NEW YORK May 16 Knight Capital Group is
close to settling a U.S. Securities and Exchange Commission
probe into the automated trading firm's Aug. 1 software glitch
that disrupted the equity markets and led to Knight's sale,
according to three sources.
Knight and the SEC have been negotiating a settlement for
around a month and are close to a deal, but the exact timing and
the amount of the fine are not yet clear, two of the sources
said on Thursday.
On Wednesday, another source pegged the settlement in the
A spokesman from the SEC declined to comment on Thursday.
Knight, which is being bought by Getco Holding Co for $1.4
billion, disclosed in November that it was being formally
investigated by the SEC as to whether the Jersey City, New
Jersey-based firm complied with rules and regulations such as
the "market access rule."
The market access rule requires brokers to put in place risk
control systems to prevent the execution of erroneous trades or
orders that exceed pre-set credit or capital thresholds.
In August, a software problem at Knight led to millions of
unintentional orders flooding into the market over a 45-minute
period, leaving the firm with a huge position it had to unload
at a loss of $461.1 million.
Following the glitch, Knight secured $400 million in rescue
financing - in exchange for a more than 70 percent stake in the
company - from a group of investors that included Chicago-based
Getco and was led by Jefferies Group Inc. Jefferies later helped
finance Getco's proposed acquisition of Knight.
The incident was one of several high-profile technology
problems that jolted the securities industry last year. Others
included the failed IPO of stock exchange BATS Global Markets,
and Nasdaq OMX Group's botching of Facebook's
The SEC announced a technology roundtable just two days
after the glitch, and former Chairman Mary Schapiro asked SEC
staff to speed up efforts to propose a rule that would set
industry-wide standards "to ensure the capacity and integrity"
of market systems.
New rules were proposed in March.
Aside from being a major market maker, matching equity
orders from buyers and sellers and providing liquidity, Knight
runs bond and foreign exchange trading platforms and owns a
reverse mortgage lender. It also holds a stake of about 20
percent in U.S. cash equities exchange Direct Edge.