Monthly Disciplinary Actions - April 2009

• An NYSE hearing officer found that while acting as a specialist in XYZ on July 26, 2007, Schaeffer and the Firm failed to maintain a fair and orderly market and failed to effectively represent certain orders entrusted to them in violation of NYSE Rule 104.10 when Schaeffer opened XYZ at a price of $61.25, on 117,900 shares down $12.43 from the previous day’s closing price.

• An NYSE hearing officer found that while acting as a specialist in XYZ on July 26, 2007, Schaeffer and the Firm failed to maintain a fair and orderly market and failed to effectively represent certain orders entrusted to them in violation of NYSE Rule 104.10 when Schaeffer opened XYZ at a price of $61.25, on 117,900 shares down $12.43 from the previous day’s closing price. 

The NYSE imposed a penalty of a censure and $25,000 fine. Schaeffer consented to the penalty.

• An NYSE hearing officer found that Fagenson & Co, Inc. violated AMEX Rule 30 and Article V, Section 4(h) of AMEX Constitution by failing to file or file accurately weekly short sale reports and transaction reports as well as mid-month short interest reports to AMEX; violated AMEX Rule 320(e) by failing to establish and maintain appropriate polices, systems and procedures of supervision and control, including written supervisory procedures, and failing to establish separate system of follow-up and review to ensure compliance with short interest, short sale and transaction reporting requirements of AMEX.
• The Market Surveillance Department (“MSD”) of FINRA commenced an investigation into Fagenson’s short interest positions following a routine review of AAA (a generic identifier) common stock. The review began after MSD observed a 100,000 share difference in Fagenson’s reported short interest for AAA between November 2003 and December 2003.
• During all relevant times, the AMEX has relied on the accuracy of the short interest reports submitted by member organizations in compiling its own calculation of overall short interest in AMEX-listed securities, which is made available to the marketplace. Market analysts and economists use the publicly available short interest reports as an indicator of market trends.

• An NYSE hearing officer found that from October 2001 through December 2001, Reynolds engaged in outside business activities by soliciting individuals, including firm customers, to participate in private securities transactions away from the firm. Without the prior approval of his member firm employer, Reynolds also mailed to prospective customers sales literature related to the private securities transactions in envelopes bearing the name of his member firm employer and attaching his business card, thus misrepresenting that the private securities transactions were sponsored by his member firm employer. Reynolds also made misstatements to his member-firm employer in order to conceal his outside business activities.   

The Hearing Panel imposed a censure and five-year bar from membership, allied membership, approved person status, and from employment or association with any member or member organization.

An NYSE ARCA Hearing Panel found Story guilty of violating NYSE Arca Options Rules 11.2(b), 6.47(b), 6.69(a), 6.94(a), and 6.46.

• This matter primarily involved an execution on June 14, 2005, when Story, an options broker employed by Student Options LLC, executed a cross transaction on the floor of NYSE Arca Options, which he knew, or should have known was outside of the National Best Bid and Offer. After executing the trade, Story had the execution of the cross transaction reported to his customer even though he knew that the execution of the cross transaction was impermissible because it was outside of the NBBO. 
• Significantly, Story acted to conceal this violative conduct by causing the reporting of the cross transaction to NYSE Arca to be delayed until it appeared that the transaction was properly effected within the National Best Bid or Offer.  In so doing, Story violated NYSE Arca Rule 11.2(b) by engaging in conduct inconsistent with just and equitable principles of trade; violated NYSE Arca Rule 6.47 by failing to follow proper procedures in crossing an order and/or by effecting the transaction outside of the National Best Bid or Offer, and violated NYSE Arca Rule 6.69(a) by failing to report to the Exchange an option transaction immediately after its execution without reasonable justification or excuse.  Additionally, on three occasions, Story violated NYSE Arca Rule 6.94(a) by effecting trade-through transactions outside of the National Best Bid or Offer without a reasonable justification, and violated NYSE Arca Rule 6.46(a) by failing to use due diligence to execute orders at the best prices available. Story also violated NYSE Arca Rule 6.94(a) by, on one occasion, failing to fill a Satisfaction Order after having effected a trade-through transaction.

NYSE ARCA imposed a penalty of a censure and $10,000 fine.