Penson's Loss; Knight's Gain: New Futures Trading and Clearing Biz
Financially troubled trading and correspondent clearing firm Penson Worldwide continues to shed and wind down some core operations as part of a broad restructuring begun last year.
It has agreed to a $5 million cash deal to sell assets and liabilities of the futures trading and clearing business of Pension Financial Services to Knight Capital, including Penson Futures' exchange memberships, equipment and liabilities. Penson Financial Services is the trade execution and clearing subsidiary of Penson Worldwide, headquartered in Dallas. Knight will also pay Penson an earn out if the futures business meets financial targets over the course of three years after the deal closes, which is expected to occur by the end of June.
The sale of Penson Futures leaves Penson Worldwide with U.S. and Canadian securities subsidiaries as key remaining assets. Penson Futures will become a division of Knight Execution and Clearing Services when the deal is completed. Knight is among the biggest market makers in the U.S. stock market executing orders for individual investor sent by retail brokers. The takeover of Penson Futures will fill what Knight's Chief Executive Tom Joyce has called a strategic gap to lift its profile on futures exchanges. Knight says it will could end up forking over additional cash over the next three years depending on how well Penson Futures does financially.
Penson Worldwide does not break out the financials of Penson Futures, which provides futures trading, clearing and custody services to 60 brokers and non-clearing firms on U.S. and European futures exchanges. It also operates a trading platform for professional and individual traders. Futures positions and segregated funds, collateral, foreign exchange positions and margin will be transferred to Knight within a day after the takeover closes. Penson Futures is a member of the Chicago Board of Trade; the Chicago Mercantile Exchange; the Kansas City Board of Trade; London-based NYSE Euronext Liffe; the Minneapolis Grain Exchange, NYMEX, Comex; ICE Futures; ICE Clear Europe; OneChicago and LCH.Clearnet.
In May, Penson Worldwide disclosed it was "actively engaged in advanced discussions regarding strategic transactions" but did not cite any names. Penson has also won approval from the Financial Industry Regulatory Authority, the U.S. self-regulatory agency for broker-dealers, to borrow $5.5 million from Penson Financial Services to pay interest on corporate debt after a restructuring deal with debt holders fell through. Late last year, Penson sold its Australian clearing operations to Bank of New York Mellon subsidiary Pershing and shut down its British operations after failing to find a buyer.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)