NYSE Conducts Second Probe on Specialists

The New York Stock Exchange is conducting a second probe of its market-making traders after an investigation in April led to federal criminal fraud charges against 15 of the so-called specialists.

“We are continuing to investigate other individuals who were not in the first wave,” NYSE enforcement chief Susan Merrill said Tuesday.

A two-year investigation by the Big Board, the Department of Justice and the Securities and Exchange Commission resulted in the indictment of 15 traders who allegedly manipulated orders for four years to pocket $19 million of illegal profits. Merrill said she didn’t know whether the specialists now under investigation would also be indicted.

The NYSE itself was censured in April for self-regulatory failures as part of a $20-million settlement with the SEC.

Specialists play the dual role of matching buy and sell orders on the exchange floor and trading for their own accounts. According to the April indictments, some stepped in front of orders, buying stocks from willing sellers, then selling them to waiting clients at marked-up prices. The specialists were charged with abusing their positions as referees by seizing opportunities to make improper profits.