BANGALORE - Electronic trading services provider Knight Capital Group Inc's quarterly profit fell short of expectations, as its trading income took a hit from lower market volatility and higher regulatory transaction fees, sending its shares down 18 percent.

The shortfall was driven by lower margins in global markets segment and higher brokerage and clearing fees from a larger number of low-priced trades/shares traded, analyst Daniel Harris of Goldman Sachs wrote in a note to clients.

Third-quarter net income was $29.2 million, or 31 cents a share, compared with $36.3 million, or 40 cents a share, in the year-ago period. Income from continuing operations was 32 cents per share.

Analysts expected the company to earn 39 cents a share, according to Thomson Reuters I/B/E/S.

We also saw some of our competition attempt to reassert itself...the end result was that payment for workflow increased, CEO Thomas Joyce said on a post-earnings call with analysts.

S&P Equity also cut its rating on the stock to hold from buy following the results.

Knight Capital's pretax income from global markets -- its larger segment -- fell 34 percent to $58.5 million.

For the third quarter, total revenue from continuing operations increased 25 percent to $299.9 million.

The company recorded a pretax cost of $1.9 million on discontinued operations, related to the wind-down of its asset management segment.

On the call with analysts, Chief executive Thomas Joyce said the company is seeing renewed competition in the market making space, where it competes with Citadel Investment Group and a unit of Citigroup Inc (C.N) among others. Knight Capital, the largest trader of U.S. shares by volume, recorded a 2 percent fall in shares traded in the U.S. equities markets.

The company, which is targeting per-share earnings of $3 by 2012, expects to see growth in the institutional equity business.

Commenting on potential regulatory reforms, the CEO said we feel very good about what the outcome is likely to be with the regulatory oversight that is coming our way.