{"id":38670,"date":"2013-10-16T12:45:34","date_gmt":"2013-10-16T16:45:34","guid":{"rendered":"http:\/\/www.hedgeco.net\/news\/?p=38670"},"modified":"2013-10-16T12:45:34","modified_gmt":"2013-10-16T16:45:34","slug":"sec-charges-hedge-fund-with-violations-of-market-access-rule","status":"publish","type":"post","link":"https:\/\/hedgeco.net\/news\/10\/2013\/sec-charges-hedge-fund-with-violations-of-market-access-rule.html","title":{"rendered":"SEC Charges Hedge Fund With Violations of Market Access Rule"},"content":{"rendered":"

\"images\"<\/a>New York (HedgeCo.Net) – In\u00a0the SEC\u2019s first enforcement action under the market access rule, which was\u00a0adopted in 2010\u00a0as Rule 15c3-5.\u00a0The SEC has alleged that hedge fund trader Knight Capital Americas LLC has agreed to pay $12 million to settle charges that it violated the agency\u2019s market access rule in connection with the firm\u2019s Aug. 1, 2012 trading incident that disrupted the markets.<\/p>\n

An SEC investigation found that Knight Capital did not have adequate safeguards in place to limit the risks posed by its access to the markets, and failed as a result to prevent the entry of millions of erroneous orders.\u00a0 Knight Capital also failed to conduct adequate reviews of the effectiveness of its controls.<\/p>\n

\u201cThe market access rule is essential for protecting the markets, and Knight Capital\u2019s violations put both the firm and the markets at risk,\u201d said Andrew Ceresney, co-director of the SEC\u2019s Division of Enforcement.\u00a0 \u201cGiven the rapid pace of trading in today\u2019s 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.\u201d<\/p>\n

According to the SEC\u2019s order, Knight Capital made two critical technology missteps that led to the trading incident on Aug. 1, 2012.\u00a0 Knight Capital moved a section of computer code in 2005 to an earlier point in the code sequence in an automated equity router, rendering a function of the router defective.\u00a0 Although this function was not meant to be used, Knight left it in the router.\u00a0 In late July 2012 when preparing for participation in the NYSE\u2019s new Retail Liquidity Program, Knight Capital incorrectly deployed new code in the same router.\u00a0 As a result, certain orders eligible for the NYSE\u2019s program triggered the defective function in Knight Capital\u2019s router, which was then unable to recognize when orders had been filled.\u00a0 During the first 45 minutes after the market opened on August 1, Knight Capital\u2019s router rapidly sent more than 4 million orders into the market when attempting to fill just 212 customer orders.\u00a0 Knight Capital traded more than 397 million shares, acquired several billion dollars in unwanted positions, and eventually suffered a loss of more than $460 million.<\/p>\n

The SEC\u2019s order also finds that an internal Knight Capital system generated 97 automated emails that went to a group of personnel.\u00a0 The emails referenced the router and identified an error before the markets opened on August 1.\u00a0 These messages were caused by the code deployment failure, but Knight Capital did not act upon them on August 1.\u00a0 Although Knight Capital did not design these messages to be system alerts, they provided an opportunity to identify and fix the problem before the markets opened.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

New York (HedgeCo.Net) – In\u00a0the SEC\u2019s first enforcement action under the market access rule, which was\u00a0adopted in 2010\u00a0as Rule 15c3-5.\u00a0The SEC has alleged that hedge fund trader Knight Capital Americas LLC has agreed to pay $12 million to settle charges […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-38670","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/38670","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=38670"}],"version-history":[{"count":1,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/38670\/revisions"}],"predecessor-version":[{"id":38672,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/38670\/revisions\/38672"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=38670"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=38670"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=38670"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}