NYSE Says ‘Front-Running’ Not Focus of Trading Probe

The New York Stock Exchange said Tuesday that its investigation into specialists’ trading practices was not focused on “front-running,” or the trading for one’s own account with knowledge of pending orders that may influence the price of a stock.

It is the first time the NYSE has specifically rejected use of the term “front-running” since the media first revealed in the middle of last week that the exchange was investigating trading by its specialists.

Questionable trading practices have become a major concern on Wall Street after the NYSE confirmed Thursday that it was reviewing the trades of specialist firms. Those traders work on the trading floor and are obligated to buy and sell shares to ensure an orderly market.

“The current investigation does not focus on front-running,” the NYSE said in a statement posted on its Web site.

The exchange said its investigation instead concerned possible violations of what it terms the specialists’ “negative obligation.” It defined that obligation as the requirement to stay out of the way if there is a buyer and seller available to trade without “undue” dealer intervention.

“We emphasize that at this time no one has been charged with any violations and nothing is proven, and that the investigation is ongoing,” the NYSE said. “Nor is there certainty that there was improper activity in all stocks currently being reviewed.”

Fleet Specialists, a unit of FleetBoston Financial Corp., said the firm placed David Finnerty, one of its specialists, on administrative leave April 14 on concern that he and his trading clerk may have traded in General Electric Co.’s stock ahead of customer orders.