Getco, following its acquisition this week of Knight Capital, has completed the transformation from obscure high-frequency trading firm to a leading independent market maker and agency broker across geographies, market structures and asset classes.

Getco, which assumed Knight’s responsibilities as a designated market maker on the New York Stock Exchange during Knight’s highly-publicized trading glitch last summer which nearly caused its bankruptcy and also received a 15% stake in Knight in the process following its participation in saving the U.S. market maker from meltdown, is merging with Knight, a vital cog in the trading system, in a $1.8 billion deal in order to capitalize on Knight’s deep customer franchise and Getco’s technology platform.

“It creates a dominant market-making operation and a strong player in automated trading,” Sang Lee, principal at Aite Group, a consultancy, told Markets Media. “Getco is trying to get into more of the client-facing business through its brokerage arm, as is Knight, so the combination will be strong in that area as well.”

NYSE created the designated market maker category in recognition of the fact that electronic market making firms like Getco have assumed the mantle of principal providers of liquidity in today’s equities markets. Designated market makers are proprietary high-frequency trading firm that uses algorithms to make markets in designated stocks on the NYSE.

Getco, smaller in terms of employees than Knight but a better capitalized firm, oversees the trading of 896 companies on the NYSE and 156 companies on what was formerly the American Stock Exchange.

According to Getco, from June to August, it participated in 24.4% of all NYSE trading, provided 19.8% of all NYSE trading, and oversaw trading for 10 of the 30 stocks in the Dow Jones Industrial Average.

“Getco’s accomplishments are even more impressive if you consider that Knight Capital—then the fourth-largest NYSE designated market maker —almost went out of business after a software update last summer of their high-frequency trading algorithm created a crippling uncontrolled $440 million trading loss in a matter of hours,” said Niall O’Malley, managing director and portfolio manager at Blue Point Investment Management, an advisory, in a November letter commenting on the U.S. Securities and Exchange Commission’s equity market structure concept release.

Although the number of Getco employees is “quote modest at over 400, what is not modest is the company’s expanding political clout”, said O’Malley.

For example, Getco has hired Elizabeth King, former associate director of the SEC’s Trading and Markets Division. Getco’s advisors also include former Federal Reserve governor Randall Kroszner and former SEC chairman Arthur Levitt, O’Malley noted.

In a sign that the high-frequency trading market may be saturated, the percentage of the average daily number of shares traded in all U.S. stocks attributable to HFTs has declined from 61% in 2009 to 51% in 2012, according to capital markets consultancy Tabb Group.

However, this has not diminished the role of HFT, nor has it quieted the debate over whether it’s a positive or negative force for the market.

“While trading volumes associated with HFT may be falling, the significance of this market force cannot be underestimated,” said O’Malley.

“Calls to action range from a complete overhaul of the market and regulated defragmentation, to the reining in of dark pools and high-frequency trading,” said Miranda Mizen, principal of Tabb Group.

The SEC has taken actions designed to protect markets, such as the market access rule and circuit breakers, and others to improve understanding of the markets, such as large trader reporting and a consolidated audit trail. “To date, these are limited in terms of success and implementation,” said Mizen in a research note.

The SEC should “continue with the holistic review it began in 2010 with the concept release one equity market structure”, said Joseph Mecane, executive vice-president and head of U.S. equities at NYSE Euronext, at a Senate Banking Committee hearing on computerized trading held on Tuesday. “This unfinished imitative needs to be completed and made a 2013 priority.”

While HFT might have peaked, at least temporarily, in equities, it is surging in other asset classes, such as listed and OTC derivatives including FX, fixed income and commodities, which are seeing traction with electronic trading.

According to a survey by Streambase Systems, a provider of real-time analytics and complex-event processing software, in the FX space, the percentage of respondents using algorithms to execute FX trades has increased on both the buy and sell sides during 2012.

Among all respondents, there is a year-over-year 6% increase in the use of algorithms. About half of respondents now use algorithms in their FX trading and among these, 75% developed their algorithms internally, an 11% increase over 2011.

Among buy-side respondents, 48% use algorithms to execute FX trades, a 14% increase over 2011, with another 27% planning to do so in the future.

“FX algorithms are no longer used by a limited number of highly quantitative trading firms, but have been adopted by a wider range of buy-side participants,” the survey concluded. At the same time, “sell-side firms and trading platform providers have been vigorously revamping their core infrastructure and introducing new technologies to their clients”, it added.