(Adds background on previous violations and details about the
violations surrounding co-location)
By Sarah N. Lynch
WASHINGTON May 1 The New York Stock Exchange
agreed on Thursday to pay $4.5 million to settle charges brought
by U.S. securities regulators that the exchange flouted its own
rules, marking the latest crackdown on violations of market
The Securities and Exchange Commission said the NYSE, two of
its exchanges and one affiliated brokerage "repeatedly engaged
in business practices that either violated exchange rules or
required a rule when the exchanges had none in effect."
Among the more serious problems flagged by the SEC was
NYSE's failure to obtain approval to offer co-location services
and its disparate pricing, which permitted some trading firms to
pay less money than others to place their computer servers
inside the exchanges' data centers.
Co-location provides advantages to traders because it lets
them get access to data faster. The SEC did not allege
specifically that any investors were harmed by NYSE's
NYSE, NYSE Arca, NYSE MKT and its affiliated routing broker
Archipelago Securities agreed to settle without admitting or
denying the charges. A spokesman for NYSE, which is owned by
IntercontinentalExchange Group Inc, declined to comment.
The charges against NYSE mark the second case the SEC has
brought against the exchange operator since 2012. Previously,
NYSE paid $5 million to settle charges it had given certain
customers "an improper head start" on trading data.
It is also the latest in a series of cases filed by the SEC
since 2011 against exchanges, dark pools and other trading firms
on a variety of market structure-related matters.
Part of the SEC's focus has been on the relationships
between high-speed trading firms and exchanges, including
services the exchanges provide such as co-location and access to
direct data feeds.
The FBI, U.S. Attorney General and the New York Attorney
General have all said they are probing high-speed trading, among
The SEC has been broadly investigating market structure
issues for several years, prompted in part by the May 2010
"flash crash." It previously filed charges against Nasdaq OMX
, Direct Edge, now a part of BATS Global Markets, the
Chicago Board Options Exchange and the Chicago Stock
Several of the cases have focused on instances where an
exchange's duty as a self-regulated organization (SRO) has
clashed with its business practices. Under federal securities
laws, exchanges have specific duties as SROs to police their own
marketplace and provide transparency about their activities.
One such duty requires exchanges to disclose material
changes to their businesses by submitting proposed rule changes
to the SEC for approval and public comment.
Thursday's case comes after Andrew Ceresney, the head of the
SEC's enforcement division, told Reuters in an interview on
Wednesday that more cases against exchanges over violations of
their rules would be coming.
In addition to the problems with rules governing
co-location, the SEC said NYSE failed to get rules in place
before letting its routing broker trade out of an "error
account," which is used to liquidate positions resulting from
malfunctions, unmatched orders or routing errors.
The SEC also said a trading incident left the brokerage with
a net capital deficiency of $99 million that was not properly
Thursday's $4.5 million penalty is small relative to many
other SEC settlements and to IntercontinentalExchange's annual
revenue of $1.67 billion last year. That's likely because none
of the charges rise to the level of fraud.
The case is still significant because actions against
exchanges are not common, and because it serves to send a
message that the SEC will pursue all kinds of market structure
(Reporting by Sarah N. Lynch; Additional reporting by John
McCrank in New York; Editing by Bill Trott, Doina Chiacu and