The U.S. Securities and Exchange Commissionhas settled an enforcement action against the Boston Stock Exchange and its former president for failing to enforce its rules against front running.

According to the SEC’s order, from 1999 to 2004, the exchange, and its former president, James Crofwell, failed to enforce exchange rules that prohibited its specialist firms from trading securities for their own benefit at the expense of their customers. The order finds that the exchange failed to conduct adequate surveillance to detect and prevent violations of the customer priority rules. It also finds that Crofwell knew that the procedures then in effect were inadequate, but failed to devote resources necessary to correct the problem.

Without admitting or denying the findings in the commission’s order, the exchange and Crofwell each consented to a censure and an order to cease and desist from future violations. The BSE also agreed to comply with specific undertakings contained in the order, including expenditure of at least US$1 million to retain a third-party consultant to conduct comprehensive audits of its surveillance, examination, investigation and disciplinary programs relating to trading, and implementation of the consultant’s recommendations.

Crofwell also consented, subject to court approval, to entry of a final judgment in a related settled civil action filed in the U.S. District Court for the District of Massachusetts, ordering him to pay a US$75,000 civil penalty for aiding and abetting the exchange’s violations.

“As today’s action shows, the commission continues to be vigilant in seeking to ensure that self-regulatory organizations fulfill their obligations as regulators,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, in a release. “Self-regulatory organizations must expend the resources necessary to vigorously enforce their own rules and to detect and prevent misconduct by their member firms.”