The New York Stock Exchange and two affiliates agreed Tuesday to pay a total $14 million penalty to settle charges by the Securities and Exchange Commission that they mishandled several market disruptions and broke rules regarding handling and recovering from technological problems.
The case involves the first settlement for violations of Regulation Systems Compliance and Integrity, which was adopted in December 2014 to ensure that key market participants have policies and procedures to protect their technology systems.
The exchanges agreed to the settlement without admitting or denying the charges.
An SEC order instituting the proceedings, which also covers affiliates NYSE American LLC and NYSE Arca Inc., addresses several trading halts in 2015.
On July 8, 2015, NYSE and NYSE American suspended intraday trading for more than three hours after experiencing escalating connectivity problems between their trading units and communications gateways that prevented many customers from being able to consistently access quotations. Despite the impairment, the exchanges inaccurately identified the quotations as automated, the order said.
On Aug. 24, 2015, during a period of unusual market volatility that led to trading pauses, NYSE Arca — as the primary listing exchange for more than 85% of exchange-traded funds and related products — applied price collars without a rule in effect to permit them, causing slower resolution of order imbalances, according to the SEC order.
On March 31, 2015, NYSE Arca briefly implemented a marketwide regulatory halt that stopped all trading of 134 NYSE Arca-listed securities on all exchanges, but it could not publish closing auction order imbalance information, the order said.
The SEC also charged NYSE and NYSE American with failing between 2008 and 2015 to properly describe material aspects of the exchanges' interaction on two order types: pegging orders and non-displayed reserve orders.
Steven Peikin, co-director of the SEC's enforcement division, noted in a statement that two NYSE exchanges settled rule-filing violations in 2014, "and now we've found further problems." Violating that previous order "was a significant factor in assessing the civil penalties in this matter," Mr. Peikin said.
In the settlement, the exchanges agreed to certify compliance annually for three years, and to inform the SEC of any systems changes. Senior management must also meet with SEC staff annually to discuss compliance.
