May 16, 2013 / 8:47 PM / in 5 years

Knight near settlement on trading glitch probe: sources

NEW YORK (Reuters) - Knight Capital Group is close to settling a Securities and Exchange Commission probe into the automated trading firm’s August 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 “low millions.”

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 market debut.

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.

Reporting by John McCrank; Editing by David Gregorio

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below