“Given the rapid pace of trading in today’s markets and the potential massive impact of control breakdowns, broker- dealers must be held to the high standards of compliance necessary for the safe and orderly operation of the markets,” Andrew Ceresney, co-director of the SEC’s Division of Enforcement, said in the statement announcing the settlement.
“We are pleased to put the events that occurred at Knight Capital on Aug. 1, 2012, behind us,” Sophie Sohn, a KCG spokeswoman, said in an e-mail. “KCG is a new company formed from the transformational merger between Knight and Getco earlier this year. KCG is committed to employing best-in-class risk management processes.”
In a client letter seen by Bloomberg News, KCG outlined the changes it has made to address some of the shortcomings highlighted by the SEC. The firm now has a 24-hour risk management center with staff from all its units, automated alerts, stronger testing and certification to ensure it complies with market access rules, and a chief risk officer, KCG Chief Executive Officer Daniel Coleman told clients in the message.
“We have developed and implemented a layered system of automated controls to monitor trading at numerous junctures within the system and automatically shut down trading activity at predetermined thresholds,” he wrote.
While today’s action is the SEC’s first under the market access rule, it will be an important area of enforcement in the future, Ceresney told reporters during today’s conference call.
“Investors should know that we will enforce the market access rule vigorously,” he said. “Companies must have controls in place to guard against mistakes and the consequences of such mistakes.”