The Telegraph
Since 1st March, 1999
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Big Board flaunts its regulatory system

Scottsdale, Oct. 18 (Reuters): A New York Stock Exchange executive said on Friday that the recent sanctioning of five of its top specialist firms shows the effectiveness of the exchange’s self-regulation, despite recent criticism of the Big Board’s ability to police itself.

Catherine Kinney, a co-president and co-chief operating officer of the NYSE, said in a speech to the Security Traders Association in Scottsdale that the actions directed at the trading practices of its specialists — auctioneers who match buyers and sellers of specific NYSE stocks on the exchange’s floor — illustrated that the stock exchange’s regulatory enforcement is “vigorous.”

Kinney and Robert Britz, the NYSE’s other co-president and co-chief operating officer, were the top deputies of ousted NYSE chairman Richard Grasso, who stepped down amid a furore over his $187.5 million pay package.

On Thursday, the NYSE said it had notified five large specialist firms that they will face disciplinary action for improper trading.

The move against the specialists “was difficult for everyone at 11 Wall Street,” Kinney said, speaking of the 211-year-old exchange’s headquarters at Broad and Wall streets in lower Manhattan.

The specialists have come under sharp criticism in recent weeks, with market participants accusing them of not trading in the interests of their clients. Earlier this week, Fidelity Investments — the largest US mutual fund company — called for the exchange to do away with its reliance on specialists in its wide-reaching reform efforts.

Part of what is at stake as the exchange undergoes change is its ability to regulate itself. Interim chairman John Reed said in congressional testimony on Thursday that he is reluctant to split the Big Board’s regulatory arm from its function as a marketplace.

On Friday, Annette Nazareth, director of SEC’s division of market regulation, told reporters that the commission “would like to see what the NYSE comes back with,” but added that neither she nor the SEC was “at the point of saying that the (self-regulatory organization) function doesn’t work.”

In dealing with its specialists, the Big Board this week said it would install new software to prevent specialists from entering orders ahead of customers, a procedure that prevents clients from obtaining the best possible price.

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