The U.S. Securities and Exchange Commission brought historic charges against the New York Stock Exchange. What were they?
The New York Stock Exchange has given proprietary investors an unfair advantage by sending them trading information seconds before making it available to the general public, according to the Securities and Exchange Commission, which today announced the first-ever charges brought by the regulatory agency against an 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, enforcement division director as the SEC, said in a statement.
The NYSE is charged with violating Rule 603(a) of SEC Regulation NMS, which requires securities exchanges to distribute information on price quotes and trades in a “fair and reasonable” manner over broad channels known as consolidated feeds. According to the SEC, over an extended period beginning in 2008, the exchange sent data through two of its proprietary subscription feeds before sending it to the consolidated feeds. The feeds in question were the Open Book Ultra, which sends real-time data about the exchange’s entire order book, and PDP Quotes, conveying the NYSE quote for each security.
Time lags of single-digit milliseconds up to several seconds occurred for technical reasons relating to the internal NYSE system architecture and software. “Inadequate compliance efforts” on the part of the NYSE failed to monitor the disparity in speeds, the SEC said.
“The violations at NYSE may have been technological, but they were not technical. Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function,” Daniel M. Hawke, chief of the Market Abuse Unit of the SEC’s enforcement division, said in a statement.
The NYSE and its parent company NYSE Euronext have agreed to pay a $5 million penalty to settle the suit and will also hire an independent consultant to review their systems for distributing market data to ensure they comply with federal law, the SEC said.