Wa!"#$%&# D'C', Ma( 1, 2014 ) The Securities and Exchange Commission today announced
an enforcement action against the New York Stock Exchange and two affiliated exchanges for
their failure to comply with the responsibilities of self-regulatory organizations S!"s# to
conduct their business operations in accordance with Commission-appro$ed exchange rules and
the federal securities laws% &lso charged was the NYSE exchanges' affiliated routing broker
&rchipelago Securities%
The NYSE exchanges agreed to settle the SEC's charges by retaining an independent consultant
and together with &rchipelago Securities paying a ()%* million penalty%
+The SEC regulates exchanges, in part, by re$iewing rules proposed by the exchanges that
go$ern exchange acti$ities and allow market participants to decide how and where to place
orders,- said &ndrew .% Ceresney, director of the SEC's /i$ision of Enforcement% +0e will hold
exchanges accountable if they fail to ha$e rules go$erning their operations or fail to follow
&s S!"s, the NYSE exchanges are re1uired to conduct their operations in accordance and
compliance with their own rules as well as the federal securities laws% They are re1uired to file
all proposed rules and rule changes with the Commission, which publishes them for public
comment, before they take effect% This transparency enables all participants trading on the
exchanges to understand how their orders are processed and executed%
&ccording to the SEC's order instituting settled administrati$e proceedings, the NYSE
exchanges repeatedly engaged in business practices that either $iolated exchange rules or
re1uired a rule when the exchanges had none in effect% 2or example, all of the NYSE exchanges
used an error account maintained at &rchipelago Securities to trade out of securities positions
taken on as a result of their operations despite not ha$ing rules in effect that permitted them to
maintain and use such an account% 3n another example, NYSE &rca failed to execute a certain
type of limit order under specified market conditions despite ha$ing a rule in effect that stated
that NYSE &rca would execute such orders%
+The order highlights instances where the exchanges conducted business without a rule in place
due to weak or inade1uate policies and procedures,- said &ntonia Chion, an associate director in
the SEC's /i$ision of Enforcement% +3n other instances, the exchanges did not operate in
compliance with their effecti$e rules% 4oth failures reflect a troubling lack of compliance with
the re1uirements and obligations imposed on securities exchanges%-
The $iolations detailed in the SEC's order occurred during periods of time from 5667 to 5685%
The SEC's order finds that the NYSE exchanges $iolated Section 89b# and 89g# of the
Securities Exchange &ct of 89:) through misconduct that included the following;
• NYSE, NYSE &rca, and NYSE <=T formerly NYSE &mex# used an error account
maintained at &rchipelago Securities to assume and trade out of securities positions
without a rule in effect that permitted such trading and in a manner inconsistent with their
rules for the routing broker, which limited &rchipelago Securities' acti$ity primarily to
outbound and inbound routing of orders on behalf of those exchanges%
• NYSE pro$ided co-location ser$ices to customers on disparate contractual terms without
an exchange rule in effect that permitted and go$erned the pro$ision of such ser$ices on a
fair and e1uitable basis%
• NYSE operated a block trading facility New York 4lock Exchange# that for a period of
time did not function in accordance with the rules submitted by NYSE and appro$ed by
the SEC%
• NYSE distributed an automated feed of closing order imbalance information to its floor
brokers at an earlier time than was specified in NYSE's rules%
• NYSE &rca failed to execute <id->oint >assi$e ?i1uidity "rders <>?"s# in locked
markets where the bid and ask prices are the same# contrary to its exchange rule in effect
at the time%
3n addition, the SEC's order finds that NYSE &rca accepted <>?"s in sub-penny amounts for
National <arket System stocks trading at o$er (8%66 per share, in $iolation of !ule @85a# of
!egulation N<S%
The SEC's order further finds that &rchipelago Securities failed to establish and maintain
policies reasonably designed to pre$ent the misuse of material, nonpublic information in
connection with error account trading% &rchipelago Securities also $iolated and failed to gi$e the
SEC timely notice of its $iolation of the net capital rule A a critical federal securities law
pro$ision intended to ensure that brokers and dealers remain sol$ent and can meet their financial
Now wholly-owned subsidiaries of 3ntercontinentalExchange 3nc%, NYSE, NYSE &rca, NYSE
<=T, and &rchipelago Securities ha$e consented to the SEC's order without admitting or
denying the findings% They agreed to collecti$ely pay the penalty of ()%* million, and the NYSE
exchanges agreed to complete significant undertakings including retaining an independent
consultant to complete a comprehensi$e re$iew of their policies and procedures for determining
whether 8# a new business practice or a change to an existing business practice re1uires the
filing with the SEC of a proposed rule or rule change, and 5# business practices re1uiring an
exchange rule are conducted pursuant to and in accordance with an effecti$e exchange rule%
The SEC's in$estigation was conducted by .ason ?itow, Binyard Cooke, and =e$in Cershfeld%
The case was super$ised by Yuri Delinsky and &ntonia Chion%