The Securities and Exchange Commission has announced that Knight Capital Americas LLC (Knight Capital) has agreed to pay $12 million to settle charges that it violated the SEC’s market access rule in connection with the firm’s Aug. 1, 2012 trading incident that disrupted the markets. 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.

Certain orders that were eligible for the NYSE’s new Retail Liquidity Program triggered a known coding defect in Knight Capital’s automated equity router, which was then unable to recognize when orders had been filled.  During the first 45 minutes after the market opened on August 1, Knight Capital’s router rapidly sent more than 4 million orders into the market when attempting to fill just 212 customer orders.  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.