainly, we're watching it closely and that's why we're trying to build new models, we're trying to be innovative in applying the trading algorithms that we have in one realm of our business into other realms as I mentioned. We're looking at non-Knight external flow for some of our algorithms to hopefully have success going forward. Certainly, they enjoyed success in the third quarter. So we are trying to, if you would, diversify a way from strict reliance on retail flow in applying our models into new and hopefully successful, other successful venues. So, we're cognizant of it. Obviously quarter to quarter to quarter, each quarter has a different trading profile and we get different trading results because there's a difference trading profile in the market. But we firmly believe that whether it's innovative products like Knight Link or applying trading algorithms that we'll build for one area into other newer areas that the momentum we've created is clearly sustainable.

Niamh Alexander – KBW

Okay. That's helpful. Thank you, TJ. And then, just quickly on the market share with regards to listed, it looks like Aura [ph] and also Voltec [ph] status shows you increased your listed share 50% q-on-q and then you, of course, benefited also from the volume. You mentioned you expect to keep the momentum but help me understand like what kind of a pace, if at all, you're aiming for. You think that's something you can continue to do for the next couple of quarters? Because you're so relatively small.

Tom Joyce

Well, listed – again, the listed story is a story of two businesses, the institutional business when we got here, nobody, least of all me, likes ancient history but in '02 when I got here, we did 98% institutional business in NASDAQ and 2% enlisted. Now, it's 50-50. It's actually a hair more 50-50, equally leaning towards listed. So, the street profile is about a 65-35 institutional blend of listed in NASDAQ, that's our goal. So, we believe that the institutional – that the listed business that an element of our institutional business is here to stay and will grow.

Obviously, there were certain circumstances within the month that may have weighted the numbers, in any given day, a different way. AIG, Fannie, and Freddie are all listed names. As you all know, AIG did a billion shares all by itself one day. So, there was definitely a little bit of a bias but the trend is secure and when you look back over the last few quarters, we've clearly increased our listed business quarter after quarter and expect to do so until it more closely replicates the industry's profile.

In terms of the broker-dealer business and dealing with listed – it's one of these mundane things that nobody paid attention to but in February of '07, we migrated a whole bunch of our trading technology so that trading NASDAQ and trading listed internally here was indistinguishable and, in point in fact, the tools that the NASDAQ traders had enjoyed for years were suddenly given to the listed traders and the broker-dealer business. So that, actually, was the beginning of the up tick and of course, I mentioned several times about the algorithmic models that we employed being fairly agnostic as to what kind of stock it trades. And, obviously, as a listed (inaudible) bigger by definition, the algorithms are going to intersect with more listed flow overtime.

Niamh Alexander – KBW

Okay, that's very helpful. I appreciate the color. Thank you. And just to move over, you have ample cash there. You bought back shares but I expect an acquisition opportunities, you probably seeing a lot more reasonable prices. You've made some deals already this year but the world has change so drastically. Help me understand maybe your priority in terms of businesses you might like to get into or might like to bold at the price is right?

Tom Joyce

Well, our theory still is to expand into new asset crosses where available. So, we'd always look to – if we could do three Libertases a year, we'd all be standing around giving each other high-fives all the time. That was a new asset class in a very successful foray into it. So we're looking at assets classes.

Concurrently, we look at ways to make the current operation more efficient. So, you are completely accurate in saying that prices are a much more interesting than they have been in the long time and we are keeping our business development group busy looking at things, frankly, but, we don't have a real big predisposition to do things. We like the model the way it is. We think there's a lot of organic growth opportunities. And while we are looking and will remain ready to serendipitously take a run at an interesting acquisition, we're unlikely to do so, frankly, and expect to continue to execute on the model we have in front of us.

Niamh Alexander – KBW

Okay, thanks. And then, just on that, we talked before about options market making. Is that still, if you did decide to get back into that, more like need to be an organic venture?

Tom Joyce

That would be definitely included under the expanding into new asset process and it is certainly an interesting opportunity for us. One with, we're chewing up a lot of grey matter thinking about.

Niamh Alexander – KBW

Okay. Thanks for taking my questions, TJ.

Operator

We'll move next to Mike Vinciquerra with BMO Capital Markets.

Mike Vinciquerra – BMO Capital Markets

Thank you. Good morning.

Tom Joyce

Hi, Mike.

Mike Vinciquerra – BMO Capital Markets

Just looking at your margins trying to make a kind of an apples to apples versus second quarter trying to figure out what your incremental margin was in the Global Markets business? If I add back the $5 million in incremental expenses for the build out, it looks like your incremental margin was about 42% – 43% on incremental revenue. Is that a reasonable kind of level we can think about in terms of changes in revenue at the Global Markets segment, or is there some other benchmark you can point us to as to what to expect?

Tom Joyce

Mike, I think that it's actually a little bit greater than that. One thing to consider when making an apples to apples comparison is in fact that in Q3, there's about a $2.5 million expense as a write-down as an intangible asset which I mentioned before. In Q2, hadn't had the benefit, the opposite effect had the benefit of a lease off adjustment was about $1.9 million. When you factor those two things in, you look at Q3 versus Q2 for the Global Market segment, the actual difference in margins is about 34% normalized for Q3 versus about 31% for Q2. So really it’s a difference. If you look at incremental margin, I think that's a better way to look at the comparison over those two periods.

Mike Vinciquerra – BMO Capital Markets

Okay. So it sounds like something actually in the high 40s in terms of incremental margins in the new revenue?

Tom Joyce

Yes.

Mike Vinciquerra – BMO Capital Markets

Okay. Thank you. And then on just one question on the NetDelta [ph] Tom. What's the tie end to kind of your current businesses. Is this a leverage point with the Libertas business or how do you plan to kind of get yourself into the trading schemes of the CDS traders themselves.

Tom Joyce

Good question and quite frankly, the platform is a settlement platform that is new. It's distinct really from anything we've done in the past. And just to clarify, Libertas is going to certainly look for ways to trade to bring clients together when trading CDSs or to see derivatives. But, ideally, they'll bring two clients together and then they'll set them and we'll going to settle this NetDelta in which point we pushed it off to the NetDelta settlement platform. So it's distinct and different from trading. It's actually an unbiased settlement platform that has we believe a lot of attraction for market makers as opposed to exchange model like. But it's not going to really get, it's not going to morph into a trading platform. It's going to stay in the settlement platform and your observation that it's different and not necessarily link to what we're currently doing is accurate.

Mike Vinciquerra – BMO Capital Markets

Okay. So it's more of a competitor maybe for the credit x platform where they try to compress trade and so forth and then eliminate some of the extra paper work annoyance.

Tom Joyce

There's a bunch of teasers and all that. There's a bunch of little, there are bunch or other segments of the CDS market that it touches. But I don’t think, obviously I'm biased, I don’t think that the solution out in the market that takes care of the entire life cycle of a CDS trade through creation settlement, risk management and the exit. I think it's different. We currently think it's better but we know there's other people competing in various segments of the CDS base for sure.

Mike Vinciquerra – BMO Capital Markets

Okay. That roll out as a couple quarters out on a full flush basis, probably.

Tom Joyce

Well, the move – the needle is a couple of quarters out. The roll out will be in this quarter. Obviously, it will be small, initially.

Mike Vinciquerra – BMO Capital Markets

Okay. Thank you.

Tom Joyce

Thank you.

Operator

We'll go next to Daniel Harris with Goldman Sachs.

Tom Joyce

Good morning, Dan.

Daniel Harris – Goldman Sachs

Good morning, TJ. When you look at the other revenues in the Global Markets business after you backed out sort of the core equity revenues, it looks like it was a very good quarter, something akin maybe to what we saw about a year ago. Can you, and I know that you're going to give a little more color in a couple of weeks at the analyst day, but can you sort of help me think about how much of that is from the new Europe business, if at all, and how much of it is from some of these other things, whether it's Libertas, which you've talked about, or Hotspot?

Tom Joyce

It's not about anything new in Europe. Europe is – the current Europe business has been pretty vibrant. So, they've been contributing for a while now. Moving trading algorithms to Europe hasn't taken place yet, so that's not contributing but obviously the voice business in Europe is contributed vitally. The other, if you will, in the revenue side, is Libertas at one point, Hotspot FX, all of which we will aggregate and then present in a couple of weeks.

Daniel Harris – Goldman Sachs

So, is it safe to say that none of them are significantly large enough, even near term that you would consider breaking them out.

Tom Joyce

That is safe to say and in point of fact, we will break them out when they become large enough to merit being broken out. But at this point, and I know I always fall behind the shield of competitive reasons and I'm going to stay behind that shield, they're just not big enough at this point to give over – to give too much detail on.

Daniel Harris – Goldman Sachs

Okay. And I think in the past, you guys have talked about the Global Markets business being – I think it was about a third electronic and two-thirds voice. How is that changed throughout the quarter with the ALPs continue to become or Knight Link being a bigger part of your business and I guess a lot of the algos taking a bigger share versus the voice brokers.

Tom Joyce

Voice and electronic are now neck to neck as they make the turn. It's about 50-50. So, obviously, the electronic contribution on a percentage basis has moved up. It's about 50-50 right now.

Daniel Harris – Goldman Sachs

Okay. Thanks. That's all. And then, just last thing. I just want to make sure I recall right. I think in the past you guys have talked about your VAR being roughly a million and I think today you said it was about 2 million a day. Over what time period has that moved up and is that just related to the amount of volume you're doing or are you taking slightly higher risk on the positions that you've bid historically.

Tom Joyce

If I said a million, I misspoke. It was about a million and a half for awhile, and now it averages around 2. That's not to say that it doesn't go to 3 or 4 in any given day, and maybe even 5, although I can't remember a day of 5, ever. And sometimes, it does drift back down to a million. So, the volatility, admittedly slight volatility, in the VAR has to do with mostly book size and, of course, the historic away [ph] – I mean, the way the VAR is created, looking back historically. Needless to say, we had a day recently when VAR was in the high 3s but it as right after that day when the market went down 700 points on the open and bounced all over the place.

The book size really hasn't changed except that the dynamic variables that you put into the calculations has changed. So, we definitely have a desire to keep it in and around 2. It has moved up over the last year, mostly because of changes in book size as oppose to a change in risk – a change in how we approach risk.

Daniel Harris – Goldman Sachs

Okay. And just want to double check – you said you did one day with $43 billion in average daily trading?

Tom Joyce

Yes.

Daniel Harris – Goldman Sachs

$42.20

Tom Joyce

A week or so ago. Couple of weeks ago.

Daniel Harris – Goldman Sachs

Wow, that's a big number. Thanks a lot guys. Great quarter.

Tom Joyce

Thanks Dan. Jessica, I think we only have time for one more question, if that's okay.

Operator

Okay. We'll go to Chris Allen with Banc of America Securities

Chris Allen – Banc of America Securities

Hey guys. Great quarter.

Tom Joyce

Morning Chris. Thank you.

Chris Allen – Banc of America Securities

Most of my questions have been answered. Just a one quick one. Obviously, with the change you're undergoing on the dealer side which seem to be that there's going to be opportunity for incremental market share gains over here. Is that a fair statement?

Tom Joyce

Yes. Again, I think there's at least 1 to 2 percentage points of market share available for us out there and we got to execute on it. But is it a $100 million opportunity? Yes, frankly, it is. Is the next quarter's opportunity? No. It's over a year or two because you've got to earn your stripes, obviously. But we definitely believe that that market share is available for us to go after over the next several quarters.

Chris Allen – Banc of America Securities

Got you. And would that also be somewhat true in areas like Libertas and Hotspot and some of there where the dealer's going to – I mean, obviously you're going to be reformally (inaudible).

Tom Joyce

Yes. It's probably less true in Hotspot because so many of the market makers – there seem market maker compression. Obviously, they're on the receiving end and if Bank of America and Merrill Lynch were making markets on Hotspot, well, and up to just the future, one of them will be making markets in Hotspot. So, Hotspot, while it's doing quite well, thankfully, it may see a contraction of dealers whereas the contraction of dealers where it's helped the equity business will help Libertas. If people aren't throwing a lot of balance sheet around to take you out of some stinky high-yield position, Libertas' model of putting together a buyer and seller directly without throwing a lot of balance sheet around and point of fact without throwing any balance sheet around, it will definitely resonate moving forward and we definitely think the environment that will help our equity – our institutional equity business grow will help Libertas continue to grow as well.

Chris Allen – Banc of America Securities

Great. Thanks a lot guys. Very nice quarter.

Tom Joyce

Thank you, Chris. Well, thank you all for your attention. We really appreciate it and before I sign off, just want to remind you once again that our annual analyst and institutional investor meeting is on November 3rd. That's a Monday. It starts at 10:30. And we hope – we hope you can make it. If you can't make it, the webcast is on knight.com. Certainly hope, one way or the other, you can all join us. Appreciate your attention today. Thank you very much and have a great day. Thank you.

Operator

That does conclude today's teleconference. We thank you for your participation and wish you a wonderful afternoon.

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Source: Knight Capital Group, Inc. Q3 2008 Earnings Call Transcript
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