Monthly Disciplinary Actions - August 2009

• An NYSE Hearing Officer found that from January 2003 through May 2005, Bear Wagner Specialists, L.L.C., Bear Hunter Structured Products, L.L.C., and HBH Specialists, L.L.C. (the “Bear Firms”) violated Amex Rule 155, made applicable to options through Amex Rule 950, by failing to give precedence to orders entrusted to them as agent in multiple options before executing at same price purchases or sales in multiple options for accounts in which they had interest, and from March 2005 through February 2007, the Bear Firms violated Amex Rule 155 by failing to give precedence to orders entrusted to them as agent in multiple equities before executing at same price purchases or sales in multiple equities for accounts in which they had interest.  In addition, on various occasions between September 2005 through February 2008, the Bear Firms committed various order handling violations by failing to honor the published quotation, failing to execute orders on presentment or executing orders at prices inferior to the published quoted market, failing to execute market orders in a timely manner, failing to immediately display customer equity limit orders that would improve the specialist’s bid or offer, failing to post closing prints within 180 seconds of the close in product for which they specialized, failing to issue required ITS pre-opening notifications and/or setting an opening price range that straddled previous day’s closing price, disseminating a quote that locked or crossed the quoted market of another ITS participant and then failing to promptly unlock or uncross the ITS participant’s market, and failing to pair off remaining imbalances within ten seconds in order to re-enable Auto-Ex when a buy or sell imbalance had locked or crossed the AEMI Book and Auto-Ex had been disabled.
  

The NYSE imposed a penalty of a censure and a joint and several fine of $125,000.  The respondents consented to the penalties.

• An NYSE Amex hearing officer found that from March 1, 2004 through Nov. 30, 2004, Dec. 1, 2004 through Feb. 28, 2005, and March 1, 2005 through May 31, 2005 (collectively, the “Relevant Periods”), on certain occasions, CTC violated its agency obligations by failing to give precedence to options orders entrusted to it.  Orders were transmitted to the Floor of the Amex electronically through the Amex Options Display Book (“AODB”) electronic options trading platform, and entrusted to CTC as agent.  As described more fully below, on certain occasions during the Relevant Periods, CTC executed transactions in an option product of which it was registered or for accounts in which it had an interest before executing at the same price any purchase or sale in the same option product for accounts in which it was entrusted as agent.

NYSE Amex imposed a penalty of a censure and $12,000 fine.  CTC, LLC consented to the penalty.

• An NYSE hearing officer found that on five occasions from January 2005 through December 2006, J.P. Morgan violated NYSE Rule 92(a) by entering proprietary trades ahead of or alongside customer orders without obtaining customer permission or without a trading exception in NYSE Rule 92(b) being available.  On four occasions during the same period, the Firm violated NYSE Rule 401 by failing to document customer consent to trade ahead of or alongside customers’ orders.
  
• In addition, from 2006 through 2008, the Firm violated NYSE Rules 132.30, 134(d)(v), and 411(a) with respect to its handling and reporting of certain error transactions and erroneous reports in that it failed to rescind such erroneous reports, and instead honored the erroneous reports, using the Firm’s error account, though the trades were not related to bona fide errors.  During this same period, the Firm violated NYSE Rule 123C by entering and cancelling Market-on-Close (“MOC”) and Limit-on-Close (“LOC”) orders after the prescribed cut-off times.  It also executed a purchase and sale of securities that involved no beneficial change in ownership, thereby violating NYSE Rule 476(a)(8).  In addition, the Firm filed inaccurate DPTRs with the NYSE in violation of NYSE Rule 476(a)(10).  Finally, J.P. Morgan violated NYSE Rule 342 by failing to have appropriate procedures for supervision and control of its activities to ensure compliance with securities laws and regulations, and by failing to have adequate systems of follow-up and review to determine that it exercised its supervisory responsibilities properly, with respect to compliance with NYSE Rules 92, 134(d), 411(a), and 476(a)(10).

The NYSE imposed a penalty of a censure and $175,000 fine.  J.P. Morgan consented to the penalty.