Knight Capital losses spur tighter automated-trading rules from SEC

NEW YORK — Following Knight Capital Group’s $440 million trading loss on Aug. 1, which almost put it out of business, the Securities and Exchange Commission may turn longstanding policies on how stock exchanges manage their automated systems into regulations.

The SEC has begun work to bolster policies meant to ensure the exchanges’ systems can safely handle trading demands, said a person familiar with the SEC’s work who spoke on condition of anonymity.


SEC chairman Mary Schapiro said Friday that she had asked her staff to hasten work “to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems.” The agency will hold a Sept. 14 public meeting to talk about “how we can strengthen the stability of our market structure while still preserving the many benefits of electronic trading,” Schapiro said Wednesday.

So-called automation review policies, put in place after­ the 1987 market crash, require venues to notify regulators of trading failures or security lapses. Portions of those policies will serve as the basis for the new rules, the person said.

Bloomberg News

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