Knight Trading Expects Loss

Leading Nasdaq share dealer Knight Trading Group Inc. said Thursday that it expects to report a third-quarter loss because of the weak stock market, the four-day trading shutdown after the Sept. 11 terrorist attacks, and the switch to decimalization.

Knight has watched its profit erode this year amid the stock market slide and the shift to trading stocks in pennies rather than fractions. The once highflying Knight also has been forced to cut jobs in its U.S. stock business and its European operations.

Knight said it expects to report a loss of 2 cents per share to 4 cents per share, excluding a 3 cent per share write-down of excess real estate capacity, for the quarter.

Analysts were expecting Jersey City, N.J.-based Knight to post results Oct. 17 in a range of break-even to a profit of 8 cents per share, according to the analyst tracking firm Thomson Financial/First Call.

Nasdaq “market makers” such as Knight act as middlemen, pocketing trading spreads--the difference between how much a buyer and a seller think a stock is worth. Since the shift to pricing stocks in decimals instead of fractions, spreads on Nasdaq have narrowed by as much as 70% on the most heavily traded stocks, leaving market makers with literally penny profits on trades.

Knight reported a 94% drop in its second-quarter earnings, the first quarter of penny-trading for Nasdaq stocks. The company has already changed the way it charges some of its smaller customers in a bid to boost revenue.

Shares of Knight (NITE) rose 73 cents Thursday to $9.30 on Nasdaq, but they still are down 67% in the last year.