NYSE Probes Specialists For Possible `Front-Running'
Thursday, April 17, 2003 02:16 AM ET Printer-friendly version
NEW YORK -- The New York Stock Exchange, in a probe of possible abuses of a central part of its trading system, is examining whether at least two of the largest floor-trading firms may have engaged in "front-running," or trading ahead of clients, according to people familiar with the matter told The Wall Street Journal.
The world's leading stock exchange in recent months has been seeking information from "specialist" firms about whether their traders may have mishandled customer orders, the people said. Specifically, the NYSE is examining whether the specialist firms, whose floor traders carry out clients' transactions, have offered inferior prices to investors who send orders to buy or sell shares through the exchange's main trading system, the people said.
The inquiry is focused on at least two of Wall Street's biggest names: FleetBoston Financial Corp.'s (FBF, news) Fleet Specialist subsidiary and LaBranche & Co. (LAB, news). The NYSE has seven specialist firms.
The probe already has had an impact on the NYSE's trading floor. On Monday, Fleet Specialist's chief executive, Christopher Quick - who also is an NYSE director - suspended David Finnerty, who handles Fleet's trading for General Electric Co. (GE, news) stock. The suspension stemmed from an internal Fleet investigation prompted by the broader NYSE probe. Fleet is examining whether the 37-year-old Mr. Finnerty traded ahead of customer orders in GE, people familiar with the inquiry said. GE, with $276.9 billion in stock outstanding, has the world's biggest stock-market capitalization. It's not clear how much money would have been involved in any alleged front-running, or how many of the specialists' clients might have been affected.
"This is an internal Fleet matter that we're currently handling," said James Mahoney, a FleetBoston spokesman. An NYSE spokesman, citing Big Board policy, would neither confirm nor deny that any probe was taking place. GE declined to comment.
Mr. Finnerty didn't return messages left at his New Jersey home, and Mr. Quick declined to comment beyond FleetBoston's statement. Officials at LaBranche had no comment.
If evidence of wrongdoing emerges, those revelations would be particularly sensitive for the Big Board because such activity could undermine public trust in the auction market, the central way shares are traded on the exchange.
Wall Street Journal Staff Reporters Kate Kelly And Susanne Craig contributed to this report.
Dow Jones Newswires
04-17-03 0216ET
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