SEC Charges 14 Firms |With Improper Trading

     (CN) – Fourteen specialist firms, including Goldman Sachs Execution & Clearing and E*Trade Capital Markets, agreed to a $70 million dollar settlement on Wednesday following allegations brought by the Securities and Exchange Commission of unlawful proprietary trading.




     According to the SEC, from 1999 through 2005, the firms engaged in improper trading that cost customers millions. The improper proprietary trading took three basic forms: trading ahead, interpositioning and trading ahead of unexecuted open or canceled orders.
     According to the SEC, specialists would fill one agency order through a proprietary trade for their firm’s account while a matchable agency order was present on the opposite side of the market. This caused the customers order that was traded ahead to be at a disadvantage when it was subsequently executed because its price would be inferior to the price received by the firm’s proprietary account.
     The firms are also being accused by the SEC of “interpositioning” themselves between two agencies in situations where there existed a matchable opposite-side agency order that should have been paired off. The firms were essentially participating on both sides of trades subsequently disadvantaging the other parties because the specialists were capturing the spread between the purchase and sales prices.
     In some instances, after the specialists traded ahead, the opposite-side executable agency orders were left open until the end of the trading day, or were canceled by the customer prior to the close of the trading day before receiving an execution.
     At least six of the firms, as alleged in the SEC’s complaint, were not keeping current records pertaining to certain types of orders. The firms engaged in improper trading on the American Stock Exchange, the Chicago Board Options Exchange, the Chicago Stock Exchange and the Philadelphia Stock Exchange.
     The 14 specialist firms cited by the SEC that entered into the settlement without admitting or denying the allegations are: Botta Capital Management L.L.C.; Equitec Proprietary Markets LLC; Group One Trading L.P.; Knight Financial Products LLC; Goldman Sachs Execution & Clearing L.P.; SLK-Hull Derivatives LLC; Susquehanna Investment Group; TD Options LLC; Automated Trading Desk Specialists LLC; E*Trade Capital Markets LLC; Melvin Securities LLC; Melvin & Company LLC; Sydan LP; and TradeLink LLC.
     By acknowledging the SEC’s allegations, the firms have agreed to cease and desist from further securities violations and will pay collectively nearly $70 million in disgorgement and penalties.
     The list of defense counsel can be viewed here.

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