Chicago Stock Exchange Agrees to Pay $300,000 for Trade Errors
Chicago Stock Exchange Inc. agreed to pay $300,000 to settle U.S. regulatory claims that it failed to comply with rules designed to ensure all investors get the best prices.
Some brokers were able to abuse a component of the exchange’s order-matching system to obtain better prices at the expense of other investors, according to an order from the Securities and Exchange Commission made public today. One broker manipulated the system to advantage hedge-fund clients at the expense of other traders, the order said.
The exchange, which has averaged 0.4 percent of daily U.S. equity volume in 2013, didn’t implement policies designed to detect and prevent such misconduct from 2006 to 2010, the SEC said. The exchange also didn’t implement surveillance procedures to monitor brokers’ use of its system from 2006 to 2008, the SEC said.
“The validated cross system permitted institutional brokers to execute transactions at stale prices within previously captured NBBO,” or national best bid and offer, the SEC said in the order. “The system was thus not reasonably designed to prevent validated cross trades from trading through the NBBO prevailing at the time of execution.”
A phone message seeking comment from Chicago Stock Exchange Chief Executive Officer David A. Herron was not immediately returned.
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