SEC Intensifies Inquiry at NYSE of Trading Firms
Monday September 22, 4:11 am ET
As the New York Stock Exchange (News - Websites) attempts to stabilize itself with the appointment of John S. Reed, former co-head of Citigroup Inc., as its interim chief, federal regulators are ramping up an investigation into alleged illegal practices on the exchange's trading floor, Monday's Wall Street Journal reported.
The Big Board yesterday reached out to Mr. Reed, a lion of the financial world, to run the exchange on an interim basis in the wake of former Chairman Dick Grasso's tumultuous departure last Wednesday. Mr. Reed, who retired three years ago after a distinguished career in commercial banking, is broadly considered a shrewd choice by the NYSE board of directors, many of whom have come under fire for approving Mr. Grasso's lavish pay.
Securities and Exchange Commission (News - Websites) Chairman William Donaldson approved the choice, and Mr. Reed, keenly aware of how Mr. Grasso's $187.5 million retirement-related package sparked calls for his departure, said he would take the job for $1, no matter how long he was in place.
The 64-year-old Mr. Reed joins the NYSE at a particularly vulnerable time for the exchange. He faces a corporate governance overhaul, a board that is being criticized for its role in the pay furor, as well as the widening investigation into trading practices. The SEC for months has been overseeing a Big Board probe of trading practices of its five biggest floor-trading firms, an inquiry that raises questions about the exchange's 211-year-old open-outcry trading model.
The NYSE trading investigation is a "huge" priority for the SEC and is being worked on full-time by a team from the agency's division of compliance, inspections and examinations, a person familiar with the matter says. The agency is trying to assess the full extent of the violations before determining what action -- if any -- it should take.
The broadening inquiry into trading practices by so-called specialists comes at a time when the NYSE's self-regulatory model is under intensifying scrutiny. Specialists are individual floor traders whose job is to referee the buying and selling of specific NYSE-listed stocks, making them the core component of the exchange's open-outcry stock-trading system. Their job is to hold live auctions for stock among human brokers, and to use their own firms' stock to make trades happen if public investors aren't willing to buy or sell. Any evidence of widespread wrongdoing among the specialists could cement the growing belief that a marketplace should operate separately from the regulators that oversee it.
Spokespeople for the NYSE and the SEC wouldn't comment on the expansion of the probe.
Wall Street Journal Staff Reporters Kate Kelly and Susanne Craig in New York and Deborah Solomon in Washington contributed to this report. |
