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NYSE firms pay $242M in trading case
The SEC says trading firms agree to settle; NYSE could face a charge for failing to supervise.
March 30, 2004: 3:44 PM EST

NEW YORK (CNN/Money) - Five New York Stock Exchange trading firms have agreed to pay $241.8 million to settle charges of violating federal securities laws and exchange rules, market regulators said Tuesday. But additional charges against individual specialists will soon follow.

The Securities and Exchange Commission, after a joint investigation with the Big Board, said the five largest floor-trading firms at the NYSE -- Bear Wagner Specialists, Fleet Specialist Inc., LaBranche & Co., Spear, Leeds & Kellogg Specialists and Van der Moolen Specialists USA -- violated securities laws and exchange rules by executing orders for their accounts ahead of orders for the public between 1999 and 2003.

The firms agreed to the settlement without admitting or denying the allegations, the two market regulators said, adding that the investigation will continue, targeting individuals.

"Individuals will be charged in this matter," NYSE CEO John Thain said in a briefing in Washington after meeting with members of Congress. He declined to estimate how many people would be charged.

But people familiar with the case told CNNfn that the NYSE may face a possible SEC charge for failing to supervise the firms and individuals at the firms.

No decision has yet been made, and the NYSE and the SEC declined to comment on possible charges against the Big Board.

The firms -- known as market "specialists" for their roles bringing together buyers and sellers at the exchange -- violated their basic obligation to match orders from the public with other similar orders, and not to fill the orders via trades from their own accounts, the SEC and NYSE said.

"When an exchange specialist unlawfully takes advantage of its privileged position by seizing trading opportunities that it should leave for public customers, it fundamentally undermines the fair and orderly operation of the exchange auction system," Stephen Cutler, the SEC's director of enforcement, said in a statement.

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"As the sanctions imposed in this case indicate, the commission will aggressively punish such conduct."

"The terms of this settlement are appropriate, and tell the investing public, specialists and all market participants that violations of NYSE rules and federal securities laws will not be tolerated," said NYSE Director Marshall Carter, who also heads the exchange's regulatory oversight committee.

Under the agreement, $87.7 million of the settlement may be distributed to customers hurt by the firms' actions, according the SEC. The rest of the fines will go to the SEC and NYSE, the commission added.

"We're pleased with the cooperation with the SEC and will continue to cooperate at the highest levels as action continues," an NYSE spokeswoman told CNNfn.

Bear Wagner declined to comment. A spokesman for Spear, Leeds, Kellogg said the settlement is a step forward and the firm is glad to put the issue behind them.

Fleet Specialist also said that the company is pleased to reach the settlement with the authorities, and the company now hopes to move on from here.

Officials at LaBranche and Van der Moolen were not immediately available to comment.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.