JERSEY CITY, N.J., Oct. 17 /PRNewswire/ -- Knight Trading Group, Inc. (Nasdaq: NITE) today reported results for the third quarter ended September 30, 2001. Knight Trading Group is the leading market maker in equity securities listed on Nasdaq, the OTCBB of the National Association of Securities Dealers (NASD), and the over-the-counter market for New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) -listed securities. Knight also is a leading market maker in options on individual equities, equity indices and fixed income instruments in the U.S. and Europe. The firm also maintains an asset management business for institutional investors and high net worth individuals through its Deephaven Capital Management subsidiary.

Third Quarter 2001 vs. Third Quarter 2000

     *  30% decline in revenues       * 22%  decline in equity trades executed
     * 128% decline in net income     * 43%  increase in equity shares traded

Nine months ended 2001 vs. Nine months ended 2000

     * 48% decline in revenues        * 21% decline in equity trades executed
     * 89% decline in pro forma       *  5% increase in equity shares traded
       net income

                                              Third Quarter    Third Quarter
                                                   2001             2000

    Revenues ($)                               130,934,908      187,864,987
    Net income (loss)($)                        (5,675,844)      20,583,979
    Diluted EPS ($)                                  (0.05)            0.16
    Equity trades executed                      24,413,865       31,419,403
    Average daily equity trades                    413,794          498,721
    Equity shares traded                    31,421,957,193   21,921,940,076

                                                   YTD             YTD
                                                   2001            2000

    Revenues ($)                               522,388,591    1,005,591,976
    Pro forma net income ($)                    25,044,623      223,753,973
    Pro forma diluted EPS ($)                         0.20             1.76
    Equity trades executed                      86,395,218      108,774,261
    Average daily equity trades                    469,539          575,525
    Equity shares traded                    91,938,511,952   87,255,652,294

Knight's results were impacted by adverse market conditions during the quarter and four lost trading days following the tragic events of September 11, 2001. Revenues for the third quarter of 2001 declined 30% to $130.9 million, compared to $187.9 million for the third quarter of 2000. Net loss for the third quarter of 2001 totaled $5.7 million, or ($0.05) per share on a diluted basis, a 128% decrease from $20.6 million, or $0.16 per share on a diluted basis for the same period a year ago. The Company achieved pre-tax margins of (7.7)% in the third quarter of 2001, down from 18.4% in the third quarter of 2000. Return on equity for the third quarter of 2001, stated on an annualized basis, was (2.7%).

"Knight's first quarterly loss since its founding occurred during an unprecedented three months in both financial and American history," said Kenneth D. Pasternak, Chairman & Chief Executive Officer of Knight Trading Group. "First, a cyclical low in the equity markets was compounded by the traditional third-quarter seasonal low. Second, market participants were -- and are still -- adjusting to the major market structure issues brought about by the introduction of decimalization and the one-penny Minimum Price Variant in April 2001. And finally, the effects of the September 11th attacks were two-fold: they resulted in the four-day closure of the market, and a consequential dramatic decline in major market indices."

During the four days following the World Trade Center attack, Knight incurred expenses of approximately $0.02 per share that could not be offset by trading revenue due to the market's closure. Losses from international expansion efforts were $10.6 million, equivalent to $0.09 per share.

Non-operating charges in the third quarter were $6.6 million on a pre-tax basis, or $4.1 million on an after-tax basis, equivalent to $0.03 per share. These charges relate to the write-down of excess real-estate capacity.

The Company's market-making activity relating to options generated total net trading revenue of approximately $36.8 million during the third quarter of 2001, versus $23.1 million during the third quarter of 2000. Additionally, the Company's asset management business generated $10.5 million in asset management fees during the third quarter of 2001, up 5% from $10.0 million in the same period a year ago. This reflects an increase in new assets under management.

Knight built its original business on the growth in electronic brokers and the trend in self-directed investing in the U.S. From 1997 through 2000, the Company made substantial investments in technology, people and operations to meet the capacity needs of a booming equities market. In that time, the Company's revenues grew at a compounded annual growth rate of more than 66%, and equity trades executed increased at a compounded annual growth rate of more than 90%.

"Knight is adjusting to a new era that began in early 2001," Mr. Pasternak said. "When capital market activities came to an unexpected halt and growth and technology stocks fell out of favor, Knight started to right-size its business to reflect the suddenly stagnant market. These efforts continued through the third quarter, and today, we continue to review all aspects of our business, including real estate holdings, expenses and headcount. Our European operations are being scaled back to better reflect the current market environment."

Mr. Pasternak added, "While Knight is adjusting to these new market realities, we also are carefully planning for the future by maintaining and even growing our competitive positions. The scale, capacity and technology that made Knight a low-cost trade execution destination for broker-dealers are increasingly attractive to institutional investors in a market with new dynamics. Meanwhile, we are seeing consolidation and abdication among market participants in the U.S. as the one-penny MPV and decline in depth-of-book further commoditize the equities trading business. We continue to modify our trading algorithms to better price the liquidity we provide and to improve revenue capture per trade.

"Knight will remain focused on our objectives to protect our strong balance sheet, manage the Company for profitability, and maintain or increase our competitive position in equities, derivatives and asset management," Mr. Pasternak said. "While we expect to be a beneficiary of market consolidation, we will balance business opportunities with challenging business conditions, keeping efforts to increase our competitive position in proportion with our profitability objectives."

Knight is the liquidity center that offers superior execution services to its broker-dealer and institutional clients in over-the-counter (OTC) and listed equity securities, and in equity options. In so doing, Knight helps its clients meet their fiduciary obligation of obtaining best execution for the securities orders that they route on behalf of their customers. Knight also maintains an asset management business for institutional investors and high net worth individuals through Deephaven Capital Management LLC.

Knight has the power to commit capital for market orders and also maintains one of the largest limit order books in the OTC market. The Company has approximately 1,400 employees worldwide and is one of the largest destinations for stock orders placed via the Internet. Knight traded 112 billion shares in the year 2000, a volume behind only those posted by Nasdaq and the New York Stock Exchange (NYSE). Ultimately, Knight plans to enable its clients to trade all types of equity securities and options at any time, from anywhere in the world. More information about Knight can be obtained at http://www.knighttradinggroup.com.

Copies of this earnings release and other information on the Company can be obtained via the Internet at http://www.knighttradinggroup.com, or by calling the Company's toll-free investor information line at 1-877-INFO-NITE.

The matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the Company's control, which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed with respect to future periods. These factors include, but are not limited to, the Company's ability to implement its growth strategies, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, intellectual property rights, and other factors detailed in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission.

                          KNIGHT TRADING GROUP, INC.
                Consolidated Statements of Income (unaudited)

                           Three Months Ended         Nine Months Ended
                              September 30               September 30
                            2001         2000          2001         2000
    Revenues
    Net trading
     revenue          $103,035,435  $165,106,177  $425,520,038   $934,399,747
    Asset management
     fees               10,509,686    10,012,506    31,824,854     27,622,915
    Commissions
     and fees            9,648,640     5,876,668    36,580,089     22,306,668
    Interest and
     dividends, net      6,599,050     5,653,424    20,616,938     13,272,532
    Investment income
     and other           1,142,097     1,216,212     7,846,672      7,990,114
    Total revenues     130,934,908   187,864,987   522,388,591  1,005,591,976

    Expenses
    Employee compensation
     and benefits       53,636,003    57,307,783   191,969,605    334,792,813
    Payments for
     order flow         14,413,046    37,270,268    64,331,781    134,907,102
    Execution and
     clearance fees     26,645,135    24,475,966    86,790,180     83,615,566
    Communications and
     data processing    13,236,478     8,057,211    39,464,320     22,288,031
    Depreciation and
     amortization       10,620,019     7,375,100    31,210,749     17,091,498
    Occupancy and
     equipment rentals   4,143,809     5,404,623    13,740,835     12,811,955
    Business development 2,392,246     2,437,801     9,866,475     10,560,904
    Professional fees    3,681,321     5,844,373    12,855,597     16,483,145
    Other                5,658,935     5,175,687    15,862,694     12,076,468
    Loss on writedown
     of assets           6,624,056            --    18,195,569             --
    Total expenses     141,051,048   153,348,812   484,287,805    644,627,482

    Income/(loss) before
     income taxes
     and minority
     interest          (10,116,140)   34,516,175    38,100,786    360,964,494
    Income tax
     expense/(benefit)  (1,129,322)   14,109,959    20,409,297    136,470,415

    Net income/(loss)
     before minority
     interest           (8,986,818)   20,406,216    17,691,489    224,494,079

    Minority interest
     in consolidated
     subsidiaries       (3,310,974)     (177,763)   (7,353,134)      (177,763)

    Net income/(loss)  $(5,675,844)  $20,583,979   $25,044,623   $224,671,842
    Basic earnings
     per share              ($0.05)        $0.17         $0.20          $1.84
    Diluted earnings
     per share              ($0.05)        $0.16         $0.20          $1.77

    Pro forma adjustments:*
    Income before
     income taxes                                                $360,964,494
    Adjustment for pro forma
     employee compensation
     and benefits                                                    (267,109)

    Pro forma income
     before income taxes                                          360,697,385
    Pro forma income
     tax expense                                                  137,121,175
    Pro forma income
     before minority
     interest                                                    $223,576,210
    Minority interest in
     consolidated subsidiaries                                       (177,763)
    Pro forma net income                                         $223,753,973

    Pro forma basic
     earnings per share                                                 $1.83
    Pro forma diluted
     earnings per share                                                 $1.76

    Shares used in the
     computation of
     basic earnings
     per share *       123,998,269   122,661,830   123,711,607    122,350,107
    Shares used in the
     computation of
     diluted earnings
     per share *       125,168,828   126,565,409   125,845,652    126,930,997

• On January 12, 2000, Knight Trading Group, Inc. (the "Company") completed its merger with Arbitrade Holdings LLC ("Arbitrade"). The transaction was accounted for as a pooling of interests, and, as such, the historical financial statements have been restated to account for the merger on a retroactive basis. Pro forma adjustments for compensation and income taxes have been made to the historical financial statements of Arbitrade to adjust for partners' compensation paid as distributions of capital and income taxes, which were previously borne by the individual partners. The foregoing description of the Arbitrade transaction is a brief summary and is qualified in its entirety by reference to the Merger Agreement, a copy of which was filed as an exhibit to the Company's 8-K filed with the SEC on January 12, 2000. See also the Company's Report on Form 10-K for the year ended December 31, 1999.

                          KNIGHT TRADING GROUP, INC.
                Consolidated Statements of Financial Condition

                                               September 30,      December 31,
                                                   2001              2000
                                                (unaudited)
    ASSETS
    Cash and cash equivalents                   $337,320,671     $364,057,534
    Securities owned, held at
     clearing broker, at market value          1,653,654,486    1,799,966,679
    Receivable from clearing brokers             829,213,887      114,047,275
    Fixed assets and leasehold improvements
     at cost, less accumulated
     depreciation and amortization                94,470,960       79,014,393
    Goodwill, less accumulated amortization       46,437,217       45,239,177
    Investments                                   92,595,336       64,917,975
    Income taxes receivable                        8,798,842               --
    Other assets                                  48,684,447       54,166,139

    Total assets                              $3,111,175,846   $2,521,409,172

    LIABILITIES & STOCKHOLDERS' EQUITY
    Liabilities
     Securities sold, not yet
      purchased, at market value              $1,909,662,274   $1,427,214,323
     Payable to clearing brokers                 259,858,024      184,269,478
     Accrued compensation expense                 54,075,384       62,444,645
     Accrued execution and clearance fees          7,246,975        6,092,754
     Accrued payments for order flow               3,830,855       11,635,069
     Accounts payable, accrued expenses
      and other liabilities                       29,852,340       30,576,814
     Income taxes payable                                 --        4,813,771
       Total liabilities                       2,264,525,852    1,727,046,854

    Minority interest in
     consolidated subsidiaries                    24,433,777       20,175,872

    Stockholders' equity
     Class A Common Shares                         1,240,515        1,232,908
     Additional paid-in capital                  334,883,381      309,611,248
     Retained earnings                           490,981,414      465,947,294
     Unamortized stock-based compensation           (758,514)              --
     Accumulated other comprehensive
      income (loss) - foreign currency
      translation adjustments, net of tax         (4,130,579)      (2,605,004)

       Total stockholders' equity                822,216,217      774,186,446

    Total liabilities and
     stockholders' equity                     $3,111,175,846   $2,521,409,172

SOURCE Knight Trading Group, Inc.

CONTACT: Robert Turner, Executive Vice President, Chief Financial Officer and Treasurer, +1-201-557-6845, Margaret Wyrwas, Senior Vice President, Corporate Communications & Investor Relations, +1-201-557-6954, mwyrwas@knight-sec.com, Judy Pirro, Manager, Investor and Shareholder Relations, +1-201-356-1548, judy_pirro@knight-sec.com, or Kara Fitzsimmons, Manager, Corporate Communications, +1-201-356-1523, kara_fitzsimmons@knight-sec.com, all of Knight Trading Group, Inc./