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Knight Will Live to Fight Another Day: Pro

Thursday, 2 Aug 2012 | 2:24 PM ET

Just 24 hours after a debacle that transformed Knight Capital into the poster child for everything that’s bad about electronic trading, pros have started to wonder if the firm's future is in jeopardy, altogether.

As CNBC first told you yesterday, Knight Capital landed in the center of a nasty controversy after a so-called "technology issue" affected the way in which Knight routed about 150 stocks listed on the New York Stock Exchange.

The resulting loss is expected to total $440 million.

In this era of multi-billion dollar bailouts, that might not seem like much but according to the NYTimes, “the losses are greater than the company’s revenue in the second quarter of this year, when it brought in $289 million.”

In turn, speculation has turned from what went wrong to can Knight survive?

Top Sandler O’Neil bank analyst Richard Repetto tells us the loss will generate a need for cash. "They're certainly going to be pressed for capital. Given the size of their loss, that seems clear," he says.

But according to Repetto, whether Knight survives or not will largely come down to how well liked they are in the industry.

What Knight's Trading Glitch Means for You
Richard Repetto, Sandler O'Neill, offers his take on Knight Capital's trading glitch. Meanwhile Chester Spatt, former chief economist at the SEC; Douglas Kass, Seabreeze Partners Management; and Irene Aldridge, ABLE Alpha Trading, discuss whether machines are killing investor confidence in the markets.

“We don’t know how fast they're losing clients – versus how much business is still going to them right now. That's something only Knight knows.”

Although Repetto made it clear he wouldn’t invest in the stock on this thesis, gun to head, he’d bet that Knight customers stick with them.

“Ameritrade and Scott Trade have been sending flow to Knight for a decade – these players are very comfortable with Knight.”

In the spirit of ‘we all make mistakes’ Repetto thinks they give Knight a pass. “I think they will look at it as a one time glitch.”

And if they remain, then Repetto thinks Knight survives. "Hopefully they make it."

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* Ironically, Knight is no stranger to the issue of technology and its impact on Wall Street. Knight CEO Tom Joyce had been an outspoken critic of Nasdaq and the way they handled the bungled Facebook IPO. In fact, Joyce made some of his scathing comments on CNBC.

Click here to see our interview with Knight CEO Tom Joyce in June.

Posted by CNBC's Lee Brodie

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Trader disclosure: On August 2, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; ; Jon Najarian is long call spreads in GMCR; Jon Najarian is long call spreads in OCN; Jon Najarian is long call spreads in SBUX; Jon Najarian is long call spreads in YELP; Jon Najarian is long call spreads in MON; Jon Najarian is long put spreads in HPQ; Jon Najarian is long put spreads in KCG; Jon Najarian is long CME; Jon Najarian is long CBOE; Jon Najarian is long CIGX; Jon Najarian is long GLUU; Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long MCD; Stephanie Link is long DD; Stephanie Link is long GE; Brian Kelly is long SPY Puts; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU

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