The New York Stock Exchange (NYSE) has been charged with compliance failures which gave some customers an “improper head start” on trading information, the Securities and Exchange Commission (SEC) has revealed.
In what the regulator described as first-of-its-kind charges, the SEC levelled the allegations at NYSE for sending data through two of its proprietary feeds before sending data to the consolidated feeds. Such “inadequate compliance efforts failed to monitor the speed of its proprietary feeds compared to its data transmission to the consolidated feeds,” the SEC asserted.
The SEC prohibits such biased access to current market information about best-displayed prices and has hit the venue operator, NYSE Euronext, with a US$5 million penalty for violating the rule over an “extended period of time” beginning in 2008.
“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,” said Robert Khuzami, director of the SEC’s Division of Enforcement.
The two NYSE proprietary data feeds at issue were Open Book Ultra – which sends real-time data about NYSE’s entire order book – and PDP Quotes, which contains NYSE’s quote for each security.
The SEC said transmission disparities were caused by a number of issues, including internal system architecture which gave one NYSE data feed a faster path to customers than the path to the consolidated feed. The data release disparities ranged from single-digit milliseconds to multiple seconds.
“Market data is the lifeblood of the national market system. Our rules require exchanges to distribute information on quotes and trades to the consolidated data processors on terms that are ‘fair and reasonable’ and ‘not unreasonably discriminatory’,” said Robert W. Cook, director of the SEC’s Division of Trading and Markets.
The SEC said NYSE’s compliance department had not been involved in “important technology decisions”, including the design, implementation, and operation of NYSE’s market data systems. Not involving compliance meant NYSE had missed opportunities to avoid compliance failures.
NYSE and NYSE Euronext agreed to a settlement without admitting or denying the Commission’s findings.