NYSE Traders Under Scrutiny

by Glen Shapiro, LawAndTax-News.com, New York

09 February 2005

According to a New York Times report, up to 20 individual NYSE traders are currently being investigated by the Justice Department over allegations that they employed illegal trading practices.

An unnamed source close to the investigation told the newspaper that the probe is an extension of the investigation undertaken last year by the New York Stock Exchange and the Securities and Exchange Commission into five specialist firms.

The five firms - Bear Wagner Specialists, Fleet Specialist Inc., LaBranche & Co., Van der Moolen Specialists, and Spear, Leeds & Kellog - all work to bring buyers and sellers together at a mutually beneficial price, in addition to buying and selling the shares that they manage themselves, in order to help meet supply or demand where necessary.

However, according to the SEC, the firms in question violated US securities law by executing their own orders ahead of those placed by their clients, thus depriving the latter of the best prices.

Although none of the specialist firms in question admitted or denied wrongdoing upon reaching a settlement agreement with SEC in March 2004, they all agreed to pay $241.8 million in order to bring the matter to an end.

Of this, $154 million went to compensate customers disadvantaged by the trading activities, whilst the remainder was paid to the NYSE and SEC in fines.

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