More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
The Securities and Exchange Commission (SEC) announced Friday that it has brought first-of-their-kind charges against the New York Stock Exchange for unfairly giving certain customers an improper head start on trading information.
The SEC charged that the NYSE failed to comply with restrictions on the distribution of trade and quote data that are intended to ensure the public has fair access to current market information.
NYSE and its parent company, NYSE Euronext, agreed to a $5 million penalty and system changes to settle the SEC’s charges.
Specifically, SEC Rule 603(a) of the National Market System (NMS) regulation prohibits the practice of sending market data to proprietary customers before sending that data in consolidated feeds that widely distribute trade and quote data to the public. The NMS rule is designed to ensure that the public has equal access to current market information about the best displayed prices for stocks and trades.
“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, in a statement. “That is why SEC rules mandate that exchanges give the public fair access to basic market data. Compliance with these rules is especially important given exchanges’ for-profit business interests.”
According to the SEC’s order against NYSE, the exchange violated this rule over an extended period beginning in 2008 by sending data through two of its proprietary feeds before sending data to the consolidated feeds. NYSE’s inadequate compliance efforts failed to monitor the speed of its proprietary feeds compared to its data transmission to the consolidated feeds, the SEC charges.
NYSE Euronext responded in a statement that it entered into the settlement without admitting or denying the SEC’s allegations but acknowledged that in accordance with the settlement, NYSE Euronext has agreed to pay a $5 million fine.
“NYSE Euronext is committed to the highest standards of integrity and accountability,” said NYSE Euronext CEO Duncan L. Niederauer in the statement. “The timing differentials stemmed from technology issues, not from intentional wrongdoing by the exchange or any of its personnel.”
The SEC’s allegations focused primarily on differentials in the speed of NYSE’s delivery of market data from 2008 through mid-2010, according to an NYSE release.
“The SEC alleged that, at certain times during that period, NYSE delivered market data through two proprietary data feeds slightly faster than it delivered market data to the consolidated tape. The alleged timing differentials, which were generally at the level of milliseconds, were the result of technology issues that have been resolved,” the NYSE said. “The SEC does not allege any intentional misconduct or that the NYSE data delays caused any investor harm. NYSE completed systems modifications in 2010 and 2011 that eliminated the technology issues that were the subject of the investigation.”