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market maker

Knight Trading


and electronic-trading platform

Instinet Group

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( INET) eked out third-quarter profits as trading volume remained relatively high through a strong 2003 bull market.

Knight earned $23.6 million for the third quarter of 2003, or 20 cents a share, on revenue of $182.3 million, compared with a loss of $3.4 million, or 3 cents a share, on $120 million in revenue in the year ago period. The company had solid increases in both cash equity and options market-making trading. The company's asset management business is also growing and produced 7% of overall revenue. 22% of its earnings came from its Deephaven Funds subsidiary, meaning that analysts are now expecting significant performance from mutual fund management fees in addition to its traditional trading business. Analyst polled by First Call expected the company to earn 18 cents per share on revenue of $176 million.

While Knight reported profitable growth in domestic businesses, its international arm contributed very little to earnings and management warned that the entire company "has yet to pass the test under unfavorable market conditions." Management also warned that with increasing questions about market operations and oversight, there "remains a possibility for investors to become unsettled."

The stock is trading down 45 cents, or 3.3%, to $13.25, but is up a robust 166% for the year.

Instinet swung to a profit for the third quarter, earning $4 million, or a penny per share, on revenue of $272 million. In the year-ago quarter the company lost $2.05 a share on $254 million in revenue. Sequential revenue was down due to "lower average daily market volumes and reduced market share," management said. Trading volume was off 8% versus the second quarter and revenue was off 5% but the company managed to earn a penny on cost cuts after breaking even last quarter.

The stock is trading up 34 cents, or 5.8% to $6.12 and is up 33% for the year.

Neither company offered new guidance for full year earnings, but analysts are still expecting Instinet to post a full year loss of 1 cent per share while Knight is expected to earn 51 cents.