Knight Trading Group has agreed to pay $79 million to resolve regulatory inquiries related to improper trading and said quarterly earnings would miss Wall Street estimates. Knight, whose shares fell as much as 8 percent, said it would take a charge of $79 million in the second quarter for the proposed settlement with the Securities and Exchange Commission and the NASD.
The SEC probe relates to institutional trading from 1999 to 2001 after a former Knight employee, in an arbitration claim, said Knight traders placed their own orders for stock before carrying out customer orders, a practice known as “front running.” Michael Vinciquerra, an analyst at Raymond James & Associates, said the charge against earnings was greater than expected, especially since Knight had said the outcome of the probes would not be material to its earnings.
The analyst said Knight’s problems, for the most part, were unique to the stock trader. Under the terms of the agreement with regulators, Knight will give back about $41 million in institutional trading profits and pay $13 million in interest and $25 million in penalties.