NYSE Fines, Censures a Specialist Firm

From Reuters

A specialist firm agreed to be fined and censured by the New York Stock Exchange on Monday without admitting or denying guilt on charges of violating exchange rules and failing to maintain fair and orderly markets in two companies' stocks.

Morelli, Nick & Co. agreed to pay a $175,000 fine and reallocate one of the stocks, Longview Fibre Co., to another specialist. The other stock was Santa Fe Southern Pacific Corp.

Morelli Nick was acquired in August by Benton & Co., which declined to comment on the matter. The alleged violations occurred in January and February.

In return for an exclusive franchise of a particular stock, a specialist firm must maintain a fair and orderly market for the stock by buying shares to support a dropping price and selling when the price rises.

A former general partner and specialist at the firm, John Morelli, also agreed to censures by the Big Board's enforcement division and was suspended for 30 days.

Without admitting or denying guilt, Morelli consented to findings that he failed to maintain fair and orderly markets and failed to obtain required floor approval for a transaction.

In a related matter, the NYSE censured a chief floor trader at Morelli Nick--Timothy O'Connell--and suspended him for 21 days. O'Connell, who also did not admit or deny guilt, allegedly altered stock purchase order tickets that were submitted to the NYSE for trades unrelated to Longview Fibre and Santa Fe. A third stock involved was not disclosed.

Big Board records of the firm's market making in Longview Fibre showed that Morelli Nick on Jan. 4 opened Longview Fibre at $68.75, down 75 cents. The firm bought 600 shares for itself out of a 1,000-share order to sell entered the previous day at $69, the records showed.

The records did not identify the stock, but the price level matched the 52-week trading range of Longview.

Morelli Nick had purchased 8,500 shares prior to the opening and during the day, the price rose to $70.50. As the price rose, Morelli Nick sold 2,800 shares as a dealer.

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