Virtu Financial agrees to buy KCG Holdings

High-frequency trading firm Virtu Financial agreed to acquire securities trading company KCG Holdings for $1.4 billion, both companies announced Thursday.

The deal values KCG at $20 per share, above the $19.73 at which KCG traded midmorning Thursday.

The deal is expected to close in the third quarter, pending approval of KCG shareholders and regulators.

Virtu expects to combine KCG's trading with its technology, risk management and analytics platform and will retain the Virtu brand, according to a presentation by Virtu's investor relations unit.

Douglas A. Cifu, Virtu's CEO, will retain that role at the combined firm. The future status of KCG CEO Daniel Coleman at the combined firm was not known; officials at KCG could not be immediately reached for comment.

KCG was created in 2013 from the merger of Knight Capital and GETCO, after a computer glitch at Knight in August 2012 cost the company as much as $460 million in erroneous trading orders.

Since then, KCG sold its institutional spot foreign-exchange network Hotspot FX to Bats Global Markets in January 2015 for $365 million in cash. Bats itself was acquired by CBOE Holdings, the parent company of the Chicago Board Options Exchange, for $3.2 billion in stock and cash in a deal that closed March 1.

Virtu issued an initial public offering of its stock in April 2015, raising $314 million. Last August, the firm announced it will provide J.P. Morgan Chase with technology and market access to help the bank trade in U.S. Treasuries.

Virtu will receive $1.65 billion in debt financing from J.P. Morgan Securities to fund the transaction, according to the Virtu presentation. Also, private equity firm North Island will invest $625 million in Virtu common stock. The $625 million includes unspecified investments from the $300 billion sovereign wealth fund GIC, Singapore, and PSP Investments, which manages the C$125.8 billion ($94.4 billion) in assets of the Public Sector Pension Investment Board, Ottawa.

Temasek, Singapore's state-owned money manager and an existing Virtu shareholder, will invest an addition $125 million in Virtu common stock.