News Releases

“The New York Stock Exchange accepts and acknowledges the SEC’s criticisms,” said Richard G. Ketchum, chief regulatory officer of the NYSE since March 8, 2004. “Our board and entire organization are committed to take whatever additional steps are necessary, including carrying out the undertakings contained in the settlement agreement, to meet our surveillance and enforcement obligations. Specialist firms have changed, as have we.

“Major strides have been taken to enhance the Exchange’s regulatory program and investor protection.  Staff and technology resources have been increased.  New heads of the Market Surveillance, Member Firm Regulation and Enforcement divisions were appointed.  A new department within Market Surveillance was created to analyze surveillances and propose new or modified surveillances.  New regulatory technology has been installed to establish better controls and accountability on the Floor.  In particular, the ‘DOT Priority’ application prevents specialists from trading ahead of customers unless they provide an explanation that is reviewed by NYSE Regulation.  To further protect investors, we have proposed to the SEC that when a specialist has completed a trade with the crowd for his own account but not yet reported it and an incoming customer order appears, the specialist must yield to the customer order.  And in creating the Hybrid MarketSM, NYSE Regulation is working hand-in-hand with the NYSE technology team to assure that they program in regulatory quality controls right along with trading functionality.

“Our new governance structure, approved by the SEC on December 17, 2003, provides numerous safeguards to ensure that NYSE Regulation is insulated from influence of Exchange members, member firms, and listed companies. We are independent from the business-side in our decision-making.  This new structure is working," said Ketchum.

Marshall N. Carter, chairman of the NYSE board of directors and past chairman of the board’s Regulatory Oversight Committee, said, “The Board of Directors is committed to providing the guidance and resources necessary to ensure that NYSE Regulation carries out its program with the highest standards of ethics and integrity. A vigorous and independent regulatory program is essential to the New York Stock Exchange. We are pleased with the progress that has been made so far and we will continue to enhance investor protection.”

Separately, NYSE Regulation announced the issuance of charges against 17 former specialists for alleged securities fraud violations. The charges, which were issued by the Enforcement division, were the result of investigations conducted in conjunction with the United States Attorney’s Office for the Southern District of New York and the U.S. Securities and Exchange Commission’s Northeast Regional Office. 

The charging document alleges that the 17 former specialists violated their fundamental obligation to prioritize public-customers’ orders over the proprietary interests of the specialist firms for whom they were employed. Specialists have a general duty to pair off executable public customer or “agency” buy and sell orders entrusted to them. Instead, the specialists used their firms' proprietary accounts to trade with customer orders at better prices for the firm when those orders should have been matched with other customer orders. The illegal conduct engaged in by the specialists, namely interpositioning and trading ahead of customer orders, resulted in public-customer orders being disadvantaged and a riskless profit for their firms' dealer accounts. These activities resulted in millions of dollars in customer harm and were the subject of disciplinary actions against the Exchange’s seven specialist firms in March and July 2004 that resulted in penalties and disgorgement totaling approximately $247 million.

Specifically, the charges levied by the Exchange against the specialists include Section 10(b) of the Securities Act of 1934 and Rule 10b-5, promulgated thereunder, as well as NYSE Rules 92, 104, 123B, 401 and 476(a)(5)(6) and (7).

The former specialists charged are David Finnerty, Donald Foley, Scott Hunt, and Thomas Murphy, previously of Fleet Specialist, Inc. (now known as Bank of America Specialist, Inc.); Kevin Fee and Frank Delaney, formerly of Bear Wagner Specialist LLC; Todd Christie, Robert Johnson, and Patrick Murphy, previously of Spear Leeds & Kellogg LLC; Frank DeBoer, formerly of LaBranche & Co, Inc.; and Patrick McGagh, Joseph Bongiorno, Michael Hayward, Warren Turk, Gerald Hayes, Robert Scavone and Richard Volpe, formerly of Van der Moolen Specialists USA, Inc.

Three former specialists, Robert Luckow and James Parolisi, previously of Spear, Leeds & Kellogg; and Michael Stern, formerly of Van der Moolen, were earlier censured and permanently barred by the Exchange for their failure to appear and testify in connection with NYSE Regulation’s investigations into whether they illegally traded ahead of public-customer orders. NYSE Regulation worked cooperatively in this matter with the U.S. Department of Justice and the U.S. Securities and Exchange Commission. The Exchange acknowledges their substantial support and assistance.

About NYSE Regulation

On December 17, 2003, the SEC approved a new governance structure for the NYSE.   Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm.  A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee.  As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.

NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws.  Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange.  These firms service 92 million customer accounts, or 90 percent of the total public customer accounts handled by broker-dealers, with total assets of over $3 trillion.  They operate from 19,000 branch offices around the world and employ 146,000 registered personnel.  Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation and Enforcement and Listed Company Compliance.