We highlighted KCG Holdings (NYSE:KCG) 18 months ago as a then de-levered market-making business with improved positioning within the market. The company has been plagued by choppy volumes and high infrastructure costs, which have weighed on margins. We think the shares still represent a restructuring story with management needing to possibly rethink the entire business model. This could look like a much less labor-intensive business with a shifting to a broker/dealer model or even breaking up the company into pieces and selling.
The question for us is if the company can reach escape velocity from this low margin and low ROE box they've been stuck in for two years. They recently sold their Hotspot business to BATS, which...
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