KCG Profits Up Due to Hotspot Sale
May 11, 2015 Leave a comment
KCG Holdings Inc., the New Jersey-based financial services firm, reported significantly increased profits this quarter, thanks to the sale of Hotspot, their foreign exchange trading program. The program was sold to BATS Global Markets in March of this year for $365 million.
KCG’s board, which includes industry veteran Rene Kern, has been working to increase profits and streamline the company’s processes ever since it was created with the merger of financial services firm Knight Capital Group and high tech frequency trading firm Getco.
Daniel Coleman, KCG’s chief executive, admits that the combination of the two companies has been “tough,” but the newly combined organization is looking to come out on top. “We’re figuring out ways to bring a new firm to life, rather than shed vestiges of other firms,” Coleman said.
KCG’s new positioning is as a securities firm using high frequency trading technology to support and build on traditional trading services. Coleman is particularly interested in developing a new trading algorithm called Catch, designed to help clients buy and sell stock affordably.
Certainly KCG’s fourth quarter earnings are helping matters: They collected $26.5 million on a total revenue of $346 million. Net income rose to $2.19 per share from $0.30 per share from the comparable quarter last year. And they can continue to receive up to $70 million in additional consideration over three years, thanks to the tax arrangements involved in the BATS Global Markets deal.
Industry analysts note that most of KCG’s profit still comes from wholesale market making, which involves paying retail brokerages like Fidelity Investments and TD Ameritrade for the right to do retail stock trades.
As KCG stabilizes and finishes incorporating various merger-related changes, they will need to show further positive financial results and an ability to work in tandem with the ever-changing financial world. If financial gains like those from this quarter continue, it’s a goal KCG will likely be able to meet successfully.