KCG, the new company formed by the merger of Knight Capital Group and Getco LLC, is reportedly close to a multi-million dollar settlement with the Securities and Exchange Commission over the August 2012 trading glitch that ultimately caused Knight Capital to implode.
According to an earlier Reuters’ report that cited anonymous sources, a settlement deal totaling $12 million is being discussed and could be announced soon. The board of KCG Holdings Inc. has approved the amount and the process is in the hands of the SEC, but nothing has been finalized, the sources told Reuters.
KCG spokesperson Sophie Sohn declined to comment when contacted by Traders Magazine. An SEC spokesman also declined to comment.
One brokerage exec told Traders Magazine that he had heard of the settlement talks but could provide no further details other than talks were ongoing. A sales trader confirmed to Traders that talks were ongoing and that the $12 million figure for a potential settlement “sounded right.”
The $457.6 million trading glitch, caused by a rogue algorithm that lost the firm millions after its launch on August 1, 2012, eventually took down the firm and forced its union with the high-frequency trading firm Getco. The August 1 problem 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.
As a result, the Knight secured $400 million in rescue financing — in exchange for a stake of more than 70 percent in the company — from a group of investors that included Getco and was led by Jefferies Group Inc. Jefferies later helped finance Getco’s proposed acquisition of Knight.
Knight was near a deal with the regulator last fall that would not have included a financial penalty, and again in the spring, with an amount closer to $10 million, sources said. The most recent deal failed to happen because of a change in leadership at the SEC, the person said.
Jersey City, New Jersey-based Knight was bought by Chicago-based Getco Holding Co. for $1.4 billion this past summer. The new firm is called KCG Holdings. The deal closed in July.