NYSE to Pay $5M to Settle SEC Claim of Early Data Access

     (CN) – The New York Stock Exchange on Thursday agreed to pay a $5 million penalty, the first of its kind, to settle the Security and Exchange Commission’s claim that it gave some of its customers a head start on market data.
     The charges mark the first time the SEC has sued or fined an exchange.
     The agency claims the NYSE violated SEC regulations and the Securities and Exchange Act by improperly sending trading information to proprietary customers before sending it to consolidated feeds that get distributed to the public.
     Since June 2008, the exchange allegedly sent early market information to two proprietary data feeds: Open Book Ultra, which sends real-time data about the NYSE’s order book, and PDP Quotes, which lists NYSE’s quote for each security.
     The proprietary feeds received the data anywhere from milliseconds to multiple seconds before the consolidated feed, the SEC claims.
     “Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors,” said Robert Khumazi, director of the SEC’s enforcement division.
     The agency says the NYSE might have prevented the disparity in transmissions had it involved its compliance department in key technology decisions, including the design and operation of its market data systems.
     Such disparities “can have important consequences that risk undermining investor confidence and interfering with the efficiency of the markets,” the SEC claims.
     The agency listed several reasons for the alleged delays, including internal architecture that sent information to the proprietary feeds faster, the fact that one of the customer feeds operated independently of the remaining system, and a software glitch that occasionally delayed transmissions to the public feed.
     The NYSE and parent company NYSE Euronext agreed to the $5 million settlement without admitting or denying the allegations.
     The SEC’s order also censures the exchange, imposes signicant undertakings, and requires the NYSE and NYSE Euronext to stop committing or causing further violations.
     They must also hire an independent consultant to review their market data delivery systems for compliance.

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