New York Stock Exchange Will Pay $5 Million Penalty For SEC Violation

New York Stock Exchange Will Pay $5 Million Penalty For SEC Violation
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New York Stock Exchange Will Pay $5 Million Penalty For SEC Violation

New York Stock Exchange NYSE Euronext (NYSE:NYX) agreed to pay a $5 million penalty, to settle the charges filed by the Securities and Exchange Commission (SEC), for violating the National Market System (NMS) regulation that prohibits the improper sending of market data to proprietary customers, before sending it to the consolidated feeds.

The SEC alleged that New York Stock Exchange violated Rule 603 (a) of SEC Regulation of the NMS by providing certain customers an “improper head start” on trading information, since 2008. The proprietary data involved in the case included Open Book Ultra, which sends real-time data about NYSE’s entire order book, and the PDP Quotes, which contains NYSE’s quote for each security.

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The SEC cited discrepancies in data transmission, due to several causes. The internal system architecture of the NYSE Euronext (NYSE:NYX) path to customers provided faster data feed than the path that sends data to the consolidated feed.  According to the SEC, the exchange “failed to monitor the speed of its proprietary feeds, compared with its data transmission to the consolidated feeds”, as the discrepancies in data release times ranged from single-digit milliseconds to multiple seconds.

In a statement about the New York Stock Exchange fine, Robert Khuzami, director of the Enforcement Division of the SEC, said, “Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors. That is why SEC rules mandate that exchanges give the public fair access to basic market data. Compliance with these rules is especially important, given exchanges’ for-profit business interests”

In addition, Robert W. Cook, Director of the SEC’s Division of Trading and Markets, emphasized, “Market data is the lifeblood of the national market system. Our rules require exchanges to distribute information on quotes and trades to the consolidated data processors on terms that are fair and reasonable, and not unreasonably discriminatory.”

On the other hand, NYSE Euronext (NYSE:NYX) CEO Duncan Niederauer said the exchange is pleased that the NMS issue has been resolved. According to him, the NSYE “believes that the settlement is in the best interest of its shareholders, clients, and employees.”

Aside from the $5 million penalty, the NYSE Euronext (NYSE:NYX) also agreed to retain an independent consultant to review its market data delivery systems, in order to ensure that its compliance with NMS rule 603 (a).

In other New York Stock Exchange news;  NYX announced debt tender offers today offering to buyback all of its 4.8% $750 million US notes due 2013 and €250 million of the 5.38% €1bn bonds. Back of the envelope analysis indicates that the tender offer prices are about in line with where the bonds closed yesterday.

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