NASD Regulation Inc. has censured and fined Knight Securities L.P.

The trading firm has been slapped with US$700,000 fine, and directed to pay US$800,000 to clients of the firm.

The sanctions were imposed for wide-ranging market making and trading violations, including failure to honor posted quotes and to accurately report trades to the NASD. The fine and payments made by Knight are the largest ever imposed by NASDR for these types of marketplace violations.

NASDR found that Knight committed numerous violations of federal securities laws and NASD rules from July 1997 to May 2001, a period of rapid expansion for the firm. Among the most significant was a series of violations of the locked and crossed markets rule that emerged during separate review periods from 1998 to 2001.

The locked and crossed violations occurred during normal trading hours, before the market opened, and in trading following initial public offerings. NASDR also found that Knight failed to honor posted quotes, promptly display limit orders and to report thousands of trades timely and accurately to the NASD.

Finally, in connection with trading in the market for OnSale Inc., NASDR found that the execution quality provided by Knight for 645 orders was inconsistent with just and equitable principles of trade. Knight was directed to pay $800,000 plus interest to clients of the firm in connection with the execution of OnSale orders.

“It is critical that no matter how rapid a firm’s business growth, the commitment to develop and maintain systems to ensure compliance must keep pace,” said Mary Schapiro, president of NASDR. “This is fundamental to the success of our markets and the protection of investors.”

As a part of the settlement with NASD Regulation, Knight neither admitted nor denied the findings.