NYSE Fined $5 Million to Settle Improper Information Leakage of SEC Market Data

SEC brings its first financial penalty against a U.S. exchange as the NYSE settled the improper access to market data case for $ 5 million, last week. SEC enforcement director Robert Khuzami said, “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.” SEC had alleged in its action that since 2008, some NYSE customers had an early look at trade order information with “an improper head start” ranging from single-digit milliseconds to multiple seconds.

NYSE issued a statement saying that the SEC was not alleging “any intentional misconduct or that the NYSE data delays caused any investor harm.” NYSE erunext Chief Executive Duncan Niederauer said, “NYSE is pleased to have this matter resolved, and believes that the settlement is in the best interest of its shareholders, clients and employees.”

SEC had alleged that NYSE, run by NYSE Euronext, had violated the Regulation National Market System, or REG NMS, adopted in 2005 to ensure and promote fair access to market data. SEC said that NYSE violated the rule from 2008 by sending data through two of its proprietary feeds before sending out consolidated feeds.

Daniel Hawke, chief of the SEC enforcement division’s market abuse unit said “The violations at NYSE may have been technological, but not technical … Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function.”

However, the SEC did not allege that any investors received an unfair competitive edge due to such violations of the NMS regulation by NYSE.

Democratic Senator Carl Levin lauded the actions of SEC and said that the action by SEC “affirms what many have believed for years, which our U.S. capital markets are threatened by those with the resources and access to get split second advantages over the rest of us.”