The New York Stock Exchange (NYSE) has agreed to settle Securities and Exchange Commission (SEC) charges of failure to comply with rules related to co-location and block trades.
The SEC found that NYSE, two affiliated exchanges – NYSE Arca and NYSE MKT – and affiliated routing broker Archipelago Securities had not complied with the responsibility of a self-regulatory organisation and federal securities laws during periods of time from 2008 to 2012.
NYSE, NYSE Arca, NYSE MKT and Archipelago Securities, agreed to pay a US$4.5 million penalty. They did not admit or deny the SEC findings, although the NYSE exchanges agreed to hire an independent consultant to complete a review of their policies and procedures.
“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,” Andrew Ceresney, director of the SEC’s division of enforcement, said.
“We will hold exchanges accountable if they fail to have rules governing their operations or fail to follow them.”
The Commission alleged NYSE, NYSE Arca and NYSE MKT used an error account maintained at Archipelago Securities to assume and trade out of securities positions without a rule in effect that allowed it.
NYSE also allegedly provided co-location services to customers on disparate contractual terms without an exchange rule in effect that permitted and governed those services in a fair way. It also operated a block trading facility, New York Block Exchange, launched in January 2009, that for a time did not function in accordance with the exchange’s rules.
According to the SEC, NYSE also distributed an automated feed of closing order imbalance information to its floor brokers at an earlier time than was specified in NYSE’s rules.
The Commission also highlighted that NYSE Arca allegedly failed to execute mid-point passive liquidity orders in locked markets despite its exchange rule stating it should. The SEC alleges NYSE Arca accepted orders in sub-penny amounts for National Market System (NMS) stocks trading at over US$1 per share, a violation of the NMS regulation.