NYSE Regulation Inc. announced today that it has censured and fined seven member organizations a total of $US2.8 million for multiple trading violations, including failure to honor firm quote obligations. NYSE Regulation also censured and fined the seven specialist firms for their lack of written supervisory procedures relating to the firm quote rule.

Under the firm quote rule, NYSE specialists are generally required to execute buy or sell orders that are presented to them at prices that are at least as favourable as the NYSE’s published bid or offer at the time the orders enter the exchange’s electronic display book, NYSER explains. On multiple occasions over a four-year period from 2003 through 2006, however, marketable orders did not receive the price of the published quote in effect at the time the order became viewable on the exchange’s electronic display book.

Similarly, the specialist firms failed to honor Intermarket Trading System commitments to buy or sell, it notes. On multiple occasions during the relevant period, the specialist firms received ITS commitments from another market, yet the orders were not executed at the NYSE’s published quotation before the commitment expired.

The specialist firms also failed to immediately display eligible limit orders, and improperly executed short sales on minus, or zero-minus ticks, it adds. Additionally, the firms lacked written supervisory procedures specifically relating to the Firm Quote Rule during the period from January 2003 through August 2005.

“It is critically important for firms conducting business on the floor of the New York Stock Exchange to honor the publicly displayed price quotes in the course of buying and selling,” said Susan Merrill, NYSE Regulation chief of enforcement. “These commitments are essential elements of the rules that govern trading and are codified in the NYSE Rules and federal securities regulations.”

The disciplinary actions against the seven member firms arose as a result of surveillances conducted by NYSE Regulation’s Market Surveillance division.

Spear, Leeds & Kellogg Specialists LLC and LaBranche & Co. LLC are each fined $US600,000, Bear Wagner Specialists LLC is fined $US550,000, Banc of America Specialists Inc.’s fine is $US500,000, Van der Moolen Specialists USA LLC must pay $US400,000, and both Kellogg Specialist Group LLC and SIG Specialists Inc. are paying $US75,000.

The regulator noted that these violations occurred prior to the launch of Hybrid Market trading system enhancements that significantly limit the possibility of similar violations from occurring due to automatic execution and safeguards embedded into the Display Book.

In reaching these settlements, NYSE Regulation took into consideration that the seven specialist firms assisted the NYSE by proposing enhancements and protective measures to the NYSE’s systems and technology, and that the activity described herein did not appear to have been undertaken with the intent to benefit the specialist firms. In agreeing to settle with NYSE Regulation, the specialist firms neither admitted nor denied the charges.