SEC Making a Statement with NYSE Fine

Penalty for oversight violations is agency's first shot fired since publication of the book 'Flash Boys.'

The New York Stock Exchange’s (NYSE's) $4.5 million penalty for oversight violations represents the Securities and Exchange Commission’s (SEC's) first salvo since Michael Lewis reignited scrutiny of market structure.

NYSE, which was bought by IntercontinentalExchange Group Inc. (ICE) last year, agreed to settle allegations that it failed to formulate or ignored rules governing everything from how traders connect computers to when prices are disseminated to floor brokers. It’s only the fifth time the SEC has imposed a monetary punishment on a U.S. exchange.

In another example cited by the SEC, the NYSE exchanges used an error account maintained at Archipelago Securities LLC to trade out of securities without having appropriate rules. Archipelago maintains the error account to trade securities that it acquires when computer malfunctions require it to buy or sell stock to maintain an orderly market.

In one instance, on Jan. 11, 2010, a testing error led ArcaSec to acquire erroneous positions with a total value of more than $4 billion, ultimately suffering a net loss of $1.2 million.

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