The New York Stock Exchange has decided to settle an allegation from the Securities and Exchange Commission (SEC (News - Alert)) that some customers were given a “head start” on trading information. The SEC prohibits sending market data to proprietary customers before sending that data to consolidated feeds, which distribute data to the public.
“This ensures the public has fair access to current market information about the best displayed prices for stocks and trades that have occurred,” according to an SEC statement. The NYSE, however, allegedly violated the rule, starting in 2008 up to mid-2010, as it sent data to two proprietary feeds before sending it to consolidated feeds.
NYSE and its parent company NYSE Euronext agreed to a $5 million penalty. The fine represents the first SEC penalty against a stock exchange.
"Improper early access to market data, even measured in milliseconds, can in today's markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors," Robert Khuzami, director of the enforcement division at the SEC, said. "That is why SEC rules mandate that exchanges give the public fair access to basic market data. Compliance with these rules is especially important given exchanges' for-profit business interests."
“Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function," added Daniel M. Hawke, chief of the SEC Enforcement Division's Market Abuse Unit.
In addition to the fine, NYSE and NYSE Euronext need to employ an independent consultant to conduct a review of its market data delivery systems to make sure they comply with relevant rules. The exchange will implement recommendations from the consultant. The SEC also alleged that NYSE failed to keep computer files in violation of SEC regulations.
NYSE Euronext neither admitted nor denied the SEC’s allegations, according to a company statement.
“The alleged timing differentials, which were generally at the level of milliseconds, were the result of technology issues that have been resolved,” the NYSE added.
“The timing differentials stemmed from technology issues, not from intentional wrongdoing by the exchange or any of its personnel,” NYSE Euronext CEO Duncan L. Niederauer added in the statement. “NYSE Euronext is pleased to have this matter resolved, and believes that the settlement is in the best interest of its shareowners, clients and employees. We will continue to take every responsible measure to ensure that our market operates with the utmost fairness and transparency.”
In a related matter, The New York Times called the fine “a token sum for the country’s biggest and most prominent trading platform.”
In addition, the SEC is also investigating Nasdaq for Facebook (News - Alert)‘s problematic IPO in May, TechZone360 reported. The SEC is also investigating the Chicago Board Options Exchange for not policing markets enough, The Times added.
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Edited by Allison Boccamazzo