In a stunning revelation, the Securities and Exchange Commission (SEC) charged the New York Stock Exchange (NYSE) with giving some customers “an improper head start” on trading information, in some cases by a matter of seconds and sufficient time for sophisticated investors to profit.
The NYSE and parent company NYSE Euronext are paying a $5 million fine to settle the charges, admitting it sent market data to proprietary customers before issuing it via consolidated feeds that broadly distribute trade and quote data to the public. The SEC said the exchange failed to monitor the speed of its proprietary feeds to ensure information reached those customers at the same moment it went onto consolidated feeds to the public.
It marks the first-ever SEC financial penalty against an exchange.
“Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors,” said Robert Khuzami, director of the SEC’s division of enforcement, in a prepared statement. “That is why SEC rules mandate that exchanges give the public fair access to basic market data. Compliance with these rules is especially important given exchanges’ for-profit business interests.”
The two NYSE proprietary data feeds at issue were Open Book Ultra, which sends real-time data about NYSE’s entire order book, and PDP Quotes, which contains NYSE’s quote for each security.
An internal NYSE system architecture gave one of the data feeds a faster path to customers than the path used to send data to the consolidated feed, the SEC stated. The disparities in data release times ranged from single-digit milliseconds to multiple seconds.
Fairfield County is home to a large number of hedge funds and broker dealers, as well as FactSet Research Systems Inc., a Norwalk company that provides various financial data and analysis feeds, and Interactive Brokers Group Inc., which operates online trading platforms.
