The Securities and Exchange Commission announced an enforcement action against the New York Stock Exchange and two affiliated exchanges for their failure to comply with the responsibilities of self-regulatory organizations (SROs) to conduct their business operations in accordance with Commission-approved exchange rules and the federal securities laws. Also charged was the NYSE exchanges’ affiliated routing broker Archipelago Securities.
The NYSE exchanges agreed to settle the SEC’s charges by retaining an independent consultant and together with Archipelago Securities paying a $4.5 million penalty. Said Andrew J. Ceresney, director of the SEC’s Division of Enforcement:
The SEC regulates exchanges, in part, by reviewing rules proposed by the exchanges that govern exchange activities and allow market participants to decide how and where to place orders. We will hold exchanges accountable if they fail to have rules governing their operations or fail to follow them.
As SROs, the NYSE exchanges are required to conduct their operations in accordance and compliance with their own rules as well as the federal securities laws. They are required to file all proposed rules and rule changes with the Commission, which publishes them for public comment, before they take effect. This transparency enables all participants trading on the exchanges to understand how their orders are processed and executed.
According to the SEC’s order instituting settled administrative proceedings, the NYSE exchanges repeatedly engaged in business practices that either violated exchange rules or required a rule when the exchanges had none in effect. For example, all of the NYSE exchanges used an error account maintained at Archipelago Securities to trade out of securities positions taken on as a result of their operations despite not having rules in effect that permitted them to maintain and use such an account. In another example, NYSE Arca failed to execute a certain type of limit order under specified market conditions despite having a rule in effect that stated that NYSE Arca would execute such orders. Said Antonia Chion, an associate director in the SEC’s Division of Enforcement:
