Action Against NYSE Expected
The Securities and Exchange Commission is preparing to bring an enforcement action against the New York Stock Exchange, possibly in mid-February, for failing to supervise some of its floor-trading specialists, sources familiar with the matter said Tuesday.
The action will come as part of a settlement of a long-running probe into improper specialist trading, with the SEC also hoping to unveil simultaneously a number of separate agreements with smaller stock exchanges, the sources said.
“What the SEC intends to do there, although they haven’t quite worked it out, is to prosecute the largest offenders,” a source said.
Exchange floor specialists buy and sell certain issues and are supposed to step into the market to damp volatility and add liquidity. But they are sometimes accused of trading for their own accounts ahead of customers, leaving clients with inferior prices and sometimes unfilled orders.
Exchanges have an obligation to supervise the activities of specialists. Failing to do so can result in an SEC sanction. It was unclear whether the NYSE would have to pay a fine to the SEC as part of its settlement.
A spokesman for the NYSE declined to comment.
Also Tuesday, the New York Stock Exchange received a dual blow: The price of an exchange seat, or membership, dropped below $1 million and American International Group Inc., one of the NYSE’s biggest companies, decided to list on an all-electronic market as well as on the exchange.
The $975,000 sale of a seat was the first below $1 million since 1995. Seat prices are falling as the SEC rewrites rules governing trading and as NYSE Chief Executive John A. Thain develops a hybrid market to mesh electronic and manual trading. The changes may undermine the NYSE’s 80% market share in trading of its listed stocks.
The sale was announced after Archipelago Holdings Inc., an electronic market based in Chicago, said American International, the world’s largest insurance company, would “dual list” on the Archipelago Exchange.
Maurice “Hank” Greenberg, CEO of American International, has criticized the auction market on the NYSE, where his company has its primary listing.
Greenberg complained in an October 2003 Financial Times opinion piece that NYSE specialists, who are auctioneers and trade for their own accounts, don’t risk enough money to maintain orderly markets.
Greenberg has also complained to exchange officials that Goldman Sachs Group Inc., the American International specialist, didn’t create an orderly market when prices were falling.
Goldman declined to comment.
Archipelago shares, which trade on Archipelago’s own market, rose 22 cents to $19.27. American International shares, on the NYSE, fell 55 cents to $67.15.
