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CNBC TRANSCRIPT: KNIGHT CAPITAL CHAIRMAN AND CEO THOMAS JOYCE ON CNBC’S “SQUAWK ON THE STREET”

Jennifer Dauble
Monday, 6 Aug 2012 | 11:27 AM ET

WHEN: MONDAY, AUGUST 6TH

WHERE: CNBC’S “SQUAWK ON THE STREET

Following is the unofficial transcript of a CNBC interview with Knight Capital Chairman and CEO Thomas Joyce today on CNBC’s “Squawk on the Street.” Following is a link to the video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000107449&play=1.

All references must be sourced to CNBC.

Knight Capital CEO: What Went Wrong

PISANI: WE ARE INDEED, OF COURSE THIS BEAUTIFUL TRADING FLOOR IN JERSEY CITY. TOM JOYCE CEO JOINS US. YOU KEPT THE FIRM TOGETHER TOM. AN AMAZING WEEKEND FOR YOU. SO YOU KEPT IT TOGETHER A LOT OF PEOPLE THINK YOU COULDN’T DO IT A LOT OF PEOPLE THOUGHT YOU MIGHT HAVE TO SELL THE FIRM PIECEMEAL. THAT’S NOT GOING TO HAPPEN ON THE OTHER HAND YOU HAVE A LOT OF NEW INVESTORS THAT NOW EFFECTIVELY OWN 75% OF THE COMPANY. ARE YOU CONFIDENT THIS WAS THE BEST DEAL YOU COULD MAKE UNDER THE CIRCUMSTANCES?

JOYCE: ABSOLUTELY, BOB. YOU KNOW, THE FLATTERING THING IS HOW THE INDUSTRY RESPONDED TO US. THE WILDLY FLATTERING THING WAS HOW OUR CLIENTS RESPONDED TO US BECAUSE A LOT OF THE INCOMING PHONE CALLS CAME FROM OUR CLIENTS WHEN WE WERE UNDER STRESS LAST WEEK. SOOVER THE COURSE OF THE WEEKEND BETWEEN CLIENTS AND OTHER INTERESTED PARTIES WE HEARD FROM A LOT OF PEOPLE, AGAIN, VERY FLATTERING. AND WE BROUGHT TO OUR BOARD A FEW IDEAS, WE WIDDLED DOWN THE BEST ALTERNATIVES AND THE BOARD THOUGHT ABOUT IT LONG AND HARD. WE HAD MANY DISCUSSION. I FEEL VERY CONFIDENT AND I THINK THE BOARD FEELS CONFIDENT WE MADE THE RIGHT CHOICE FOR THIS FIRM.

PISANI: FLESH THIS OUT MORE FOR US. MY UNDERSTANDING IS THAT YOU HAD OVER 90 PEOPLE CALLING YOU IN THE COURSE OF THE LAST THREE DAYS MAKING OFFERS OF ONE KIND OR ANOTHER. CAN YOU CONFIRM THAT. FLESH THIS OUT A LITTLE BIT MORE. WHO WAS INTERESTED, WHO DROPPED OUT?

JOYCE: SURE. I WILL CONFIRM IT WAS A BIG NUMBER.

PISANI: WAS IT 90 OR HIGHER?

JOYCE: YEAH. IN THE NEIGHBORHOOD. IN THE NEIGHBORHOOD. IT WAS A BIG NUMBER. AND IT WAS ALL TYPES OF PEOPLE. IT RAN THE SPECTRUM FROM PRIVATE EQUITY INVESTORS TO OF COURSE CLIENTS WHO SHOWED UP TO SOME STRESSED INVESTORS, JUST SOME STRATEGIC INVESTORS WHO SAW SOME ASSETS THAT THEY THOUGHT MIGHT BE INTERESTING. SO WE HAD TONS OF INQUIRY ACROSS A WIDE SPECTRUM OF IDEAS. I'M CONFIDENT WE SETTLED ON THE BEST SOLUTION FOR OUR COMPANY.

PISANI: IT’S A COMPLIMENT CERTAINLY TO YOUR ABILITY AND HOW YOU BUILT THIS FIRM THAT YOU GOT 90 INVESTORS, 90 PEOPLE INTERESTED. ON THE OTHER HAND WHAT DO YOU SAY TO THE OLD INVESTORS WHO LOST A LOT OF MONEY INCLUDING SOME VERY BIG ORGANIZATION THAT ROUTE ORDERS TO YOU. WHAT DO YOU SAY TO THOSE OLD INVESTORS? CLEARLY WE'RE NOT HAPPY WITH HOW IT ALL PLAYED OUT. WE TAKE A LOT OF PRIDE IN HOW WE TREAT OUR CLIENTS. IT WAS A VERY BIG MISTAKE THAT OCCURRED WEDNESDAY MORNING. BUT THE MOST IMPORTANT THING IS WE GOT OUR CLIENTS OUT OF THE WAY. WE MADE THE MISTAKE, THE MISTAKE HIT US. FORTUNATELY WE WERE CAPITALIZED ENOUGH TO HAND TELL MISTAKE. NOW WE REVAMPED THE CAPITAL STRUCTURE. SO WE'RE IN ARGUABLY BETTER FINANCIAL SHAPE THAN WE WERE MAYBE A WEEK AGO. BUT THE MOST IMPORTANT THING IS WE WERE LOOKING OUT FOR OUR CLIENTS IN A MOMENT OF STRESS. THERE WAS A PROBLEM. WE TOOK THE CONSEQUENCES. NONE OF OUR CLIENTS TOOK THE CONSEQUENCES. AND IMPORTANTLY THE INDUSTRY DIDN'T SUFFER.

PISANI: CAN YOU BRIEFLY FLESH OUT A LITTLE BIT MORE WHAT EXACTLY HAPPENED. I KNOW YOU TALKED ABOUT SOME DIFFICULTY INTERFACING WITH A PROGRAM AT THE NEW YORK STOCK EXCHANGE. WAS THAT IT? WAS THERE SOMETHING MORE TO THAT?

JOYCE: THERE WASN'T ANY MORE TO IT. SADLY IT WAS A VERY SIMPLE BREAK DOWN, A LARGE BREAK DOWN BUT A VERY SIMPLE BREAK DOWN. IT WAS AN ISSUE WITH TRADING TECHNOLOGY. YOU CAN BE SURE RIGHT NOW WE'RE DOING AN INTERNAL INVESTIGATION TO IDENTIFY WHAT TRULY HAPPENED. WE CAN SOURCE THEN THE FACTS BEHIND IT. YOU PROBABLY ARE NOT GOING TO BE SURPRISED TO LEARN THAT SINCE THAT LARGE MISTAKE WEDNESDAY MORNING WE'VE BEEN FOCUSED ON A COUPLE OF OTHER THINGS RATHER THAN SIMPLY A POST MORTEM. WE'LL BE IN THE POST MORTEM QUICKLY AND WE’RE GOING TO COME OUT WITH SOLUTION US AS TO HOW WE CAN ENHANCE THE SYSTEM AND ENVIRONMENT HERE.

PISANI: INDEPENDENTLY OF THE PROBLEM ITSELF, THERE WAS A SEPARATE ISSUE ABOUT WHY IT TOOK SO LONG TO TURN THE THING OFF. I WAS STANDING ON THE FLOOR AT 9:30, 9:31 THERE WERE ALREADY PEOPLE SAYING SOMETHING IS WRONG. 9:35 PEOPLE WERE YELLING AT EACH OTHER ON THE FLOOR. AND YET APPARENTLY THIS RAN FOR HALF AN HOUR ESSENTIALLY. WHAT TOOK SO LONG TO TURN IT OFF?

JOYCE: WELL, AGAIN, WE'RE GOING TO START – WELL WE'VE STARTED THE INVESTIGATION. WE'LL KNOW MORE AS WE GO ALONG. THE MOST IMPORTANT THING TO ME RIGHT NOW IS THAT WE GOT OUR CLIENTS OUT OF THE WAY. THERE'S NOTHING ABOUT THIS ERROR THAT MAKES US VERY HAPPY. BUT THE ONE PIECE OF PRIDE WE CAN TAKE IN THAT IS THAT WE LIMITED IT TO US, OUR PROBLEM, OUR SUFFERING CLIENTS IMMUNIZED AGAINST ANY ISSUES

PISANI: SO SAY YOU'RE DOING AN INTERNAL INVESTIGATION. DO WE NEED MORE REGULATION, MORE SYSTEMWIDE STANDARDS DO, WE NEED, FOR EXAMPLE, WE HAVE PRICE BASED CIRCUIT BREAKERS. DO WE NEED VOLUME BASE CIRCUIT BREAKERS THAT SAYS IF KNIGHT SENDS OUT AN AVERAGE OF 1,000 TRADES A SECOND AND THEN SUDENTLY IT GOES 25,000 TRADES A SECOND THE SYSTEM SHOULD EITHER SHUT DOWN OR GO SLOW? DO YOU NEED DEVELOP THAT OR DOES THE INDUSTRY OR THE S.E.C. WHAT NEEDS TO HAPPEN?

JOYCE: THERE CERTAINLY SHOULD BE A LOT OF ATTENTION FOCUSED ON HOW WE CAN ENHANCE THE TECHNOLOGY. WHAT WE NEED TO REMEMBER IS THAT THE S.E.C.'S JOB, THE REGULATORS JOB AND THIS IS HARD FOR ME TO SAY THIS, THE REGULATORS JOB IS NOT TO SAVE KNIGHT CAPITAL GROUP. THE S.E.C.'S JOB IS TO MAKE SURE THERE'S NO SYSTEMIC RISK TO THE INDUSTRY. AND YOU KNOW WHAT? THEY DID THEIR JOB. NOW YOU CAN ARGUE THAT IT MIGHT HAVE BEEN A LITTLE BETTER THIS WAY OR THAT WAY BUT AFTER THE FLASH CRASH OF MAY IN 2010 THEY PUT IN THINGS LIKE CIRCUIT BREAKERS. THEY CHANGED THE WAY YOU HANDLE SHORT SALES AND THEY DID THINGS WITH NAKED ACCESS. THE S.E.C.'S JOB IS TO PREVENT A SYSTEMIC RISK TO THE CAPITAL MARKETS. THEY DID THEIR JOB IN ADMIRAL FASHION.

PISANI: WOULD YOU SUPPORT ADDITIONAL RULES? WHAT SOMETHING DOES NEED TO BE DONE TO TIGHTEN UP THE TECHNOLOGY IN SOME WAY. WOULD YOU SUPPORT ADDITIONAL RULES THAT FOR EXAMPLE VOLUME BASED RULES TRANSACTIONS?

JOYCE: I'LL SUPPORT ADDITIONAL RULES ONCE WE HAVE THE DATA AROUND WHICH TO CRAFT ADDITIONAL RULES AND WE'LL HAVE A LOT MORE DATA ONCE OUR INVESTIGATION IS COMPLETE.

PISANI: LET ME MOVE ON. THERE'S A STORY IN THE "WALL STREET JOURNAL" THAT YOU SPOKE WITH MARY SHAPIRO AND THE NEW YORK STOCK EXCHANGE ASKING THEM TO CANCEL ADDITIONAL TRADES, IN ADDITION TO THE TRADES THE SIX STOCKS THAT WERE ALREADY DECLARED CLEARLY ERRONEOUS. CAN YOU FLESH THAT OUT FOR US CONFIRM YOU SPOKE TO HER AND WHAT DID YOU SAY TO HER?

JOYCE: WE DON'T OFTEN REGALE OTHERS WITH CONVERSATIONS WE HAVE WITH OUR REGULATORS. BUT I'LL CONFIRM WE WERE IN DISCUSSIONS WITH THE S.E.C. I DID SPEAK WITH CHAIRMAN SHAPIRO. WE HAD A FRANK DISCUSSION. AND SHE DID WHAT SHE THOUGHT WAS RIGHT FOR THE INDUSTRY. AND I HAVE TO APPLAUD HER FOR HER DECISION. I'M KIND OF BIASSED. I WISH SHE MADE A DIFFERENT DECISION BUT SHE THINKS SHE MADE THE RIGHT DECISION FOR THE INDUSTRY AND I HAVE TO SUPPORT HER IN THAT.

PISANI: BUT AFTER THE FLASH CRASH THE S.E.C. TIGHTENED THE RULES FOR DEFINING WHAT WAS CLEARLY ERRONEOUS. DO YOU THINK AN EXCEPTION SHOULD

BE MADE IN YOUR CASE. I KNOW THE NYSE KEPT BY WHAT THEY THOUGHT WAS THE RULES AT THIS TIME.

JOYCE: AGAIN I’M KINDA BIASED. THIS WAS AN ERROR BY ANY DEFINITION THIS WAS AN ERROR. SO WE WOULD HAVE LIKED TO SEE MORE FLEXIBILITY IN HOW THEY RESPONDED TO THE ERROR. BUT I APPRECIATE THEIR RESPONSE AND I HAVE TO RESPECT THEM FOR IT.

PISANI: NOW, WE KNOW SCOTT TRADE AND AMERITRADE ARE NOW ROUTING ORDERS BACK TO YOUR ORGANIZATION. WHAT ABOUT THE REST, HAVE YOU HEARD FROM VANGUARD. IS EVERYBODY BACK ON BOARD OR WHERE ARE WE ON THAT PROCESS?

JOYCE: MARKETS JUST OPENED. SO I CAN'T TELL YOU EXACTLY WHO IS ROUTING TO WHOM RIGHT NOW BUT WE'VE HAD AN UNBELIEVABLE OUTPOURING OF SUPPORT FROM OUR CLIENTS. SO I DON’T KNOW WHO IS ROUTING RIGHT NOW AT 9:39 OR WHATEVER TIME IT IS BUT I HAVE EVERY CONFIDENCE OVER THE NEXT SEVERAL DAYS OUR CLIENT BASE WILL RESPOND WITH ORDER FLOW LIKE THEY RESPOND WITH SUPPORT LATE LAST WEEK.

PISANI: THE STOCKS HALTED RIGHT NOW I BELIEVE IS THAT CORRECT?

JOYCE: EVERYTHING HALTED A LITTLE AFTER 9:00 FOR NEWS PENDING. I THINK THIS WAS THE NEWS THAT WAS PENDING.

PISANI: LET’S JUST TALK ABOUT, BEFORE WE LET YOU GO THERE'S ALREADY CALLS FOR A CONGRESSIONAL INVESTIGATION AND A LOOK AT THIS. HAVE YOU HAD CALLS FROM CONGRESS, HAVE YOU HAD ANY INTERACTIONS WITH CONGRESS OVER THIS.

JOYCE: NO I HAVE HAD NO INTERACTION WITH CONGRESS ON THIS. AGAIN THIS IS AN ISOLATED SITUATION. WE SCREWED UP. WE PAID THE PRICE. I'M NOT GOING TO SPEAK FOR OUR CONGRESS PEOPLE BUT I WOULDN'T KNOW WHY YOU NEED A CONGRESSIONAL INVESTIGATION INTO THIS. IT'S KINDA STRAIGHTFORWARD. WE MADE AN ERROR AND WE PAID THE PRICE.

PISANI: BEFORE WE LET YOU GO YOU'RE ONE OF THE MOST RESPECTED MEN ON WALL STREET. I'VE KNOWN YOU ALMOST 15 YEARS AND EVERYBODY, EVERYBODY HAS SOMETHING POSITIVE TO SAY ABOUT YOU. BUT YOU TOOK YOUR REPUTATION TOOK A HIT HERE. HOW DO YOU FEEL PERSONALLY ABOUT YOUR REPUTATION AND WHAT, IF ANYTHING, BEYOND WHAT YOU'RE DOING NOW ARE YOU GOING TO DO TO MAKE SURE THAT BRAND NAME TOMMY JOYCE IS STILL THE TOP QUALITY NAME THAT PEOPLE ALWAYS ASSOCIATE WITH IT.

JOYCE: YOU'RE VERY FLATTERING BY THE WAY. VERY NICE THINGS YOU JUST SAID. I THINK REPUTATION IS CRAFTED OVER A PERIOD OF TIME AND REPUTATIONS ARE ESTABLISHED BY ONE'S ACTIONS. SO, I GUESS THE ACTIONS WE HAVE TAKEN AND ACTIONS WE WILL TAKE IN THE FUTURE WILL DETERMINE WHETHER PEOPLE HAVE A HIGH OR LOW OPINION OF ME. I CAN TELL YOU THIS, WE'RE GOING TO DO OUR BEST TO RESTORE KNIGHT TO WHAT IT WAS. OUR FINANCIAL FOOTING IS ARGUABLY BETTER THAN IT WAS. AS FAR AS I'M CONCERNED IT'S BUSINESS AS USUAL AT KNIGHT CAPITAL GROUP.

PISANI: MELISSA LEE HAS A QUESTION FOR YOU. MELISSA, GO AHEAD.

LEE: TOM THANKS FOR COMING ON "SQUAWK ON THE STREET." YOU HAD MENTIONED THE FLASH CRASH AS ONE OF THE EXAMPLES OF TECHNICAL GLITCHES. CERTAINLY THE FACEBOOK IPO IS ANOTHER. AND YOU CAME OUT SWINGING ON THIS VERY PROGRAM OF BLAMING THE NASDAQ. YOU SAID FIRST OF ALL I WANT TO POINT OUT THIS WASN'T IN ANY WAY SHAPE OR FORM AN INDUSTRY FAILURE. THE FAILURE WAS NASDAQ'S. IT WAS NASDAQ'S FAILURE. NOW THAT YOU'RE ON THE OTHER SIDE OF THIS WERE YOU BEING TOO HARSH AT THAT POINT. GIVE US YOUR THOUGHTS. BECAUSE THAT WAS THE FIRST THING. WE HEARD ABOUT THE GLITCH. REMEMBER BACK TO WHEN YOU WERE HERE ON THIS SET, POINTING A FINGER AT THE NASDAQ.

JOYCE: WELL, I WOULD LIKE TO JUST PUT IT IN PERSPECTIVE. WE SCREWED UP LAST WEDNESDAY. KNIGHT CAPITAL GROUP SCREWED UP LAST WEDNESDAY. AND KNIGHT CAPITAL GROUP PAID THE PRICE. NASDAQ SCREWED UP ON THAT FRIDAY AND THE INDUSTRY PAID THE PRICE. SO I THINK IT'S DIFFERENT. I'M NOT PROUD OF WHAT HAPPENED LAST WEDNESDAY BY ANY STRETCH BUT I'M PROUD OF OUR RESPONSE AND HOW WE DISCUSSED IT, HOW WE COMMUNICATED AND HOW WE PROTECT PROTECTED OUR CLIENTS.

FABER: MR. JOYCE, DAVID FABER, REAL QUICKLY I’D JUST LOVE TO KNOW WHAT YOU TELL SHAREHOLDERS AT THIS POINT. THERE ARE SOME WHO SAY WAIT A SECOND YOU JUST SOLD CONTROL OF THE COMPANY FOR $1.50 A SHARE AND WE DIDN'T GET A CHANCE TO VOTE OR ANY OTHER VOICE IN THIS. HOW DO YOU EXPLAIN THIS TRANSACTION TO THEM WHEN AT LEAST THEY ARE LOOKING AT IT SAYING YOU MASSIVELY DILUTED US AND WE DIDN'T HAVE A VOICE IN ANYTHING HAPPENING HERE.

JOYCE: THE ONLY REASON THERE WAS A LACK OF AN OPPORTUNITY TO GET TO OUR SHAREHOLDERS TO GIVE THEM A VOICE IS BECAUSE THE COMPANY WAS UNDER GREAT STRESS AND THE NEW YORK STOCK EXCHANGE HAS RULES THAT DEAL EXACTLY WITH THE SITUATION WHEN COMPANIES ARE UNDER GREAT STRESS. SO WE HAVE THE BEST ADVISORS. I HAVE TO TELL YOU WHEN IT COMES TO INVESTMENT BANKING THERE CAN'T BE TWO BETTER FIRMS OUT THERE THAN JEFFRIES AND SANDLER. THEY STOOD UP WITH US. THEY WERE HERE WITH US EVERY STEP OF THE WAY. THEY GAVE US GREAT ADVICE AND THE BOARD GREAT ADVICE. SO WE RECAPITALIZED THE COMPANY IN A MOMENT OF STRESS AND THAT’S WHY WE DIDN’T HAVE A CHANCE TO COMMUNICATE AS WELL AS WE WOULD HAVE LIKE TO TO OUR CURRENT SHAREHOLDERS. ANOTHER THING YOU MIGHT WANT TO POINT OUT, DAVID, IS WEDNESDAY, THURSDAY AND FRIDAY I THINK WE TRADED SOMETHING LIKE 600 MILLION SHARES OF STOCK OVER THAT PERIOD OF TIME. FOR A COMPANY THAT HAD ABOUT 90% OF ITS SHARE HOLDINGS HELD IN INSTITUTIONAL HANDS ON TUESDAY AFTERNOON. THAT WAS A MASSIVE TURNOVER. SO AT THIS POINT I'M KIND OF CURIOUS WHAT OUR SHAREHOLDER BASE LOOKS LIKE GIVEN ALL THE TURNOVER.

FABER: THAT'S A VERY GOOD POINT. YEAH.

PISANI: GOOD POINT. TOMMY, WE HAVE TO LET YOU GO. BEFORE WE LET YOU GO HOW ARE THE KNEES DOING. THIS MAN HAD KNEE SURGERY THE DAY BEFORE. CAME IN HERE ON CRUTCHES. I HAVE TO SAY YOU ARE BENDING THE KNEES ALRIGHT. HOW ARE YOU FEELING?

JOYCE: THE KNEE IS BENT BUT IT DOESN'T BEND FREELY. WE'RE STILL WORKING ON IT. MY DOCTOR IS IRRITATED WITH ME.

PISANI: AT LEAST YOU'RE HERE AND WE APPRECIATE YOU BEING HERE. TOM JOYCE THANK YOU VERY MUCH. GUYS, BACK TO YOU.

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