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May 01, 2014 at 09:37 AM
The New York Stock Exchange and two affiliated exchanges agreed Thursday to pay a $4.5 million penalty to the Securities and Exchange Commission for their failure to comply with the responsibilities of self-regulatory organizations (SROs) to conduct their business operations in accordance with Commission-approved exchange rules and the federal securities laws.
Wholly owned subsidiaries of IntercontinentalExchange Inc., NYSE, NYSE Arca, NYSE MKT, and Archipelago Securities have consented to the SEC’s order without admitting or denying the findings and agreed to collectively pay the $4.5 million penalty.
The NYSE exchanges also agreed to settle the SEC’s charges by retaining an independent consultant.
Andrew Ceresney, director of the SEC’s enforcement division, said on a call with reporters that “exchanges play a pivotal role in our national market system… and that role comes with significant responsibility.” Thursday’s action against the exchanges, he said, as well as prior ones over the last few years, “are all part of the SEC’s broader focus on market structure investigations.”
SEC Chairwoman Mary Jo White told ThinkAdvisor in a recent interview, “it’s a high priority for the [SEC] staff and Commission to really view the range of equity market structure issues.”
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,” Ceresney said in a statement announcing the action. “We will hold exchanges accountable if they fail to have rules governing their operations or fail to follow them.”
As the SEC explained, as SROs, the NYSE exchanges are required to conduct their operations in accordance and compliance with their own rules as well as the federal securities laws. They are required to file all proposed rules and rule changes with the Commission, which publishes them for public comment, before they take effect. This transparency enables all participants trading on the exchanges to understand how their orders are processed and executed.
According to the SEC’s order instituting settled administrative proceedings, the NYSE exchanges repeatedly engaged in business practices that either violated exchange rules or required a rule when the exchanges had none in effect. For example, all of the NYSE exchanges used an error account maintained at Archipelago Securities to trade out of securities positions taken on as a result of their operations despite not having rules in effect that permitted them to maintain and use such an account.
