By Sarah N. Lynch and Aruna Viswanatha, Reuters
WASHINGTON — The New York Stock Exchange said on Monday it is in talks with U.S. securities regulators to settle allegations the exchange violated rules intended to promote fair competition. The Securities and Exchange Commission’s (SEC) investigation centers on a regulation that prohibits an exchange from sending out data on a private feed to certain clients more quickly than on public data feeds.
NYSE Euronext, which operates the NYSE, confirmed the negotiations after Reuters reported on the settlement talks earlier on Monday, citing people familiar with the matter. Those people spoke anonymously because the probe had not been made public. “NYSE Euronext has been working with the SEC to resolve alleged violations of Rule 603(a) of Regulation NMS, a technical rule governing the timing of delivery of certain exchange market data,” the company confirmed in a statement. “The company does not expect that any settlement of this matter will be material.” The case stems from an alleged violation of the regulation that governs the dissemination of market information, known as Regulation NMS, or national market system. It is unclear whether the SEC will ask NYSE to pay a fine to resolve the allegations. The case is likely a few months away from being completed, people familiar with the matter told Reuters.
The settlement talks come during a period of renewed SEC focus on the vulnerability of the markets to super-fast computer-driven trading and fears that some market participants are getting an unfair advantage.
“The SEC is becoming more aware of the effects of different speed and differential speed on market participants, and I think market participants are more aware of the effects of getting information at different times, and probably complaining to the SEC when they think there is a disadvantage,” said Michael Goldstein, a finance professor at Babson College. The SEC is just beginning to grapple with the fallout from last week’s software glitch that caused a US$440 million trading loss for Knight Capital as well as the recent technology debacle at the Nasdaq OMX in handling the initial public offering for social networking giant Facebook.
The series of technological mishaps has only served to weaken investor confidence, which took a big hit in the wake of the financial crisis. Additionally, the Facebook and Knight fiascos have led to questions about whether regulators have the firepower and expertise to keep up with market changes and catch potential problems.