NYSE Wins Dismissal of Suit; ‘Specialists’ Don’t

A federal judge Tuesday dismissed a trading-abuse lawsuit against the New York Stock Exchange, but left large parts of the suit against “specialist” trading firms in place.

The ruling means that specialists, such as LaBranche & Co., must defend themselves against the remaining claims.

Specialist firms are the market makers that buy and sell specifically assigned stocks on the NYSE trading floor to ensure liquidity and orderly markets.

The suit against them was brought in 2003 by plaintiffs including the California Public Employees’ Retirement System, the biggest U.S. pension fund.

The suit alleged that the specialists had engaged in illegal practices that benefited their own trading accounts at investors’ expense. The plaintiffs also said the NYSE had failed to supervise the firms.

U.S. District Judge Robert W. Sweet said he relied on reasoning in an earlier securities case in concluding that the NYSE was entitled to the same immunity enjoyed by the Securities and Exchange Commission when the exchange was performing duties assigned by the SEC.

In 2004, the NYSE and the SEC reached a settlement totaling about $240 million with the largest NYSE specialists over accusations of market abuse.