The SEC has fined the NYSE $4.5 mn for violating its own rules and failing to comply with its responsibilities as a self-regulating organization.
The regulator says that, between 2008 and 2012, the stock exchange operated a block trading facility that did not comply with its own rules, gave its floor brokers closing order information earlier than NYSE rules stipulated and gave potentially beneficial contract terms to certain customers, as well as other violations.
The fine comes as the NYSE is already embroiled in controversy after the March publication of Flash Boys, a book by investigative journalist Michael Lewis that captured national attention and headlines with its allegations that the markets are rigged.
The SEC order accuses two affiliated exchanges, including NYSE MKT and NYSE Arca, as well as the exchanges’ affiliated routing broker Archipelago Securities, of ‘business practices that either violated exchange rules or required a rule when the exchanges had none in effect.’
The NYSE agreed to the fine without admitting or denying guilt. It also agreed to conduct an internal review and hire an independent consultant to examine its business practices.
‘The order highlights instances where the exchanges conducted business without a rule in place due to weak or inadequate policies and procedures,’ says Antonia Chion, an associate director in the SEC’s division of enforcement, in a press release. ‘In other instances, the exchanges did not operate in compliance with their effective rules. Both failures reflect a troubling lack of compliance with the requirements and obligations imposed on securities exchanges.’
The commission says Archipelago Securities failed to establish or maintain rules to prevent the use of non-public information and violated its own net capital rule, which is designed to ensure brokers and dealers are able to meet their financial obligations.
‘The SEC regulates exchanges, in part, by reviewing rules proposed by the exchanges that govern exchange activities and allow market participants to decide how and where to place orders,’ says Andrew Ceresney, the SEC’s chef enforcer, in the release. ‘We will hold exchanges accountable if they fail to have rules governing their operations or fail to follow them.’
Regulator says exchange gave favorable contracts and early information to some
