The Securities and Exchange Commission is usually busy busting insider traders and penny stock operators. But Thursday the regulator charged the New York Stock Exchange and two affiliated exchanges for “failure to comply with the responsibilities” of following securities laws.
The NYSE and the affiliated exchanges including Archipelago, where many exchange-traded funds are traded, agreed to a $4.5 million penalty. NYSE spokesman Eric Ryan declined to comment. The NYSE didn’t admit or deny the charges.
The SEC says between 2008 and 2012 the NYSE exchanges “repeatedly engaged in business practices that either violated exchange rules or required a rule when the exchanges had none in effect.”
As an example, the NYSE exchanges used an “error account” at Archipelago to “trade out” of securities even though there were no rules that allowed such a practice.
In a more charged example, the SEC focused on how the NYSE provided “co-location” services to customers, which gives traders an edge in trading speed by allowing them to place their computers closer to the data center. But the services were provided on “disparate contractual terms without an exchange rule in effect that permitted and governed the provision of such services on a fair and equitable basis,” the SEC says.
SEC Enforcement Director Andrew Ceresney declined to identify the co-location customers involved or provide information about the prices they paid.
There were no allegations that investors were harmed by the practices, said Ceresney. In a phone conference with reporters, he said the enforcement action did not undercut SEC Chair Mary Jo White’s congressional testimony earlier this week that U.S. financial markets are not rigged.
“I don’t think the message from this case is that the markets are rigged,” said Ceresney. “The message of this case is exchanges need to have rules governing their conduct and need to follow those rules.”
Andrew Stoltmann, a Chicago securities attorney, called the action another black eye for markets. “This is the latest example of self regulation not working effectively in the securities industry,” he said.
Nanex CEO Eric Hunsader, whose firm provides market data to the financial industry, took aim at the size of the fine levied by the SEC.
“NYSE provided co-lo services to customers on disparate contractual terms. That’s a $billion fine,” Hunsader tweeted.
