March 1, 2016 / 11:42 PM / 4 years ago

U.S. SEC to pay high-frequency trading critic whistleblower award

(Reuters) - The founder of Nanex, LLC, a real-time financial markets data company, said on Tuesday he will receive a $750,000 whistleblower award for a tip that triggered a $5 million U.S. Securities and Exchange Commission fine against the New York Stock Exchange in 2012.

Eric Hunsader, an outspoken critic of high-frequency traders, said he qualified for the award after tipping off the SEC that NYSE gave certain customers a head start on trading information.

An SEC spokeswoman declined to comment. A spokeswoman for NYSE parent Intercontinental Exchange Inc could not immediately be reached for comment.

The NYSE trading information was described as “real time,” even though some people received it before others, Hunsader said on Tuesday. “How can you call them real time feeds if one is faster than the other?” he said.

NYSE, which was acquired by ICE in 2013, agreed to pay the SEC $5 million in a 2012 civil case. The SEC alleged that beginning in 2008, some NYSE customers got an early look at trade order information that ranged from single-digit milliseconds to multiple seconds.

The settlement, citing software issues and compliance failures as reasons for the early look, marked the agency’s first financial penalty against a U.S. exchange.

NYSE neither admitted nor denied the charges. The NYSE said at the time that the SEC had not alleged intentional conduct or that investors were harmed.

The SEC told Hunsader in a June 5, 2015 letter that it made a “preliminary determination” to honor the whistleblower claim that Hunsader had filed in 2013, according to an excerpt of the letter that Hunsader shared with Reuters.

Hunsader first wrote to the SEC about his concerns in 2010, but was unaware at the time that he could also file a whistleblower claim, he said.

The Dodd Frank financial reform law empowered the SEC to award money to whistleblowers who give information to the agency which leads to a fine.

Hunsader launched Nanex, based in Winnetka, Illinois in 2000.

The SEC, in its letter to Hunsader, did not disclose a dollar amount for the award in its letter, but wrote that Hunsader would receive 15 percent of the sum the agency would collect in the case at issue.

The SEC issued an order in January saying that it would award more than $700,000 to a whistleblower after making a “preliminary determination” about the case on June 5, 2015. U.S. law forbids the agency from identifying the whistleblower’s name in the order, or company involved.

Marketwatch reported the pending award to Hunsader earlier on Tuesday.

Reporting by Suzanne Barlyn; Editing by David Gregorio

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