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NYSE agrees to pay SEC $5M over handling of trades

Commission claims exchange gave preferential treatment to some parties over others in routing, speed of data delivery

Sep 14, 2012 @ 1:28 pm

By Davis Janowski

The Securities and Exchange Commission has gone down the rabbit hole and is paying attention to that man behind the curtain at the New York Stock Exchange.

They did not like what they found.

In a “first-of-its-kind” action, the agency has brought charges against the NYSE for alleged compliance failures that gave certain customers an improper head start on trading information.

When visiting the NYSE floor I have often wondered how aware the traders are of the programmers and their algorithms and the logic built into the high-speed routing following a trade.

I guess at least some of the folks at the SEC have wondered and now taken a deep dive to see for themselves.

The prepared statement released by the SEC today noted that the investigation was conducted by members of the Enforcement Division's Market Abuse Unit.

The bare bones gist of it all is that NYSE allegedly violated Rule 603(a) of Regulation National Market System as well as the record retention provisions of Section 17(a)(1) of the Securities Exchange Act and Rule.

Infographic for visualizing the SEC's findings about NYSE trading data irregularities.
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Infographic for visualizing the SEC's findings about NYSE trading data irregularities. (SEC)

It is the first time the SEC has financially penalized one of the exchanges.

Today's prepared statement goes on to say that NYSE and NYSE Euronext agreed to a settlement without admitting or denying the Commission's findings (I just love those, I guess it prevents long-time if not unending litigation and its concomitant expenses but still).

Getting down to ye olde brass tacks: NYSE/NYSE Euronext has to pay a $5 million penalty, and they have to “cease and desist from committing or causing these violations” along with keep an independent consultant to look over their shoulder.

I like the tech references in the statement's quote from Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit: "The violations at NYSE may have been technological, but they were not technical. Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function.

You can find the text of the full release by visiting this SEC link.

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