SEC Charges Knight Capital with Violations of Market Access Rule (with Lofchie Comment)

The SEC announced that Knight Capital Americas LLC has agreed to pay $12 million to settle charges that it violated the SEC's market access rules in an August 2012 trading incident.The SEC investigation found that Knight Capital did not have adequate safeguards in place to limit the risks posed by its access to the markets, which led to the entry of millions of erroneous orders. The SEC also alleged that Knight Capital failed to conduct adequate reviews of the effectiveness of its controls.

This is the first SEC enforcement action under the market access rule, which was adopted in 2010 as Exchange Act Rule 15c3-5 ("Risk Management Controls for Brokers or Dealers with Market Access").

Lofchie Comment: Given the massive amount of money that Knight lost in connection with its August failures, which essentially drove the firm to near-collapse, what purpose is served by imposing a $12 million fine?

See: SEC Order against Knight Capital; SEC Press Release.See also: Cadwalader Client and Friends Memo on Rule 15c3-5.