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NYSE Settles Compliance Charges with the SEC

Last week, the New York Stock Exchange, two affiliated exchanges and its affiliated routing broker agreed to settle charges with the SEC over certain compliance failures that occurred between 2008 and 2012.  The NYSE and its affiliates agreed to pay a fine of $4.5 million and to retain an independent consultant.  The SEC alleged that “the exchanges lacked comprehensive and consistently applied policies and procedures for determining whether new business practices required a rule or rule change and evaluating whether business operations were being conducted fully in accordance with existing exchange rules and the federal securities laws.”  Further, the SEC alleges that the NYSE continued its conduct even when informed of the violations by the SEC staff.


The conduct described in the settlement order includes issues with co-location services, where the exchange sold the rights to place a trading server next to the exchange's order-matching server.  “Co-location enables market participants to transmit orders to and receive information from exchanges with reduced delay.”  The settlement order involves co-location services that the NYSE sold to customers at its data centers (which were then located in Brooklyn and Manhattan) from 2006 – 2010.  The SEC’s order states that the fees for these co-location services were not determined pursuant to a rule, but rather negotiated with each customer individually.  According to the SEC, beginning in 2009, new customers were offered co-location services for uniform fees, though original customers were able to retain their negotiated fees.  According to the SEC, the NYSE did not propose a rule providing for uniform fees for co-location for all customers until September 2010, following the relocation of the exchange’s data center to New Jersey.


The SEC’s order is available at http://www.sec.gov/litigation/admin/2014/34-72065.pdf.