Specialists to Pay $242 Million
Five New York Stock Exchange specialist firms will pay $242 million to settle charges that they profited from illegal trading practices on the floor of the exchange, the Securities and Exchange Commission and the NYSE said Tuesday.
The five firms -- Bear Stearns Cos. subsidiary Bear Wagner Specialists, FleetBoston Financial Corp. subsidiary Fleet Specialist Inc., LaBranche & Co., Van der Moolen Specialists and Goldman Sachs Group Inc. subsidiary Spear, Leeds & Kellogg -- violated securities laws by executing their own trade orders before customers’ orders for trades in the same stocks, thus depriving clients of fair trades and possibly better prices, the regulators said.
More than $150 million in profits from such trading were made from 1999 to 2003, an investigation by the SEC and NYSE found.
Under the agreement, a tentative version of which was reached in February, $154 million will go to customers damaged by the firms’ actions. The rest of the money represents fines that will go to the SEC and NYSE, according to the commission.
The firms, without admitting or denying the charges, also will take steps to improve their regulatory compliance procedures and oversight, the SEC said.
Specialists on the floor of the exchange bring buyers and sellers together in auction-style trading, attempting to match them at a mutually acceptable price. Specialists also buy and sell shares of the stocks that they manage to help meet supply or demand where lacking. There are seven specialist firms working at the NYSE.
Since the NYSE announced its investigation in April, the exchange has implemented computer systems that flag questionable trades, notifying the NYSE’s internal regulators.
In addition to the fines, all five specialist firms will be required to review those flagged trades on a daily basis.
The firms also must create an internal committee to monitor compliance, keep records on individual specialists and their trading activities, and retain an independent consultant to review each company’s compliance efforts, according to the SEC settlement.
