The NYSE today announced plans to discipline five specialist firms for trading ahead of clients and coming between orders that could have crossed without specialist intervention, a practice known as interpositioning. The action comes after the exchange reviewed trades over a three-year period ended Dec. 31. At a news conference today, Catherine Kinney, NYSE president and co-COO, said about 2 billion trades were being investigated, equal to about one day's exchange volume.
NYSE officials did not name the five firms but said in a press release they planned to seek "substantial" fines. David Doherty, NYSE executive vice president of enforcement, would not elaborate on the fines and also said he was not sure when the investigation would be completed. "We are certainly going to have to take a hard look at individuals," he said at the news conference.
Separately, specialist firms Van der Moolen Specialists USA and LaBranche & Co. were contacted by NYSE enforcement officials about the disciplinary action, according to both firms. Van der Moolen officials said NYSE officials claim the firm lost a total of $35 million for its customers because of the improper trading. The firm "questioned the accuracy of the NYSE's data," according to a Van der Moolen news release. Van der Moolen executives could not be reached for comment.
LaBranche said in its own news release that the NYSE indicated on Sept. 26 that alleged improper trading amounted to roughly $5 million in trading revenue, but revised that on Oct. 15 to an amount "substantially higher" than the $5 million but less than 5% of the firm's total trading revenue during the three-year period. That firm "believes that the amounts in question are substantially less than both the amounts indicated by the NYSE on Sept. 26 and in its more recent study," the company said. LaBranche officials were not available for further comment.