Published November 14, 2012
The Securities and Exchange Commission has reportedly stepped up a probe into Knight Capital Group (KCG), focusing on the market maker’s risk-control procedures ahead of its $450 million trading glitch over the summer.
According to The Wall Street Journal, the probe has broadened from looking into just what caused the errors to the company’s risk-control procedures and compliance with the market-access rule, which requires brokerages to guard against these issues.
The deepening probe comes even as Knight Capital’s board voted in favor of a settlement with the SEC after preliminary conversations with the agency, the Journal reported. When Knight notified the SEC of the board approval in mid-October, the regulator didn’t respond, the paper said.
Last month Jersey City, N.J.-based Knight Capital disclosed a third-quarter loss of almost $400 million caused by $461.1 million in red ink tied to the August 1 trading glitch. The technical troubles spooked investors and nearly caused the collapse of Knight before a group of companied teamed up to prevent a bankruptcy filing.
The SEC is investigating whether Knight failed to adequately test its systems after installing code on computer systems before the trading glitch, the Journal reported.
The market-access rule mandates that brokers “assure that appropriate surveillance personnel receive immediate post-trade execution reports.”
Shares of Knight were inactive ahead of Wednesday’s open but have plummeted about 80% since the trading glitch.